The International Monetary Fund‘s board of directors accepted a new agreement with Argentina for $45 billion on Friday, clearing the final hurdle to reworking the country’s debt with the Washington-based lender.
According to two sources, the agreement, which was agreed by consensus, is Argentina’s 22nd IMF programme and comes after more than a year of negotiations. It will take the place of a failing $57 billion scheme from 2018, for which Argentina owes more than $40 billion.
The deal’s main demands are to reduce the fiscal deficit, raise interest rates, and reduce energy subsidies, but no labour or pension reforms are included.
Argentina’s Congress approved the funding portion of a staff-level deal on March 17, but not the policies necessary to keep the economy on track and the debt sustainable.
The accord has widened political fractures within Argentina’s government center-left coalition, and there are fears that the economic strings connected will put even more hardship on the country’s citizens, who are already suffering from inflation of more than 50%.
However, achieving goals may be difficult. JP Morgan raised its primary fiscal deficit prediction for 2022 to 2.8 percent of GDP, well over the 2.5 percent threshold set by the programme.
Before Fridya’s meeting, Alejo Czerwonko, emerging markets Americas CIO for UBS Global Wealth Management, said, “It will very unlikely cause the positive confidence shock, rise in private investment, and access to international capital markets that the country sorely needs.”
If the scheme fails, the Fund’s reputation will suffer as well. Argentina’s 2018 accord with the IMF was the largest ever.
Some private holders of Argentina’s debt, which will be restructured in September 2020, denounced the negotiations from the start as tainted by politics, allowing the government to pursue “erratic” economic policies.
“This arrangement has received a lot of criticism, with claims that it will come apart, that it is an IMF-light deal, that it is a Band-Aid… But it’s a critical Band-Aid “In an interview before Friday’s meeting, Gramercy’s chief investment officer, Robert Koenigsberger, said.
“The only way this item could be valued less than 32 (cents), which is where it currently trades, is if the bus’s wheels fell off. This IMF agreement, in a sense, tightens the lug nuts on the wheels.”
The restructured U.S. dollar bonds have been trading in the low 30-cents-on-the-dollar range for most of last year, and the 2030 was down 2.6 cents to 29.50 cents on the day.
