The IMF awaits a signal from Milei about its economic plan. REUTERS
The elected president Javier Milei made contact a few days after his electoral victory in the runoff to launch his relationship with the International Monetary Fund, an organization with which Argentina has a current program and to which the country must return the USD 45,000 million taken as loan in 2018 and refinanced in 2022. But a question that hovered over the market is whether the new government could quickly access fresh financing from Washington.
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The key is in an undisbursed balance that remained from the Stand By credit that the IMF granted to Argentina in June 2018. That agreement gave Argentina the right to have currency transfers to the Central Bank for an approximate amount of USD 57.1 billion, at values of the Special Drawing Rights (SDR) of that moment. The Cambiemos administration even requested most of that loan, which the Fund disbursed until after the 2019 PASO.
But that process was cut short with the adverse result that the ruling party had at that time and an amount was “pending” to be sent that – updated according to the conversion between dollars and SDR – would currently be about USD 13,000 million. President Alberto Fernández could have arranged negotiations with the organization to have this financing from the IMF but he decided not to take it and begin, in 2020, a long renegotiation of the Stand By, with his minister Martín Guzmán at the head.
The 2018 Stand By agreement gave Argentina the right to have currency transfers to the Central Bank for an approximate amount of USD 57.1 billion
Those USD 13,000 million, then, remained undisbursed. In 2021, negotiations accelerated after the legislative elections that the Frente de Todos lost, and at the beginning of 2022, positions were approached with the IMF. But that understanding included the implementation of a new agreement, with different characteristics (the Extended Fund Facility), and that in this way, once signed, left the 2018 Stand By abstract and removed its validity.
Javier Milei and Kristalina Georgieva made contact virtually this Friday
The basis of the new EFF loan was to grant Argentina new disbursements but not in a “net” manner, but rather as a way to cover the return of capital and interest from that SBA. Only after that first loan was repaid, between 2026 and 2032 would the actual cancellation of the debt with the Monetary Fund begin. The question remained about what happened to that additional funding margin of USD 13,000 million, and in the face of Milei’s victory and the imminent change of government, it was strongly revived.
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The need for dollars that the Central Bank has and that the new government seeks to remedy – the president-elect is in the United States in first contact with investors together with who is designated as the head of his economic team, Luis Caputo – could include an injection of foreign currency and one of the sources mentioned was to quickly go to the IMF to request that remaining balance. The virtual meeting between Milei and managing director Kristalina Georgieva fueled the versions.
In any case, there is an impediment that immediately puts a stop to an idea of that nature. According to former officials of the organization consulted by Infobae, the implementation of the last agreement, in its Extended Fund Facility version in 2022, left the Stand By deactivated, so to obtain fresh funds the next government should embark on negotiations for a new program , right from the start. “The balance is not available, that program (the SBA) has already been cancelled, the only one in force is the EFF,” said a source with extensive knowledge of the dynamics of the Monetary Fund.
The need for dollars that the Central Bank has and that the new government seeks to remedy could include an injection of foreign currency and one of the sources that was mentioned was quickly going to the IMF to request that remaining balance.
For his part, the former Argentine director before the organization and with extensive experience in the matter, Héctor Torres, agreed with this conclusion and recalled that “after the 2019 PASO, the IMF wanted to meet with the economic team that was then appointed president-elect. Alberto Fernández to discuss the possible continuity of financing. I know this because I myself spoke about it with David Lipton himself. But in one of his first statements, Fernández announced that he did not want more financing from the IMF because ‘you can’t get out of debt with more debt.’ I think it was a serious mistake,” he said when asked by Infobae.
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“First of all because, unless you have the means to pay what is owed, you always get out of a debt with more debt, even a default is a way of achieving ‘involuntary financing’ (which ends up paying very dearly). Secondly, because while negotiating with private creditors we used reserves to show ‘good faith’. Other error. “We sat down to negotiate full of good faith but without reservations,” Torres continued.
And he concluded that “at a negotiating table, weakness pays dearly. Unfortunately, the USD 13,000 million that Macri did not use and that Fernández did not use, are not available for Milei. I think the next government could count on new financing from the IMF, but within the framework of a new program.”
The 2018 SBA left about USD 13 billion unused
Probably, before such a negotiation can be resolved, there will be some decisive dates and numbers for the relationship with the IMF in the near future. Pending the start, for example, is the seventh technical review of goals between the Executive Branch and the staff, which should evaluate the fulfillment of objectives for the third quarter of the year.
“At a negotiating table, weakness pays dearly. Unfortunately, the USD 13,000 million that Macri did not use and that Fernández did not use, are not available for Milei” (Torres)
The Government remained far from the reserve accumulation goals throughout the year and is heading towards the same situation for the fiscal goal at the end of the year, which should be a maximum primary red of 1.9% of the GDP. But the impact of the drought plus economic policy decisions by Minister Sergio Massa distanced the Executive from its possibility of compliance.
For that reason, the last disbursement of the year, estimated at USD 2.5 billion, is in doubt. The IMF, which, although it allowed infractions to the metrics agreed upon in the program and accepted an almost complete recalibration of the program in the face of the macroeconomic effect of the drought, could deny the transfer of foreign currency that corresponds to December in the midst of the change of Government and the awaiting the presentation of Milei’s economic plan.
However, beyond these times there is a ticking clock that indicates that the next administration will have to face payment obligations as soon as the mandate begins. The maturity schedule with the Monetary Fund will require some USD 910 million from the BCRA’s ailing gross reserves in December and another USD 1,935 million in January.