The IMF mission said it had enjoyed “very productive meetings” with the Argentine authorities and acknowledged that they were addressing the difficult economic and social situation in the country while at the same time taking steps to resolve the debt situation (it notes the restricting of capital flows, imposing maturity extensions on certain debts, and financing the fiscal deficit with reserves from the central bank [BCRA]). However, it added that after assessing Argentina’s position it now considered the country’s debt to be “unsustainable”. It explained that “the primary surplus that would be needed to reduce public debt and gross financing needs to levels consistent with manageable rollover risk and satisfactory potential growth is not economically or politically feasible”.
The statement added: “Accordingly, a definitive debt operation - yielding meaningful contribution from private creditors - is required to help restore debt sustainability with high probability”. It said that IMF staff were prepared to continue working with the Argentine authorities to resolve the debt situation.
The statement provided some significant support for the Fernández administration and its debt renegotiation plans. It is aligned with the government’s stance that the current debt repayment schedule is impossible to meet and that creditors simply must accept a proverbial ‘haircut’ and incur some losses. But the statement falls short of agreeing to forgive part of the US$44bn owed to the IMF, which Fernández publicly called for this week.
At the start of the week, Fernández insisted that if the IMF had violated its statutes by lending money to the previous administration led by Mauricio Macri (2015-2019) it could now consider forgoing part of the debt even if this also runs counter to its statutes. While the IMF statement offers some political support for Argentina’s debt renegotiation efforts and the Fernández government’s argument that the country cannot make any further fiscal adjustments to try to pay off its debts, this support is equivocal. Effectively the IMF is not only admitting that the recommendations it had made to the Macri administration were mistaken but also asking bondholders to accept losses that the organisation itself is not prepared to accept.
IMF statutes prohibit it from financing capital flight, which President Fernández has accused it of doing by indiscriminately lending to the Macri administration when there was a clear run against the peso. IMF statutes also ban it from forgiving any debt principal. But Fernández argues that if the IMF was capable of bending its own rules to lend to the Macri administration it should also be capable of agreeing to a substantial write-down of this debt. However, the IMF rejects Fernández’s accusation that it broke its rules in lending to the Macri administration and insists that its rules must apply in all instances.
Nevertheless, Fernández welcomed the IMF’s statement and took advantage of the opportunity to pressure Argentina’s other creditors to agree to forgive their debts. “I celebrate that the IMF recognises the Argentine position on its debt,” Fernández tweeted shortly after the release of the statement, adding that “if all parties display willingness to reach an agreement, we could return to [economic] growth, could honour our commitments, and could once again have an Argentina on its feet”.
The Fernández administration will now endeavour to drive a hard bargain with bondholders to try to secure considerable write-offs. But striking an agreement will be challenging, especially by the government’s ambitious stated deadline of the end of March, and the prospect of Argentina defaulting on its debts once again remains a distinct possibility.
Inflation and interest rates
Argentina registered inflation of 2.3% in January, according to figures released by the national statistics institute (Indec) on 13 February. Inflation has now fallen for two consecutive months. The president of the central bank (BCRA), Miguel Pesce, responded to the “consolidation of the inflationary slowdown”, by cutting the benchmark interest rate for the sixth time in two months, this time from 48% to 44%. The interest rate had hit a stratospheric high of 63% under the Macri administration.
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