Argentina’s agreement with the IMF to restructure $44.5bn in debt is being threatened by a rupture within the government’s own ranks just weeks ahead of a looming deadline for finalising the deal.
President Alberto Fernández is lobbying lawmakers from his own leftwing coalition to try and win support for an outline deal, which requires congressional approval. But securing a simple majority in congress is proving a challenge before the house adjourns on March 1.
“Fernández is trying to hold the puzzle pieces of his coalition together,” a close adviser to the president told the Financial Times in Buenos Aires. “There are pieces that don’t want to be part of the puzzle and are breaking away.”
The surprise resignation on January 31 of Máximo Kirchner as leader of the Peronist bloc in the lower house of congress in protest at the IMF outline deal has exposed deep rifts within the governing coalition, a mix of moderates aligned with the president and a radical wing led by Kirchner and his mother, Cristina Fernández de Kirchner, the country’s vice-president.
Lawmakers in the governing coalition who are aligned with the Kirchners may decide to vote against or abstain, further complicating the quorum needed to ensure the deal passes. They argue that the original IMF deal broke the fund’s rules — which the fund denies — and that the lender should grant Argentina favourable treatment in any new deal.
Germán Martínez, who has replaced Kirchner as leader of the Peronist bloc told the FT that so far the number of votes backing the IMF deal was “unclear”.
“We are digesting what happened in January,” Martínez said, referring to Kirchner’s resignation, and “clearing any doubts” among deputies who are undecided. Martínez said he was working to “close the gap” in the coming weeks by calling or meeting representatives one by one to reassure them that the deal is the best option for Argentina.
Any delay in Congress could imperil a deal announced in January, which followed months of discussions between Argentina and the IMF to restructure the debt from the record $57bn bailout in 2018 negotiated by the previous centre-right government of Mauricio Macri.
The deal must still be finalised at the IMF as well. Argentina owes the fund $19bn in repayments this year due to the bailout, including a sizeable $2.8bn instalment due on March 22, which analysts see as a de facto deadline for approving the deal as the country’s international reserves dwindle.
Fernanda Vallejos, a Peronist lower house representative for the province of Buenos Aires, is among those who plan to vote against the deal. “Politics aside, it is a question of mathematics,” she said. “For debt that is unpayable . . . you cannot refinance it, you have to restructure it.”
The current outline agreement, which envisions Argentina reducing its primary fiscal deficit gradually from 2.5 per cent of gross domestic product this year to 0.9 per cent in 2024, does not change the terms of the original 2018 loan, Vallejos said, and risks “a long cycle of debt”, that Argentina has seen before.
Net central bank reserves have fallen into negative territory by some calculations after the government paid just over $1bn in principal and interest on its loan to the fund in February. Inflation is running above 50 per cent a year and the parallel exchange rate is more than double the officially controlled level.
If this deal is approved it will be the 22nd arrangement in the country’s history with the fund since it joined in 1956. Economists have expressed scepticism about whether a divided and unpopular government facing elections next year will be able to deliver on its commitments.
“Every three months we’re going to face uncertainty over our ability to pay and that is no solution,” said Vallejos, who described the congressional debate as being far from homogeneous.
With no consensus among the ruling Peronist coalition over the deal’s terms, more moderate opposition lawmakers have said publicly they are likely to vote against it, or abstain. Leaders of the opposition lambasted the ruling party’s “irresponsibility” for not presenting a united front on an issue of such importance during a press conference last week.
Kristalina Georgieva, managing director of the IMF, has recognised “the limitations” of what can be done in Argentina over the coming years, citing political opposition.
The IMF itself does not require any congressional approval to finalise the deal, although the fund has highlighted the need for broad political support for an agreement. Carlos Melconian, former head of the Bank of Argentina, said that Fernández in theory could negotiate a deal without Congress’s full support — although doing so would be politically costly ahead of the 2023 election.