Argentina seals $45 billion deal with IMF

Argentina closed a debt agreement worth US$ 45 billion (R$ 227.1 billion) with the International Monetary Fund (IMF), as announced this Thursday (3).

“After intense negotiations, the national government managed to seal an agreement with the IMF,” the Argentine Economy Ministry said in a statement, adding that the agreement would be sent to Congress on Thursday.

Argentina’s Congress has yet to approve the deal, which comes after more than a year of negotiations that weighed on bond prices and limited the country’s access to credit.

The IMF said in a statement that the two sides had reached a consensus on an extended financing mechanism.

The deal, which will roll over a failed $57 billion credit line from 2018, is critical for the grain-producing country to stabilize its crisis-hit economy amid rampant inflation and dwindling foreign currency reserves.

Presidential spokeswoman Gabriela Cerruti said the most difficult topic in the deal was how to raise energy prices, kept low by subsidies of about $11 billion last year.

“The tariff issue was one of the most discussed and intensely negotiated,” she told a news conference.

“But an understanding has been reached and a path has been reached that serves the most vulnerable and advances the construction of reasonable tariffs that allow us to focus spending to generate employment and boost the economy.”

Rapid congressional approval is critical as Argentina races to finalize the deal before payment deadlines this month, when it faces some $2.8 billion in commitments due.

Argentine President Alberto Fernández told Congress on Wednesday that if the deal passes, the country would start making payments to the IMF in 2026 and complete them by 2034.

In January, Argentina’s government announced that it had reached an understanding in principle with the IMF to replace the failed 2018 loan. IMF chief Kristalina Georgieva said at the time that there was still much work to be done.

deficit reduction

The agreement, known as the extended facilities agreement, includes ten quarterly reviews over two and a half years. When approved, it will allow the rescheduling of Argentina’s large maturities with the IMF, of US$ 19 billion planned for this year and another US$ 20 billion in 2023, a horizon that the Fernández government considers impossible to meet.

“The first disbursement will be made after the approval of the program by the IMF board. The rest of the disbursements will be made after each review is completed”, informed the Ministry, explaining that the repayment period is 10 years, with a period of grace period of four and a half years, which is why the debt must be paid between 2026 and 2034.

With this agreement, Argentina commits to reducing its fiscal deficit from the current 3% of GDP to 0.9% in 2024.

One of the most difficult points of the negotiation was the elimination of subsidies in the tariffs of public services, especially gas and electricity, which will be made proportionally by income bracket, according to presidential spokeswoman Gabriela Cerruti.

Ilan Goldfajn, IMF director for the Americas, said he was confident in the success of the agreement “because it is based on realistic goals”.

“It has a pragmatic approach and is a program that belongs to the authorities. It is achievable, realistic and a product of learning from past experiences,” the official said during a press conference in Washington.

with AFP