IMF talks seen as another opportunity for Argentina to launch economic plan

Argentine-IMF debt negotiations may create space for the Peronist government to launch a plan to help tackle the country’s macroeconomic imbalances – but political risks hover.

Argentina received around US$44bn of a US$57bn financing package from the multilateral arranged under the previous administration. Talks are underway over a new IMF program to ease the debt repayment burden on the cash-strapped country. 

In terms of money owed to private creditors, in 2020 a restructuring deal was reached. But the incumbent government has not used the respite period obtained to implement an economic plan to help address the macroeconomic challenges, Michael Heydt, a senior VP at rating agency DBRS Morningstar, told BNamericas. 

“They’re still locked out of the market; they still cannot issue internationally,” said Heydt. “So, that’s why I say the IMF negotiations may be an opportunity. This does give them the opportunity to implement a plan in the context of an IMF deal.”

Any IMF deal – which would likely come next year – would require economic policy commitments on the part of Argentina. Political risk is the big unknown in the equation. 

President Alberto Fernández and his economy minister Martín Guzmán – seen as relatively moderate – will need to reconcile the policy demands of the IMF with the political demands of the ruling Frente de Todos coalition, Heydt said.

Tensions have risen within the coalition after voters punished it at the September 12 midterm primary elections. Influential vice president Cristina Fernández de Kirchner (CFK) expressed her frustration days later by forcing changes within the top ranks of government. 

In November, where voters will renew 127 of the 257 deputies and 24 of the 72 senators, Frente de Todos risks losing control of one or both houses of congress if the same voting pattern plays out. Post-November, policy trajectory may hinge on how the government fares and whether CFK tightens her grip. 

British research firm Capital Economics said a better showing by Frente de Todos in November may result in CFK stepping back.

“Somewhat paradoxically, then, investors may only breathe a sigh of relief over CFK’s influence if the government fares well in November’s midterm elections. Otherwise, CFK’s ire may intensify and Guzmán’s position could be under threat, which may jeopardise a necessary new IMF deal.”

To help improve economic health, Argentina needs to narrow its fiscal deficit, tame inflation, bolster central bank reserves and close the gap between the official and parallel exchange rates. Beyond measures to steady the ship, reforms to improve the business operating environment would then be required to boost growth prospects, Heydt said.

September’s midterm primary election results indicate center-right Juntos por el Cambio could regain power in 2023 – but much uncertainty persists on the road ahead.  

“Despite the hype in the aftermath of the primaries, the result is far from guaranteeing a return of JXC [Juntos por el Cambio] to the executive in 2023,” Jimena Blanco, head of Latin America at risk intelligence company Verisk Maplecroft, said recently.

“If the results are repeated in November, the opposition would have a legislative/controller role to play, but it will need to prove to voters that it can use it to construct a viable alternative for 2023, and not just as a means to obstruct the FTD’s [Frente de Todos’] executive encroachment on other institutions.”

Annual inflation was running at 51.4% in August. The IMF expects growth to rebound 6.4% this year but decelerate in 2022. Argentina’s poverty rate – already high – rose to 42% in the second half of last year, up 1.1 percent points from 1H20.