Government reaches new US$44.5-billion agreement With IMF

Argentina has reached an initial agreement worth US$44.5 billion with the International Monetary Fund in an attempt to stabilise its economy and refinance an existing loan with the Washington-based organisation.

The country pledged to slowly reduce its fiscal deficit and cut the Central Bank’s financing of the Treasury as part of an economic programme agreed with the IMF, Economy Minister Martín Guzmán said Friday. The deal would give Argentina at least a four-and-a-half year grace period before starting to pay back its debt, he said.

“This decision opens a path we can walk, and will allow us to take other steps toward a country with more work,” Guzmán told reporters in Buenos Aires. “We reached the best agreement we could achieve.”

The deal, which still needs to be approved by the country’s Congress and the IMF’s board of directors, would help refinance over US$40 billion of outstanding debt Argentina has with the lender stemming from a record bailout given in 2018. It also provides the first framework of an economic plan under President Alberto Fernández, who has opted to govern through a patchwork of short-term policies.

“We suffered a problem and now we have a solution,” Fernández said in a speech from the Olivos presidential residence on the outskirts of Buenos Aires earlier on Friday. “We will be able to access new financing precisely because this agreement exists.”

In a separate statement, the IMF said that it reached an understanding “on key policies” and that its staff would continue working with government officials in coming weeks to reach a staff-level agreement.

The country’s US$16.1 billion in bonds due 2030 climbed as much as 3 cents, in the biggest one-day jump since the notes were issued in September 2020, before paring gains to 33.2 cents on the dollar, according to Bloomberg data. The nation’s bonds due in 2046 also pared back initial gains, rising 2.2 cents on the day to 30.5 cents on the dollar.

The pledges that sustain the economic agreement will last two-and-a-half years as part of a 10-year financing deal, known as an extended fund facility, Guzmán said, without providing details on the schedule to repay the debt. The agreement doesn’t include a labour reform nor a privatisation of public companies, he added.

Main points of the agreement as per Argentina’s Economy Minister Martín Guzmán

– Argentina will aim for a primary fiscal deficit of 2.5 percent in 2022, 1.9 percent in 2023 and 0.9 percent in 2024
– Plans to reduce Central Bank assistance to the Treasury to one percent of GDP in 2022, 0.6 percent in 2023, and “near zero” in 2024
– Argentina will continue with FX policy currently in place, without large devaluation jumps
– The plan targets US$5 billion in additional foreign reserves in 2022
– Government won’t seek labour reform or privatise public companies
– Argentina will continue with price controls as part of its inflation strategy
– Plan also targets positive real interest rates

Approval of the agreement isn’t guaranteed, especially on the Argentine side. Fernández’s 2022 budget proposal was voted down in December by a new Congress. His ruling Frente de Todos coalition lost its majority in the Senate chamber after being defeated in November’s midterm elections.

If the deal gets approved, Argentina must abide by the budget targets in the programme and pass quarterly reviews with IMF staff in order to keep receiving debt relief. That’s a difficult task with next year’s presidential election, and a ruling coalition divided after its loss in the midterms.

“It’s clearly a step in the right direction,” said Edwin Gutierrez, a portfolio manager at Aberdeen Asset Management in London. “But as with all IMF deals with Argentina, this one is fraught with implementation risk.”