IMF Approves Argentina $44 Billion Deal Already Facing Risks
- IMF board decision allows immediate $9.7 billion disbursement
- First review moved up to mid-May from June after Ukraine shock
The International Monetary Fund approved a $44 billion agreement that allows Argentina to reschedule debt owed to the lender, cementing a deal that’s already facing economic and political challenges.
The IMF’s executive board approved a 30-month extended fund facility at a meeting Friday, allowing for the immediate disbursement of $9.7 billion, the Fund said in a statement.
The IMF and Argentine authorities also agreed to move forward the first review of the program to mid-May from mid-June to allow an earlier assessment of the impact of Russia’s invasion of Ukraine on Argentina’s economy.
The loan aims to provide Argentina with balance of payments and budget support backed by measures designed to strengthen debt sustainability, tackle inflation, boost reserves, address the country’s social and infrastructure gaps and promote inclusive growth, the fund added.
New Money
Argentina to receive funds over the next two and a half years
Source: Argentina, International Monetary Fund
* IMF will review the program every three months
Board members warned that the program is subject to exceptionally high risks, and that Argentina is vulnerable to external shocks and implementation difficulties given a complex social and political situation. The fund’s elevated exposure to Argentina over an extended period creates major financial and reputational risks, they said.
“Risks to the program are exceptionally high and spillovers from the war in Ukraine are already materializing,” Managing Director Kristalina Georgieva said. “In this context, early program recalibration, including the identification and adoption of appropriate measures, as needed, will be critical to achieve the program’s objectives.”
IMF loans are subject to periodic reviews by the institution. Moving forward the first review of the program will allow for an earlier evaluation of how Russia’s invasion of Ukraine is impacting Argentina’s objectives under the loan agreement and the policies needed to meet them, IMF officials said.
The war’s main impact on Argentina likely will be on inflation and the fiscal balance, they said, with the nation’s growth and balance of payments less likely to be affected.
While it isn’t unusual for an IMF loan to be adjusted over time due to shocks, in Argentina’s case the shock has been unfolding right as it was being negotiated and approved, the IMF officials said.
Argentina’s program won’t solve all of the nation’s problems, but it’s realistic, strengthens economic stability and will provide support to begin addressing its most pressing challenges, the officials said.
Breathing Room
The agreement -- Argentina’s 22nd with the IMF since 1958 -- is the latest chapter in the country’s tumultuous relationship with the Washington-based lender after two years of slow negotiations. The program gives the government its first medium-term economic roadmap since President Alberto Fernandez took office in December 2019.
The deal provides Argentina with breathing room by providing funds that will strengthen reserves and allow it to push out payments owed from a 2018 IMF program that failed to stabilize the economy. As part of deal, Fernandez’s government has committed to reducing the government’s primary fiscal deficit, weaning off money printing from the central bank and rebuilding reserves, among several objectives. The program is light on major reforms.
Once the staff-level deal was first announced earlier this month, Argentina moved quickly to send it to congress, where Fernandez had required approval for the agreement to take effect. Lawmakers ultimately backed the IMF’s financing with bipartisan support, but not the economic policies underpinning the deal.
Following the board’s support of the deal, Argentina will receive funds that will allow the country to make a $2.8 billion payment to the IMF on March 31 amid dwindling net reserves. The rest of the disbursements are conditioned to the country passing quarterly reviews of the program by IMF staff who assess if the government is reaching its stated goals.
Challenges Ahead
Political divisions have already emerged for this IMF program. The resistance Fernandez faced in congress from members of his own leftist coalition highlight the challenges the government will face when trying to unwind subsidies in key sectors, such as energy.
Argentina and the IMF: 66 Years, 21 Credit Lines
Meanwhile, economists have voiced doubts that the government can reach its goals of cooling inflation and growing the economy this year. Global energy and food prices, a faster rate of controlled currency devaluations and unwinding subsidies on electric bills all stand to keep inflation elevated this year, among other factors.
Economists at JPMorgan Chase & Co. see inflation in Argentina at 62% this year, well above the goal in the IMF program of 38% to 48%. Argentine consulting firm Equilibra sees the economy contracting this year because the IMF program requires the country to accumulate reserves, which would limit the money it has to pay for imports that support economic activity. The program projects growth this year between 3.5% to 4%.
Keine Kommentare:
Kommentar veröffentlichen