IMF defends deal with Argentina to restructure $44.5 billion in debt

The IMF chief has defended his framework deal with Argentina to restructure $44.5 billion in debt after a record bailout in 2018, despite growing criticism over the bailout package for the country’s struggling economy.

Kristalina Georgieva, managing director of the IMF, on Thursday applauded the initial framework of the agreement, the details of which must be finalized and approved by the fund’s board of directors.

It also needs to be ratified by Argentina’s congress, where the opposition made big gains in midterm elections last year, and divisions within the governing coalition recently emerged after a prominent figure resigned. crucial to protest against the agreement.

“We are convinced that this is a pragmatic program,” Georgieva told reporters. “It will help Argentina deal with the most important structural problems.”

The deal comes as the country grapples with a struggling economy plagued by runaway inflation, pressures on its exchange rate and dwindling dollar reserves. If the country’s congress agrees to ratify the latest IMF agreement, it will be the 22nd in six decades.

Announced last week, the deal follows nearly 19 months of fruitless talks and outlines a plan for Argentina to gradually reduce its primary budget deficit from 2.5% of gross domestic product this year to 0.9% in 2024.

It also involves a proposal to raise real interest rates, which are currently strongly negative, encourage investment in local bond markets and reduce distortions in the economy.

No spending cuts were announced as part of the agreement in principle presented by the Argentine Ministry of Finance. Instead, the state would play “a moderately expansionary role”, said Finance Minister and IMF chief negotiator Martín Guzmán.

Critics say the program’s apparent reliance on growth, rather than cutting spending to improve public finances, raises concerns about its sustainability.

Under current terms, Argentina has a grace period of at least 4.5 years before debt repayment begins.

“We also recognize the limits of what can be done over the next few years,” Georgieva said Thursday.

“We had to calibrate the program to be feasible,” she said. “Our main objective is to get Argentina out of this very dangerous path of high inflation.”

Georgieva added that the IMF had learned from its previous $57 billion bailout of Argentina in 2018, saying one of the takeaways was “the importance of realistic expectations: don’t just your baseline, because things could change. . . worse”.

The earlier arrangement was “too fragile” to succeed, concluded an internal IMF report published in December.

The IMF also admitted that it had accepted overly optimistic government projections and that the original deal could have benefited from capital controls and debt restructuring from private creditors.

A total of $44 billion of the agreed $57 billion was disbursed by the time Mauricio Macri, then pro-investment chairman, was ousted in December 2019. But the deal was quickly derailed and canceled by the new Peronist government of President Alberto Fernández in July 2020.

Left-wing Peronists have always strongly criticized the IMF’s decision to grant such a large sum to Argentina, with most repayments falling in 2022 and 2023. They also argued that the loan financed capital flight and was mainly intended to help Macri’s failed repayment. election campaign.

Fernández, who visited Moscow this week as part of a diplomatic tour, said on Thursday his government wanted to free Argentina from the “grip” of its relationship with the IMF and Washington.

“I am sure that Argentina must stop being so dependent on the fund and the United States and must open up to other places, and that is where it seems to me that Russia has a very special place. important”, declared the president during his lunch meeting with Vladimir Putin.

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