The IMF comes to the aid of Argentina, but points out the risks
After months of negotiations, the IMF has validated a new aid plan of nearly 41 billion francs to Argentina, thus avoiding a payment default.
Argentine Economy Minister Martin Guzman on January 28, 2022, in Buenos Aires.
AFP
The IMF on Friday approved an aid program of 44 billion dollars (nearly 41 billion francs) for Argentina, with an immediate disbursement of 9.65 billion, but it underlines “the exceptionally high risks” surrounding its implementation in the context of the war in Ukraine.
Negotiated since August 2020, this new agreement is a real lifeline for Buenos Aires. The previous government (center-right) had contracted in 2018 a record loan of 57 billion dollars. But struggling to repay its maturities, the second largest economy in South America risked default.
“This is an important step forward for Argentina in the process of macroeconomic stabilization, which allows the country to continue creating the conditions to be able to continue the current strong economic recovery”, declared the Argentine Minister of Economy Martin Guzman to AFP in Paris.
“Greater stability”
For Martin Guzman, who met in France with the Paris Club and the International Energy Agency (IEA), the refinancing of the debts of 2018 and 2019 will allow “greater stability” and will stimulate “the growth of investments”, as well as “the recovery of employment and production”.
The new 30-month aid plan, granted under the International Monetary Fund’s “extended credit facility”, should enable Argentina to “strengthen debt sustainability, fight against high inflation, to increase the reserves, to fill the social gaps of the country”, explained the institution.
If the economic and employment recovery is on track after the crisis caused by the Covid-19 pandemic, Argentina “continues to face exceptional economic and social challenges”, nevertheless underlined the managing director of the IMF. Kristalina Georgiava. And to cite “a depressed per capita income, high levels of poverty, persistently high inflation, a heavy debt burden and low external reserves”.
Poverty
Even before the pandemic, the poverty rate was close to 36%, according to IMF data. Kristalina Georgieva believes that the economic program which has been drawn up by the Argentine government and which is supported by the Fund “sets pragmatic and realistic objectives, as well as credible policies to strengthen macroeconomic stability”.
The program should thus make it possible to clean up the Argentine budget and support growth, which will make it possible to strengthen debt sustainability and control “persistent and high inflation”. However, the boss of the IMF observes that “a strong political and social consensus is essential to support the implementation of the reform program”.
The Argentine Congress gave its approval last week to this loan amount. On the other hand, he did not vote on the macroeconomic policies themselves. Despite political friction, an IMF official, who requested anonymity, said he was “completely confident” about the program. Kristalina Georgieva acknowledged that the risks were “exceptionally high” as the fallout from the war in Ukraine is already materializing.
Program recalibration?
“The recent dramatic rise in geopolitical tensions heightens uncertainty over the global outlook for growth, inflation, commodity prices and capital flows, with significant potential implications for Argentina and for the program,” note IMF economists in a report released Friday evening.
They also note that a resumption of the pandemic is not excluded, not to mention the tightening of global financial conditions and climatic shocks. “Furthermore, the program may fail to engender trust and, over time, build stability, especially if political support for the program wanes, including ahead of the October 2023 presidential election,” warns officials. authors of the report.
“In this context, an early recalibration of the program, including the identification and adoption of appropriate measures, if necessary, will be essential to achieve the objectives of the program”, advocated Kristalina Georgieva. The IMF official, who did not wish to be identified, said a first review of the program should take place as early as mid-May. However, he did not give a date on a possible mission to the country.
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