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By Rodrigo Campos, Eliana Raszewski and Hugh Bronstein
NEW YORK / BUENOS AIRES (Reuters) – Argentina’s honeymoon with the International Monetary Fund is about to be tested as it considers updating a $57 billion agreement reached two years ago that failed to save it from recession and the country’s ninth sovereign. Defect.
The IMF, the target of angry protests on the streets of Buenos Aires, has sought to keep its tone with Argentina as the center-left Peronist government restructures more than $100 billion with personal creditors this year.
There is now IMF cash on the table. Argentina seeks to defer $45 billion in bills over the next few years as it moves towards a 12% economic downturn in 2020 and faces a currency crisis with newly updated capital controls, which show a reluctance to address fiscal and financial problems. Imbalances.
“It will be much more complicated with the IMF. They will have to make sure they are given priority and left to blame,” said Damien Buchet, emerging market fund manager at Finisterre Capital.
“The IMF will make much more serious promises in terms of debt sustainability and ability to pay than bondholders. “
Argentine officials say they only need to refinance the $45 billion they already earned on the 2018 program, but Economy Minister Martin Guzman said he was seeking reimbursements from the IMF until 2024, a delicate request.
“The IMF has mistakenly supported Argentina in its ongoing negotiations with investors to reach an agreement without a coherent economic plan,” said Ted Pincus, managing director of Mangart Capital Advisors.
“The new exchange measures introduced in Argentina will make an agreement more complicated and Argentina’s attitude towards investors has bited it again. “
While the country deals with the coronavirus pandemic, austerity can pose a major risk to center president Alberto Fernandez before next year’s mid-term elections as poverty increases and small businesses collapse.
Many still perceive that the IMF triggered the country’s last primary crisis in 2001-02, when currency bankruptcy and devaluation brought millions of Argentines into poverty.
“I don’t think you can tell that (Argentina) accepts orders from the IMF,” said Eric Baurmeister, senior portfolio manager and head of Morgan Stanley Investment Management’s emerging market debt team.
“What happens behind closed doors is probably another story. “
Chart: Argentina’s IMF Payment Schedule https://graphics. reuters. com/ARGENTINA-DEBT/IMF/yzdpxnxlopx/chart. png
TENTH DEFECT?
Julie Kozack, deputy director of the IMF’s Western Hemisphere Department, said the fund first sought to outline Argentina’s priorities and “the government’s plans for macroeconomic stability, bring expansion and task creation to life, and reduce poverty and unemployment. “
He did not specify, however, many that Argentina’s economy will be harder to recover than expected, as foreign exchange reserves are shrinking and capital controls to stop the fall are hurting business.
“The IMF will insist on labour and pension legislation,” said Claudio Loser, the IMF’s former director for the Western Hemisphere, adding that it expects the two sides to have other views.
“The government will say it can’t do more; the Fund will say that we will have to perceive that Argentina is in a terrible crisis because of the COVID mix and the debt problem. Then (Argentina) will have to put things in place. “, so we don’t have any more disorders in two years,” Loser said.
The government’s 2021 finance bill, presented to Congress this week, included ambitious projections for expansion of 5. 5% next year and a number one budget deficit of 4. 5% of GDP, to be financed as a component through central bank transfers.
Chart: Argentine base https://graphics. reuters. com/ARGENTINA-DEBT/IMF/xegpbjndgpq/chart. png
“Fernandez will have to strike a delicate balance between a company’s position in the nepassations to please its electorate and convince the IMF that its management can go far enough with reforms,” said Fabiana Fedeli, Robeco’s head of emerging markets.
“Unfortunately, we have not yet noticed any signs that Argentina is willing and able to take the complicated mandatory measures for macroeconomic stability. Unless sustainable reforms are undertaken, a tenth non-compliance is possible. “
POLITICAL CAPITAL
Fernandez, who voted with an anti-austerity mandate due last year, won political capital restructuring agreements with Wall Street and led the IMF to additional support.
In February, IMF chief Kristalina Georgieva and Guzman sat smiling as Pope Francis, himself an Argentine, spoke at a conference at the Vatican.
The fund has practically accepted an exceptional program much more generous and less than expected of $6. 5 billion with Ecuador, which some say may bode well for Argentina.
More importantly, the IMF can use a positive deal after complaining about the duration and speed of the 2018 program and practices beyond in Argentina, adding Fernandez, who blames the administration beyond leaving the country suffering from debt.
“This is not the same IMF as in 2001. Many have been learned since then. He is now more flexible in some heterodox policies,” said Gabriel Zelpo, director of Buenos Aires-based monetary consultancy Seido. IMF. “
Chart: IMF loans are notable for billions of dollars https://graphics. reuters. com/ARGENTINA-DEBT/IMF/qmyvmalzjvr/chart. png
(Information through Rodrigo Campos, Eliana Raszewski and Hugh Bronstein; additional information through Karin Strohecker and Marc Jones in London; edited through Adam Jourdan and Tom Brown)