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ECONOMY | 22-12-2021 22:10

IMF says Argentina capital flow measures needed with 2018 deal

IMF concludes record US$56-billion 2018 programme for Argentina didn’t succeed “in improving confidence” and was “fragile from its inception” despite the size of the loan.

The International Monetary Fund says that its record US$56-billion programme for Argentina didn’t succeed “in improving confidence” and was “fragile from its inception” despite the size of the loan, and that both capital flow management and a private debt reprofiling might have been addressed back in 2018.

The staff report released Wednesday, known as “ex-post evaluation” and led by IMF deputy director Odd Per Brekk, is a key step in IMF procedures, which require a staff review of a programme with exceptional access. 

“An early debt operation, combined with reintroduction of capital flow management measures, could have delivered a more robust programme,” the report said. Though the evaluation added that the need for a debt operation wasn’t clear at the beginning of the programme, it was later ruled out by Mauricio Macri administration. 

Argentina’s three-year stand-by arrangement, with total disbursements for as much as US$44 billion, represents more than 10 times the country’s allowance with the Fund. President Alberto Fernández administration is negotiating a new programme with the IMF to reschedule payments owed to the Washington-based multilateral lender. 

Here are some key takeaways from the IMF’s report:

 

IMF Staff’s Evaluation:

– “Greater burden sharing with other official creditors could have, besides providing additional financing, signalled broader support from the international community, both of which could have supported confidence”

– “Lack of ownership by all branches of government was fatal for the programme,” the report added

– “Rapid exchange rate depreciation starting in mid-2018 made the targeted disinflation path unrealistic due to the high pass through”

– Existing debt instruments were “highly problematic”;  Central Bank liabilities known as LEBACs “were not well understood at the time of the programme request”

 

Argentina Views:

– Stand-by agreement was an “IMF-financed bailout to private creditors and to investors that had been speculating over carry trade opportunities”

– Real goal of the programme was to maintain 2018 government policies “at all costs, with IMF financing”

– Inflation needs to be considered as a multicausal issue in future programmes, and it can’t be addressed only by monetary policy

– IMF needs to revise “political use” of their programmes, reconsider meaning of ownership

– “Programme achieved nothing for Argentina other than massively aggravating a balance of payment problem.”
 

by Jorgelina do Rosario, Bloomberg

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