Argentine finance minister seeks $ 44 billion in IMF debt without belt tightening

With the break-up of Argentina, Finance Minister Martín Guzmán is pushing for a deal by May with the International Monetary Fund to repay the $ 44 billion debt. To win the IMF agreement, he will close the budget gap, he said in an interview on Friday.

It is the traditional path that Argentina has taken nine times in terms of sovereign debt, it took when its economy hit rock bottom, as it did now during a pandemic that led to a economic contraction of 10% in 2020. But Mr Guzmán said his plan does not correspond to the draconian austerity measures imposed by the IMF with other governments.

“We are using the negotiations with the IMF as an opportunity to try to break with the patterns of the past,” said Guzmán, a trained economist at Columbia University.

Public spending as a percentage of GDP

Nestor and Cristina

Kirchner administrations

The twist this time is that Mr. Guzmán and President Alberto Fernández both belong to a party that has long been against the IMF, blaming it for Argentina’s problems. And he faces a formidable opponent in the ruling Peronist coalition, which is fighting lawmakers against IMF belt-tightening policies.

Vice President Cristina Kirchner, the leader of a far-left faction, is calling for strong state intervention and public spending to preserve the purchasing power of Argentine workers, a policy that has marked her two terms as president.

“Here, economic activity is driven by demand. And there is no other way to stimulate demand than through salaries, pensions and affordable food prices, “Ms. Kirchner said on Twitter. “I tell everyone: All those who are afraid or not have the courage, there are other occupations besides being ministers or legislators.”

An agreement between the administration and the IMF will require the approval of Congress. Since Mrs. Kirchner chairs the Senate, her consent is crucial.

Mr Guzmán downplayed the threat he posed. “The coalition works together with a common vision,” he said.

Argentine President Alberto Fernández and Vice President Cristina Kirchner at a political event in December.


esteban collazo / Agence France-Presse / Getty Images

Mr Guzmán’s long-term program, called for by the IMF, would allow Argentina to extend its debt payments by up to a decade, including about $ 5 billion owed this year. This will provide financial space for breathing.

But Argentina will have to cut spending or increase revenues. Mr Guzmán plans to reduce the budget deficit this year to around 6% of annual economic output, from 8.5% in 2020.

Mr Guzmán said the gradual approach to stabilizing the economy was meant to boost growth by lowering inflation by about five points each year. Increasing government revenue would reduce the reliance on printing money to cover spending, which fuels inflation and increases increasingly expensive dollar debt. Inflation will reach 36% in 2020.

Economists are skeptical that Argentina can generate revenue. And I say that subsidies and price controls must be abandoned.

Argentina provides subsidies to electricity companies, heating gas suppliers and public transport companies to offset the low prices they are required to charge. Public service subsidies rose last year to 2.3% of gross domestic product from 1.6%.

Ms Kirchner is paying attention to the midterm elections in October, when voters could punish her Peronist move if the IMF agreement leads to higher utility prices. Many of its supporters live in the poor and densely populated suburbs of cities such as Buenos Aires, where health care workers have seen an increase in the number of people in kitchens as the poverty rate rose to 45% last year.

Polls show that Argentines are increasingly dissatisfied with the Fernández administration, after enduring one of the longest blockades in the world after a decade of high inflation and three years of economic contraction.

Graciela Báez, a 58-year-old small business owner, has already reduced her beef purchase and seen her income fall by more than 50% last year. She worries that an agreement with the IMF could cause additional difficulties.

Increasing revenues would reduce Argentina’s reliance on printing money to cover spending, which fuels inflation.


Ricardo Ceppi / Getty Images

“I don’t think they would sacrifice the people who chose them,” said Ms. Báez, “because everyone would oppose them. It would be chaotic. ”

IMF Managing Director Kristalina Georgieva said that “the IMF’s commitment will continue as long as it is necessary for Argentina to be clear about its medium-term objectives.”

“What’s complicating things is politics,” said Mohamed El-Erian, chief economic adviser at Allianz SE and president of Queens’ College, Cambridge.

Argentina has received more than 20 financial aid programs from the IMF since the late 1950s, most recently in 2018, when then-President Mauricio Macri faced a currency crisis.

Accepting the spending cuts will be difficult for Argentina, which has a long history of giving up spending cuts and reversing policies implemented by other administrations.

“It is not clear that the governing coalition has a plan for the country,” said Hector Torres, a former IMF chief executive. “What is clear is that they have a plan to keep power.”

Solvency risks

Argentine government and companies face $ 15 billion in external debt payments this year

Ms. Kirchner’s faction would likely prevent any agreement that could undermine their demand for control of the lower house of Congress, said Eduardo Levy Yeyati, dean of the School of Government at Torcuato di Tella University in Buenos Aires.

“They are extremely influential and will probably stop any fiscal adjustment measures that they consider are in conflict with their political goal,” he added.

Argentina reached an agreement with private bondholders last year to defer payments for an additional $ 65 billion in debt, but an agreement with the IMF is essential for the South American country to regain access to international debt markets.

While regional colleagues used debt markets to raise funds to fight the pandemic – Peru recently sold a 100-year bond – Argentina became even more isolated. Argentines rushed to the security of the dollar, draining the central bank’s dollars in cash to about $ 1.5 billion. Argentina’s debt price fell while the government failed to outline plans to stabilize the economy and make future debt payments.

Struggling with declining demand, large companies are also struggling because the central bank cannot provide the dollars needed to service external debt or import equipment. These include the state-run energy giant YPF,

which is now trying to restructure a debt of more than $ 6 billion to remove its first delay.

Among those Argentines who are fighting is Marta Maturano. She works at a soup kitchen and talks about rising food prices and other difficulties people in her neighborhood face.

“We live every day,” she said. “You can’t save anything.”

Write to Santiago Pérez at [email protected] and Ryan Dube at [email protected]

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