IMF approves Argentina’s US$45-billion deal already facing risks

The International Monetary Fund has approved Argentina’s US$45-billion agreement, the final step to cement a deal that’s already facing economic and political challenges.

The lender’s Executive Board approved the programme at a meeting on Friday, according to people with knowledge of the matter who asked not to be named because the decision hasn’t yet been made public. The IMF’s press office didn’t immediately respond to a request for comment.

The agreement – Argentina’s 22nd with the IMF since 1958 – is the latest chapter in the country’s tumultuous relationship with the Washington-based lender after two years of slow negotiations. The programme, known as an Extended Fund Facility, gives the government its first medium-term economic roadmap since President Alberto Fernández took office in December 2019.

The deal provides Argentina with breathing room by providing funds that will strengthen reserves and allow it to push out payments owed from a 2018 IMF programme that failed to stabilise the economy. As part of the deal, Fernández’s government has committed to reducing the government’s primary fiscal deficit, weaning off money printing from the Central Bank and rebuilding reserves, among several objectives. The programme is light on major reforms.

Once the staff-level deal was first announced earlier this month, Argentina moved quickly to send it to Congress, where Fernández had required approval for the agreement to take effect. Lawmakers ultimately approved the IMF’s financing with bipartisan support, but not the economic policies underpinning the deal.

Following the board’s support of the deal, Argentina will receive an initial US$9.8 billion that will allow the country to make a US$2.8-billion payment to the IMF on March 31 amid dwindling net reserves. The rest of the disbursements are conditioned to the country passing quarterly reviews of the programme by IMF staff who assess if the government is reaching its stated goals.

Officials from the IMF and Argentina already stress that the economic fallout of Russia’s invasion of Ukraine creates major uncertainties around the programme, which may require policies to be “recalibrated” if necessary.

Challenges ahead

Political divisions have already emerged for this IMF programme. The resistance Fernández faced in Congress from members of his own coalition highlighted the challenges the government will face when trying to unwind subsidies in key sectors, such as energy.

Meanwhile, economists have voiced doubts that the government can reach its goals of cooling inflation and growing the economy this year. Global energy and food prices, a faster rate of controlled currency devaluations and unwinding subsidies on electric bills all stand to keep inflation elevated this year, among other factors.

Economists at JPMorgan Chase & Co see inflation in Argentina at 62 percent this year, well above the goal in the IMF programme of 38 to 48 percent. Argentine consulting firm Equilibra sees the economy contracting this year because the IMF programme requires Argentina to accumulate reserves, which would limit the money it has to pay for imports that support economic activity. The programme projects growth this year between 3.5 to 4 percent.