In late March, Argentina and the IMF agreed on a new arrangement that would enable Argentina to avoid falling into arrears on the IMF’s 2018 loan. However, the agreement was reached only after protracted and tortuous negotiations that dragged on for at least 18 months and concluded only at the last minute before a de facto March deadline.
In a new two-part article, I discuss the many twists and turns of the process and review the major substantive policy differences between Argentina and the IMF as well as the political considerations involved in the negotiations.
In August 2020, Argentina restructured approximately $65 billion of foreign bond debt. The restructuring was considered an important first step for the new left-leaning Peronist government of President Alberto Fernández in addressing the nation’s serious debt problems, which the government had inherited upon assuming office in December 2019 and included a substantial amount incurred under the predecessor center-right government of President Mauricio Macri. Yet the Fernández administration still had to figure out what to do with a massive 2018 loan from the IMF, on which approximately $44 billion remained outstanding.
Under that loan, Argentina owed debt service payments of approximately $38 billion in 2022 and 2023. Argentina’s dwindling foreign exchange reserves, however, appeared to leave it without the means to make those payments, beginning with a few billion dollars due in late March 2022.
Thus, in late August 2020, following the restructuring of its foreign bonds, Argentina formally indicated its interest in beginning negotiations with the IMF on a new arrangement, its 22nd such arrangement since 1958. Argentina was essentially looking to refinance the 2018 loan with a new loan from the IMF that would effectively reschedule upcoming debt service payments on the 2018 loan.
However, the IMF conditioned any new loan on, among other things, a commitment from Argentina to change fiscal and other policies affecting its economy. For example, Argentina was asked to eliminate the nation’s primary fiscal deficit and reduce the amount of money that the central bank was printing to finance the budget deficit. The extent of the conditions, including the required degree and speed of so-called fiscal consolidation, proved to be major points of contention during negotiations.
With the March deadline looming, the stakes were high and the time pressure intense for both Argentina and the IMF. Falling into arrears (IMF terminology for a payment default) on its 2018 loan would cut off Argentina from credit from international financial institutions such as the World Bank and the Inter-American Development Bank. Argentina had already been shut out of private capital markets after it defaulted in May 2020 on its foreign bonds, a record ninth sovereign-debt default for Argentina, and therefore could not afford to lose access to another important source of financing.
For the IMF, the 2018 loan to Argentina had been in certain respects like an albatross around its neck. The loan had been made pursuant to an authorization of $57 billion, the largest ever in IMF history, and been designed to help the Argentine government, then led by President Mauricio Macri, address a serious currency crisis and other economic problems such as high inflation. But the loan and the associated IMF program went off track within a year as the Argentine economy continued to deteriorate.
Furthermore, as the IMF acknowledged in its highly critical report released in December 2021, the IMF program failed to meet key objectives such as restoring confidence in the Argentine economy. Thus, in view of the troubled history of the 2018 loan, the IMF might have understandably wanted to put that loan behind it, and it could do so with a new loan that would help Argentina avoid falling into arrears on the old loan.
Nonetheless, despite their shared interests, it took Argentina and the IMF an inordinately long time to reach a deal. In fact, the parties only concluded their negotiations on a new arrangement in late March, literally just days before Argentina would have fallen into arrears on the 2018 loan.
With the ink hardly dry on the latest Argentina-IMF agreement, the Argentine economy is again facing deepening challenges on a number of fronts. For example, inflation has continued to rise sharply (it is now over 70 percent, a 20-year high), and the Argentina peso has depreciated significantly (having lost, as of mid-July, over 30 percent of its value in the foreign exchange black market since the beginning of 2022, according to a report in Reuters).
Moreover, there has been turmoil in the cabinet of President Alberto Fernández. In early July, Martin Guzman, the minister of economy (who had been responsible for negotiating the new deal with the IMF), submitted his resignation. A few days later, President Fernández named a replacement, but a few weeks after that, Fernández sacked the new minister and appointed a leader in the Argentine Congress as a “super minister” with a new portfolio covering what had been separate ministries dealing with the economy, agriculture, and production.
This post comes to us from Steven T. Kargman, founder and president of Kargman Associates, international restructuring advisers. It is based on his two-part article “Argentina’s Latest Tango (or Tangle) with the IMF: The Deal That Almost Wasn’t,” published in International Corporate Rescue (ICR). The article is available here and is reprinted with the kind permission of the publisher of ICR, Chase Cambria Company (Publishing) Ltd.