Government to request Extended Fund Facility programme from IMF

Argentina will ask the International Monetary Fund for an Extended Fund Facility programme, a plan that requires committing to significant economic reforms, as it seeks to delay paying the US$44 billion that it owes to the multilateral organisation, Economy Minister Martín Guzmán said this week.

The government began formal talks with the IMF this week after a mission led by Western Hemisphere Department Deputy Director Julie Kozack arrived in Buenos Aires on Tuesday.

An Extended Fund Facility programme, or EFF, would give the country at least a four-and-a-half year grace period to start paying its debt back once the programme is approved, Guzmán said.

An EFF typically requires countries to make deep, structural economic changes, according to the IMF’s guidelines. Its adoption follows an incipient shift toward a more orthodox policy path by the ruling coalition in its first year of government after boosting spending and turning to money-printing by the central bank to fund its growing deficit amid lack of access to global markets.

“IMF staff and the Argentine government consider that under current circumstances that type of program is the best alternative available,” Guzmán told reporters Monday at the Economy Ministry. “The base case scenario is to get funds to repay interests and capital” for the existing programme.

He declined to say if the government will ask for fresh funds as part of the new programme.

The country, which restructured US$65 billion of overseas debt with private creditors two months ago, had been looking to delay the repayment of the IMF loan amid a steep peso devaluation and a three-year economic contraction.

While an EFF facility would give Argentina longer time than other lending arrangements for such repayment, it would also mean embarking on a set of structural economic reforms, something President Alberto Fernández has so far shied away from due to their likely social and political cost.

Even with the private debt restructured, Fernández’s government has struggled to build credibility with investors. His administration has dramatically increased money printing, raising concerns about higher inflation next year, while tightening capital controls, labor restrictions and releasing a budget plan widely viewed by economists as unrealistic. A new IMF programme requiring major reforms would likely help boost market confidence in Argentina.

“A shift in negotiating leverage in the IMF’s favor is hard to ignore,” said Walter Stoeppelwerth, the chief investment officer at Portfolio Personal Inversiones in Buenos Aires. “The big meal is the social security adjustment formula. The other reforms would be dessert by comparison.”

The country’s prior program with the IMF, a record US$56-billion approved in 2018 of which only part was disbursed, was a stand-by arrangement, a type of programme that is typically repaid between three-and-a-quarter to five years and comes with fewer requirements for reform.

Argentina will also present a multi-year macroeconomic plan to congress which will determine the country’s fiscal path, its financing goals and international reserve targets until 2025, Guzmán said. The government had previously said it didn’t have a set economic plan to follow.

“It’s going to take time to reach fiscal equilibrium, but we have to keep reducing the fiscal deficit,” the minister said.