Why a new IMF program is important for Argentina

Striking a debt deal with the IMF would serve two main purposes for Argentina, a rating analyst said.

The cash-strapped country is scheduled to repay the multilateral around US$18bn next year, with about US$3bn of this falling due in March.

Argentine officials are due to travel to the US this weekend to hold talks with the multilateral over a new program. The goal of negotiations is revamping a debt pile of around US$45bn.

Any deal would require agreement on a macroeconomic plan, which the Peronist government has previously said it would submit to congress this year, where it will have to negotiate with a stronger opposition after the ruling coalition lost seats in the November midterms. 

A new program would be “important for resolving the debt repayment issue and giving signals to the market about what it will do in terms of macroeconomics,” Argentine sovereign rating analyst at Moody’s, Gabriel Torres, said during a press conference in response to a question from BNamericas. 

Adhering to fiscal and monetary policies established in any eventual plan would generate uplift for the country’s credit profile.

“The step that is more important [than having a plan], I would say, is hitting the goals and sticking to it …” Torres said. 

“Any initial level of confidence would last a short amount of time if doubts over whether they will be maintained start to emerge; if there are no doubts – of if they comply with everything – this would clearly be something very positive.”

Argentina's government will likely enter talks with one eye on the 2023 presidential election, gauging the potential impact on voters of any belt-tightening measures. Center-left President Alberto Fernández has previously said the focus would be on boosting debt sustainability via stronger growth rather than sharp fiscal adjustment.  

Over the longer term, for Argentina to finally steady the ship after multiple crises, keeping policy in place throughout political cycles is key, Torres said. “There has to be continuity.” 

The alternative to a new program – entering into arrears with the IMF – would close the financing taps for Argentina at other multilateral lenders and rattle bondholders. 

In terms of private sector debt, from 2024 Argentina will need to refinance large chunks, for which it would need to regain access to international debt markets.

Key macroeconomic challenges are narrowing the fiscal deficit, taming inflation, bolstering central bank reserves and closing the wide gap between the official and parallel exchange rates.

Improving the macroeconomic situation, credibility and the regulatory landscape would help trim country risk and, in turn, ease financing conditions and spur the inward flow of investment.