Argentina hardens stance against IMF as debt renegotiations stall

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Argentina has toughened its stance as deadline looms to renegotiate $ 45 billion in IMF debt, insisting Washington-based lender cuts rates it charges and backs government economic plans to make a deal.

After a year of inconclusive discussions, time is running out before a repayment of $ 2.8 billion to the Fund matures next March, part of the $ 19 billion that must be repaid in 2022. The government Argentine Peronist says he cannot pay amid the economic crisis and has not included money for the IMF in next year’s budget, relying instead on restructuring.

Economy Minister Martín Guzmán told the Financial Times that while his team has worked “very constructively” so far, “it is important.. That the IMF is also doing more of its own.” .

“We hope that shareholders will support a change in the policy of [interest rate] surcharges that undermine the macroeconomic viability of our country and that they support the macroeconomic program that the government is proposing.

The IMF said it was continuing an “active and cordial dialogue” with Argentina on a new program, but has yet to agree to remove the surcharges.

IMF rules add a surcharge of 2 percentage points to particularly large loans relative to the borrowing country’s quota or the Fund’s capital. These fees, which are designed to discourage a large and prolonged use of IMF resources, increase by up to 3 percentage points if the largest loan lasts more than three years.

Argentina is beholden to the surcharges but has campaigned for them to be removed, saying they go against the IMF’s mission because they penalize countries in difficult economic situations instead of helping them.

However, officials close to the talks said several key IMF shareholders opposed the removal of the surcharges and pointed to Argentina’s story of arguing for special treatment and then disappointing creditors by deviating again. on the right track. “This is not the country you would want to make an exception for,” one official observed.

Argentina has also been criticized for failing to offer credible projections in vital areas such as reducing the budget deficit or reducing inflation, which reaches over 50% per year despite price and rate controls. exchange rates imposed by the government.

Marc Stanley, Joe Biden’s candidate for US ambassadorial post in Buenos Aires, said Tuesday during a Senate confirmation hearing that “Argentina. . . is a wonderful tour bus that doesn’t have the wheels that work properly ”, adding:“ It is the responsibility of the Argentinian leaders to come up with a macro plan to pay [the IMF debt] back and they haven’t yet.

After Guzmán struck a deal with private sector creditors last August to reschedule $ 65 billion in debt, there is high hope that a deal with the IMF would follow soon. This optimism evaporates amid the increasingly hostile attacks by the government against the IMF, an eternal villain of Argentine politics.

“The latest rhetoric has become much more inflammatory against the IMF ahead of the election,” wrote Siobhan Morden, head of fixed income at Amherst Pierpont, in a recent memo. “However, radicalism would only serve to further undermine already weak investor sentiment and accelerate [dollar] demand . . . Harsh talks against the IMF and internal isolation are not a viable medium-term strategy. “

Asked about the chances of reaching an agreement with the IMF by March, Guzmán said: “It will mainly depend on the support of the international community for what Argentina is proposing and essentially what Argentina is proposing is being able to refinance this loan. “

The Argentine government was particularly critical of the $ 57 billion IMF support loan granted to the previous government of Mauricio Macri in 2018, saying it should never have been granted because it financed capital flight and was motivated by political considerations.

Guzmán was considered one of the more moderate ministers, but with support for President Alberto Fernández’s government weakening ahead of the November 14 midterm elections, he toughened his rhetoric.

Speaking to the FT, Guzmán blamed the IMF for Argentina’s dollar payment difficulties, saying it was ironic that “the IMF comes into play when a country has a balance of payments problem but. . . the reason why Argentina could face a balance of payments problem in 2022 is precisely because of the presence of IMF loans ”.

Investors raised eyebrows when Guzmán said at a public forum in Buenos Aires last weekend that the IMF loan had “funded [re-election] campaign ”- an accusation normally associated with the radical wing of government headed by Vice President Cristina Fernández de Kirchner.

Guzmán also defended the government’s October 19 decision to freeze the price of more than 1,400 household items until January, saying the state must step in when business leaders fail to agree to a voluntary pact. to control prices.

When asked if his economic views are now similar to Kirchner’s, Guzmán downplayed the differences, saying, “We clearly share visions about the role the state plays in economic recovery and economic development.”

Ignacio Labaqui, senior analyst at Medley Global Advisors in Buenos Aires, said Guzmán’s influence and credibility had “declined considerably” in recent months. “He has become a politician,” Labaqui added, saying the minister now seemed more concerned with keeping his job.

“Guzmán lost a golden opportunity to sign a deal with the IMF in early 2021, when the pandemic was at its peak and the US position was less hard,” said a senior banker in Buenos Aires. “Now Argentina is further and further away from reaching an agreement.”


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