Economy

IMF suggests creditors must help resolve crisis in Argentina

The fund said the fiscal situation deteriorated and the debt is "unsustainable"

Buenos Aires, capital of Argentina: the country has been mired in financial turmoil. Photo: Shutterstock

20.Feb.2020 16:31 BRT
UPDATED 17:09 BRT

The fund wrapped up a week-long round of talks in Argentina, which were appraised as “very productive”;
President Alberto Fernandez, said on Twitter that he welcomed the IMF’s stance.

The International Monetary Fund (IMF) said that Argentina’s debt was “unsustainable” and creditors would need to make a “meaningful contributors” to help resolve the country’s financial crisis.

“The primary surplus that would be needed to reduce public debt and gross financing needs to levels consistent with manageable rollover risk and satisfactory potential growth is not economically nor politically feasible,” the IMF said in a statement as the fund wrapped up a week-long visit to Argentina. The document added that rising public debts meant the country needs a definitive plan to restore financial sustainability.

The IMF’s position will be welcomed by President Alberto Fernandez’s government, which has argued that it is unable to pay back the debt taken on during the previous administration of Mauricio Macri.

Argentina is battling to restructure its debts to avoid defaulting on around $100 billion in loans and bonds – including to the IMF – after a biting recession, high inflation and a market crash pummeled the country last year. Argentina is looking to wrap up debt negotiations with creditors by the end of March.

In an interview to Wall Street Journal, Sergio Berensztein, a political analyst in Buenos Aires, said that the IMF statement is good news for Fernandez’s government: “It is coherent with the view that the government is now presenting to bondholders that a haircut is inevitable”.

Gabriel Zelpo, director of Buenos Aires economic consultancy Seido, told Reuters that while the stance was not totally unexpected it was generally negative for bondholders and implied potentially tougher negotiations. “It implies a longer period of restructuring and a longer period for returning to the market.”

Deterioration

The IMF said Argentina’s ability to service its debts had deteriorated sharply compared with mid-2019 when it categorized the country’s situation as “sustainable, but not with high probability.” The fund also said meetings with local officials had been “very productive” and that its managing director, Kristalina Georgieva, would meet Argentine economy minister, Martin Guzman at the Group of 20 Finance Ministers summit to discuss “next steps.”

Alberto Fernandez, said on Twitter that he welcomed the IMF’s stance. “If all parties demonstrate a willingness to agree, we can grow again, honor our commitments and put Argentina back on its feet,” he wrote.

The longest tango

Argentina is Latin America’s third-biggest economy, behind Brazil and Mexico, and has a long history of financial instability. In 2001-02 a major crisis saw the country governed by three different presidents in less than one month and then defaulting on about $100 billion in debt. Argentina has received close to 30 IMF aid packages over the past 60 years.

The IMF is very unpopular in Argentina, where many ordinary people blame it for past crises and imposing difficult austerity measures, such as the ones implemented by Macri’s administration.