Argentina has secured an outline deal with the IMF to restructure $44.5bn of debt from a record 2018 bailout, President Alberto Fernández said on Friday, removing the threat of an imminent clash with the lender as Buenos Aires tries to bolster its floundering economy.
“We suffered a problem and now we have a solution,” Fernández said in an address to the nation. “We will be able to access new financing precisely because this agreement exists.”
Both sides had been anxious to reach agreement. Argentina is facing inflation of more than 50 per cent a year, pressure on its exchange rate, dwindling reserves and billions of dollars of IMF repayments. The lender wanted to draw a line under the failure of its $57bn bailout, which veered off track after only a year with most of the money already disbursed.
The announcement came after a tense week of talks over a $700m payment that Argentina owes the IMF, which is due later on Friday.
Markets welcomed the news of the agreement in principle, with government bonds that mature in 2030 climbing as much as 3 cents on the dollar before paring that gain slightly to trade at 33.2 cents, the biggest single-day increase since the notes were issued in 2020.
Martin Guzmán, finance minister and chief negotiator with the IMF, outlined details of the new programme to refinance $44.5bn of debt outstanding from the $57bn that Argentina originally borrowed in 2018 under the previous centre-right government of Mauricio Macri.
Fernández’s Peronist government had been critical of the original IMF bailout, saying it financed capital flight and should never have been granted. It vowed never to accept a new agreement that would involve spending cuts, an objective Guzmán said he had achieved in the talks.
Instead, Argentina agreed to reduce its primary fiscal deficit gradually from 2.5 per cent of gross domestic product this year to 0.9 per cent in 2024. Central bank money printing to finance the deficit would slow to 1 per cent of GDP this year, from 3.7 per cent in 2021, and then “close to zero” in 2024, the minister said.
A full agreement with the Washington-based lender on a debt restructuring deal still needs to be approved by the IMF’s board of directors and ratified by Argentina’s congress, where the opposition made big gains in elections last year.
IMF officials said in a separate statement on Friday that although an understanding “on key policies” had been reached, a final staff-level agreement is still pending. Fund staff would continue working with their counterparts in Buenos Aires “in coming weeks”, the statement read.
Argentina had resisted IMF calls for faster cuts to spending and subsidies, with the leftwing government arguing that this would hurt an economic recovery. The fund, often vilified in Argentina for demanding austerity policies, was keen to show it could support social goals and help secure the recovery while helping the country address economic imbalances.
Guzmán said that under the new IMF programme, which will run for two and a half years as part of a 10-year financing plan, the state would play “a moderately expansionary role”. A planned move to positive real interest rates would help with plans to borrow more in pesos and deepen local capital markets.
No spending cuts, including energy subsidies, would be made under the terms of the deal, according to a finance ministry statement. Argentina would have at least a four-and-a-half year grace period before debt repayments begin.
Guzmán did not outline any targets for GDP growth, and the programme’s apparent reliance on growth rather than spending cuts to produce an improvement in public finances raises the question of whether it will prove more durable than Argentina’s 21 previous agreements with the fund.
Alberto Ramos, chief Latin America economist at Goldman Sachs, said he would “reserve judgment until we are able to review the blueprint of the new programme [but] the first impression based on the stylised remarks from the authorities it seems the monetary/financial strategy is not particularly strong”.