Covid and after: the battle for fiscal space in LAC

Some recent examples may cast further light on the type of political tensions involved. In Argentina, a centre-left government led by president Alberto Fernández was elected in late 2019 and immediately faced two major problems: a foreign debt crisis and, starting in early 2020, the economic and social upheaval caused by the arrival of the coronavirus pandemic. With gross debt levels in excess of US$320bn at the end of 2019, by May 2020 the country had defaulted on its debt, but was subsequently (in August) able to reach a restructuring agreement with a large group of bondholders. At that point, one of its most pressing requirements was to renegotiate outstanding debt to the IMF. The previous centre-right government had signed a US$56bn stand-by agreement with the IMF in 2018, but it had been an almost complete failure. It failed to stabilise the economy, or to end repeated waves of turbulence on the foreign currency markets, or to reduce high domestic inflation rates. The new government therefore faced the need to renegotiate the outstanding debt to the IMF (calculated at around US$45bn) as well as agreeing a new economic programme. Reaching a new agreement with the IMF would be essential to reassure other creditors that Argentina would be able to get back onto a track of sustainable economic growth and to continue servicing its foreign debt. Both economy minister Martín Guzmán and the IMF authorities agreed to set May 2021 as the target date to complete their negotiations.

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