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ARGENTINA | 18-03-2022 21:46

Congress greenlights debt deal – ball now in IMF’s court

US$45-billion agreement signed into law by president; Deal now needs approval by IMF’s Executive Board.

Argentina’s Senate has approved the government’s US$45-billion agreement with the International Monetary Fund, clearing the way for the deal’s final approval by the lender’s board of directors next week.

In a 56-13 vote with three abstentions, senators passed the legislation underpinning Argentina’s latest IMF programme after a marathon session that ended past 11pm in Buenos Aires. 

The plan will now need to be voted on by the IMF’s Executive Board to take effect. A date for the meeting has not yet been set, IMF Spokesman Gerry Rice said Thursday. ​

The vote in Buenos Aires highlighted tensions among the ruling coalition and its supporters, with Vice-President Cristina Fernández de Kirchner – who heads the Senate – absent for much of the proceedings.

Outside the Senate, several hundred people demonstrated throughout the night in a rally called by unions and leftist movements that oppose the restructuring.

Last week, the agreement won the approval of the Chamber of Deputies with a broad consensus between the ruling Frente de Todos coalition and the centre-right opposition front Juntos por el Cambio, a relative rarity in Argentina’s polarised political landscape.

Faced with the spectre of a ruinous payment default if the agreement was not approved, the Senate comfortably greenlit it, despite the Kirchnerite wing of the ruling coalition denouncing the deal.

"It is the responsibility of our government to build certainty in a context of uncertainty," Economic Minister Martín Guzmán, the deal's chief architect, said in defending the package before senators.

Following its approval, President Fernández on Friday promulgated the bill authorising the government to sign an agreement with the Fund into law. 

 

Finalising the deal

A positive vote by the IMF’s board approval, likely to come next week, would finalise the deal after two years of negotiations with technical staff and mark the country’s 22nd agreement with the multilateral lender. 

The plan allows Argentina to refinance upcoming payments owed to the IMF from a record US$57-billion bailout granted in 2018 to the Mauricio Macri administration that failed to stabilise the economy. 

The country received US$44 billion of that amount. Macri's successor in office, President Alberto Fernández, refused to accept the rest and sought to renegotiate repayment terms. 

The timing of the board’s vote will be key to determine whether the country goes into default with the multilateral lender. The country must make payments of about US$2.8 billion by March 22. Once the deal is approved by the board, Argentina will almost immediately receive about US$9.8 billion from the IMF. 

The rest of the disbursements are contingent on Argentina accomplishing targets in the programme that are assessed during quarterly reviews with IMF staff.  

The agreement provides for a series of macroeconomic measures to control Argentina’s chronic and persistent inflation (50.9 percent in 2021, 52.3 percent over last 12 months) and reduce its budget deficit of three percent of GDP last year until it is balanced in 2025. 

Payments of US$19 billion and US$20 billion were due this year – a timeline the government considered impossible.

Argentina is just emerging from three years of economic recession and battling rising inflation and a high poverty rate.

The country recorded a 4.7 percent jump in its consumer price index in February compared to January, with a 7.5 percent rise in the cost of food.

Under the new deal – the 13th that Buenos Aires has signed with the IMF since the return of democracy in 1983 – repayments will be made from 2026 to 2034 after a grace period.

 

Exposed a divide

President Fernández’s unusual step of making the legislature vote on the agreement exposed a divide with opposition lawmakers and within his own left-wing coalition.

Senators from the ruling coalition who voted against it published a letter late Thursday outlining their grievances with the IMF, an institution long vilified by Fernández de Kirchner, the leader of the coalition’s Kirchernite wing. 

The premises of the agreement “make it impossible to ignite economic growth,” the senators wrote in the eight-page letter. Argentines “will suffer the consequences of this pact.” 

The bill was approved in the lower house last week only after lawmakers changed the text to solely vote on the IMF’s financing, but not on the government’s economic policies in the programme. 

Economists have already noted that the projections in the agreement will be tough to meet, even before it’s finalised. Officials are forecasting annual inflation this year to cool between 38 to 48 percent from the current level of 52 percent. But banks, such as JPMorgan Chase & Co, are now forecasting inflation above 60 percent in Argentina this year due to factors including rising global food and commodity prices.  

IMF spokesman Gerry Rice said the aim of the deal was to "reduce persistently high inflation" but warned of the challenges faced by the global economy following Russia's invasion of Ukraine. 

The National Congress building was fenced off ahead of the Senate vote last week, following protests when the lower house approved the bill, with some demonstrators burning rubbish and throwing stones towards the building entrance.

A police officer was struck by a Molotov cocktail and some windows were hit with stones, including those from the office of the Senate president: Fernández de Kirchner.


 

– TIMES/AFP/BLOOMBERG

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