IMF sees Argentina committed to programme, with downside risks

The International Monetary Fund said Argentine officials reaffirmed the nation’s commitment to its $44 billion programme, although all risks are on the downside as South America’s second-largest economy falls deeper into crisis.

Argentine Economy Minister Silvina Batakis “agreed on the importance of decisive programme implementation,” IMF Managing Director Kristalina Georgieva tweeted Monday after meeting the new minister, who retweeted the comment.

For its part, the Economy Ministry said Batakis laid out the country’s economic challenges to IMF officials in extensive meetings without reference to any discussions about executing on the programme. Batakis also met with US Treasury staff, including David Lipton, senior counsellor to Treasury Secretary Janet Yellen.

It was the IMF’s first major meeting with Argentine officials since Batakis’s predecessor, Martín Guzmán, abruptly resigned July 2, blowing a long-simmering political crisis wide open. Since Guzmán departed, political uncertainty has seen prices soar and the peso plunge in unofficial markets, clouding the outlook for the IMF programme.

While Georgieva showed support for Batakis on Monday, IMF officials on Tuesday raised concerns about Argentina’s economy and the programme.

“All of the risks are really on the downside,” Petya Koeva Brooks, the IMF’s deputy director of the research department, said at a press conference Tuesday. IMF Chief Economist Pierre-Olivier Gourinchas added “the situation in Argentina is quite preoccupying.”

One of Argentina’s last remaining international creditors, the Inter-American Development Bank, shared those concerns. On Monday its leader suggested he won’t approve new funding to the country until the government gets its house in order. Conversely, the World Bank approved a new US$200 million loan to Argentina on the same day.

Batakis has insisted on complying with the agreement Guzmán negotiated and has even imposed a public sector hiring freeze as a fiscal measure. However, she’s also said in separate comments that some targets in the IMF programme will change at each review.

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Given the challenges she faces, some former IMF officials expect that Batakis will be pushed to devalue the peso at a faster pace and align multiple exchange rates in order for the programme to continue.

“Without that, I doubt that the IMF will be willing to continue supporting Argentina – a devaluation and simplification of the exchange system,” said Claudio Loser, an Argentine economist who served as the IMF’s western hemisphere director in the 2000s. “They really will have to do certain things because I have the impression that patience with Argentina is running out.”

Other former policy makers note the political divide in Argentina’s ruling coalition that may undermine Batakis’s ability to stick with the IMF deal. The programme calls for spending cuts, less money printing and building up the central bank’s reserves.

Lefist bloc

Vice President Cristina Fernández de Kirchner and her far-left bloc within the coalition voted against the IMF deal in congress last March. Officials close to Kirchner, who was president from 2007 to 2015, impeded Guzmán’s ability to implement spending cuts too, ultimately leading to his resignation.

Kirchner hasn’t yet said anything about the new minister, raising questions about whether Batakis has any more authority than Guzmán had to comply with the IMF deal.
Those same political divisions in Argentina’s government will weigh heavily over her ability to execute the programme and win concessions from the IMF, former officials say.

“This a political crisis that’s compounding all the deep economic problems that Argentina has,” says Héctor Torres, a former IMF executive board member who represented Argentina. “If I was at the IMF board, I would be watching what they do and say “‘Well, this your mess, it’s not our mess, we’re not triggering this crisis, you’re triggering this crisis because of your political crisis and your lack of competence.’”