Growing poverty in Argentina: Argentina and the IMF have agreed on a new loan agreement.
Photo: dpa, Fernando Gens
Argentina’s government and the International Monetary Fund (IMF) have agreed on a new debt settlement. What is still pending is the approval of the IMF Executive Board and the two chambers of the Argentine Congress. While the first appears to be a formality, the second is open-ended. There is disagreement in both the governing coalition and the opposition on how to position themselves on the terms of the new regulation. A failure of the new stand-by agreement cannot be ruled out.
Argentina is by far the largest IMF debtor. In 2018, the fund granted President Mauricio Macri’s then Liberal-Conservative government a $57 billion loan, of which $44.5 billion was disbursed. It is by far the largest loan agreement that the IMF has ever entered into with a member country. Of the total, around $17 billion would have to be repaid this year alone. “Argentina does not have the necessary funds to service the outstanding liabilities,” Cabinet Chief Juan Manzur confirmed again on Monday. The aim is to avoid Argentina’s insolvency, Manzur said.
The new arrangement that has now been negotiated is nothing more than a refinancing of the loan from 2018. Debt reduction is excluded under the IMF statutes. Therefore, the 44.5 billion dollars are to be repaid by the IMF itself via Buenos Aires over the next two and a half years. Argentina would even get back $4.5 billion in principal that has already been repaid, to be booked as central bank reserves.
However, quarterly checks are tied to the agreed ten transfers from the fund to itself. The IMF wants to ensure that the government in Buenos Aires sticks to the small print of the new stand-by loan agreement. From 2026 Argentina will then have to begin to actually repay the liabilities.
The most contentious point in the negotiations, which have been going on for two years, was the size of the budget deficit in the coming years. The savings in government spending that the fund always demands are intended to free up funds for debt servicing. Typically, cuts in social security and pension spending are required. With 40 percent of the population below the poverty line, Argentina’s government has steadfastly refused to accept major cuts. After all, she had committed to reducing the budget deficit from the current three percent to 0.9 percent by 2024.
This is to be done, for example, by reducing state energy subsidies, which have been used to subsidize electricity and gas tariffs for over a decade. While consumers pay low prices, increasingly absurd amounts have to be raised for subsidies. From June, the subsidies for the ten percent highest-income electricity and gas consumers will be abolished. The large remainder is divided into two groups, in which the aid is to be reduced in a socially acceptable manner.
However, how the increase in tariffs is to go hand in hand with the agreed reduction in the inflation rate remains a mystery. Because despite the subsidized electricity and gas tariffs, this has been in the double-digit range for years. Inflation last year was 51 percent. Forecasts predict an even higher rate for the current year. The currently skyrocketing energy prices were not even taken into account. Social organizations fear that accelerated inflation will push even more people into poverty. They have therefore already announced massive protests.
However, the government was able to push through two changes. Argentina does not have to present a balanced budget until 2025. Previously, the IMF had insisted on it within two years. In addition, the term of the repayments was extended from the maximum possible ten to actually twelve years.
Other IMF debtor countries such as Ecuador, Kenya or Gabon, which in the past two years had also negotiated new debt regulations without these concessions, will notice this carefully. Once accepted by the IMF and Congress, doubts about the implementation of the guidelines will not diminish.
In three years at the latest, so the tenor of the criticism from the extreme left to neoliberal, Argentina will be back on the IMF mat with the demand for the next debt restructuring. Especially since the IMF’s $44.5 billion accounts for just 12 percent of Argentina’s national debt.