Argentina Agrees to a New Debt Program With The IMF
A general view of Argentina's Senate, as legislators meet to debate and vote on an agreement with the International Monetary Fund (IMF), at the National Congress in Buenos Aires, Argentina. Photo: Agustin Marcarian/ Reuters
Argentina and the International Monetary Fund (IMF) have come to an agreement on a new 30-month Extended Fund Facility (EFF) program that will restructure the country’s outstanding $45 billion debt. The Senate ratified the agreement on March 17 with a 56-13 vote, and the IMF Board of Directors approved the program on Friday. According to an IMF statement, it should "strengthen debt sustainability, tackle high inflation, boost reserves, address the country’s social and infrastructure gaps and promote inclusive growth.”
The country has struggled with a debt crisis for years, but its most recent difficulties stem from a $57 billion IMF loan taken by former president Mauricio Macri in 2018. Argentina has been unable to keep up with debt repayments, and this new program includes a postponement of two repayments: $19 billion in 2022 and $20 billion in 2023, until 2026. It also makes $9.66 billion immediately available to the government, to stabilize macroeconomic conditions and facilitate future repayments.
By refinancing the loan, Argentina hopes to avoid a default. The Argentine Economic Minister, Martin Guzman, has warned that a potential default would lead to “profound monetary and inflationary stress that would derail Argentina’s economic recovery and have consequences on poverty and the distribution of earnings.” It would also restrict access to foreign credit and scare investors. The risk of default has been a recurring issue, and there are already concerns that this new deal is only prolonging the inevitable.
The agreement came with several conditions, including IMF targets and constant monitoring. Essentially, in order to receive leniency from the IMF, political strategist Carlos Fara explains that “Argentina is forced to eliminate subsidies, reduce spending, reduce monetary emission, devalue the peso even more, and increase interest rates, among other things. If Argentina doesn’t meet its targets, it’s going to find itself in trouble again.” However, taking such actions to reduce its deficit and put in place price controls will have painful short-term economic consequences.
Moreover, the deal will seriously affect President Alberto Fernandez’s political capital. There are already signs of fracturing within his left-wing political coalition between those who support the IMF’s deal and those who believe it will do more harm than good. Considering it is Argentina’s 22nd IMF program, and the country has a bad history of failed programs, tensions are high. Fernandez’s administration is currently unpopular, and negative economic effects of this agreement can easily become political ones.
Demonstrators march in front of the National Congress as the Senate debates an agreement with the International Monetary Fund (IMF), in Buenos Aires, Argentina. Photo: Mariana Nedelcu/ Reuters
As the deal was being discussed in the National Congress, major anti-IMF protests occurred. Some Argentines, suspicious after so many years of economic failure, rallied against what they perceive to be yet another. Demonstrators threw rocks at the Congress building, burned tires, and broke windows. The controversial deal is unpopular partly because of the austerity measures it brings, which tend to hurt the poorest the most.
Currently, 40 percent of the population lives in poverty. The twelve-month rolling inflation rate is 52.3 percent. The country has billions of dollars of debt that it cannot feasibly pay off. In these economic conditions, Argentines are wary and concerned. One protester, Gisella Lazcano, asserts that they are “asking them not to sign this deal because it means more hunger, because they’re going to tighten spending in all directions, and that affects the earnings of workers, who are the ones who always end up losing out.”
The deal is considered high-risk for many. Beyond the situation in Argentina, spillover from the uncertainty in Ukraine is leading to higher food and energy prices, forcing inflation to increase even more. Further, Argentina’s 2023 elections may lead to a political change that could disrupt the economic policies related to the IMF plan. And beyond national concerns, because the 2018 loan was the biggest in the IMF’s history, the organization’s international reputation is also at stake.