Argentina's new IMF deal pushes default fears down the road

Argentina has sealed a staff-level agreement with the International Monetary Fund (IMF) for a $45 billion program

What Argentina's new IMF deal is and why the country needs it
Photo: REUTERS/Agustin Marcarian/Illustration

Argentina has sealed a staff-level agreement with the International Monetary Fund (IMF) for a $45 billion program, which will push looming debt payments down the road while tying the country to an agreed economic program.

That agreement still needs approval from Argentina‘s Congress and the IMF board.

Why did Argentina need this deal?

Argentina, which has had 22 huge bailouts from the IMF, agreed to a record $57 billion program in 2018 under then-President Mauricio Macri. That deal failed to head off economic crisis and the country slumped into recession with high inflation.

Unable to pay back its debts, the country revamped over $100 billion in bonds with private creditors in 2020 before turning its attention to the over $40 billion outstanding with the IMF.

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The country faces some $17.5 billion of payments under the 2018 agreement this year which it cannot pay. “The agreement was necessary in order not to default with the IMF,” said economist Roberto Geretto of Fundcorp.

What’s the new schedule?

Once fully approved by Congress and the IMF board, the fund is set to make disbursements of the $45 billion over a 2-1/2 year period, much of which will go towards repaying the debt from the 2018 program. Each payment will come after a review.

Those payments from the IMF would be heavily front-loaded, with over three-quarters of it to be handed out in the first six payments of a total 11 planned disbursements, according to the government’s letter of intent to the lender.

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Argentina will have to start making repayments from 2026, which should be completed by 2034.

“This allows extending the terms for the country to carry out reforms, normalize its situation and be able to return to the international capital markets,” said Eugenio Marí, an economist at the Fundación Libertad y Progreso.

What’s in the economic program?

The deal comes with an economic program that includes targets to hit a primary fiscal balance by 2025, rein in inflation currently running at an annual rate of over 50% and reduce central bank financing of the treasury.

Argentina will also have to cut by 0.6% of GDP huge energy subsidies that the government uses to keep bills low. Those subsidies amounted to around $11 billion last year.

The program, progress on which will be reviewed on a quarterly basis, will also include targets to deliver real positive interest rates, bolster foreign currency reserve levels and spur net exports.

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