What Argentina’s New IMF Deal Looks Like

Argentina is the one country that owes the most money to the International Monetary Fund. Ironically, Argentina is arguably the one country home to a populous that hates the IMF with a passion. It’s still very much the ideological home of Che Guevara and next door neighbor Eduardo Galeano, author of the post-colonial South American treatise “The Open Veins of Latin America.” No one hates the IMF like these guys do.

Yet, the IMF is there and the new government of Alberto Fernandez and Cristina Kirchner, the queen of Argentinian defaults, is at it again — reworking a $50 billion loan package that was signed by the previous government of Mauricio Macri; a government and a plan that was supposed to be Argentina on the right foot. It didn’t. Of course. Don’t blame the coronavirus. This is Argentina. It could have been sunny with a chance of meatballs and they’d be in the same position.

Here’s the latest.

Argentina announced the second phase of debt restructuring and so Wall Street bond holders are hopeful this goes swimmingly well. 

Sadly, the expectations are low.

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This will be a long process lasting many months and a political compromise that provides only liquidity relief and not a cut on the debt load.

The postponement of repayment of the bulky IMF loans is the only objective in Buenos Aires. And on the IMF side, there will be no forcing Argentina to privatize prized assets in order to get a good restructuring deal. It will be about finding a mutual compromise repay what they owe. 

The challenges will be in identifying the formula that makes repayment doable under a distressed economy. The two sides are as ideologically apart as ever, with heterodox crisis management of market intervention and deficit monetization., says Siobhan Morden, head of Latin American fixed income for Amherst Pierpont Securities in New York. “There is no urgency with a large sized $1.9 billion payment due in September 2021 and the worst payments of $19 billion in 2022 and another $19 billion in 2023 ,” she says.

No urgency? What are they waiting for? Does Argentina and the IMF expect a stunning economic turnaround next year? They were recessionary when the global economy was at its best pace since the Great Recession.

Maybe this time they’ll get lucky?

Argentina has approximately 12 months before the more important IMF repayments start coming due. The objective of the Fernandez administration is similar to the latest bondholder restructuring and so the aim is to postpone any important payments through the tenure of his term, which has three more years.

Argentina ideally should maximize liquidity relief to rebuild its central bank foreign currency reserves, which are at Venezuela levels.

The remaining IMF loan is significant at $44 billion, but it’s not clear how Argentina will get to rollover this debt and negotiate a lower rate, or longer debt period. But this is what they will try nonetheless.

Argentina is going to end up being the first country post Great Recession to get debt relief. Just wait.

Here is a copy of the letter their central bank sent to the IMF, where they blame Covid-19 for not being able to pay their bills.

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