Argentina’s high-wire tightrope walk over its debt took centre stage on Wednesday as representatives from the International Monetary Fund (IMF), its biggest creditor, landed in Buenos Aires.
The IMF’s much-anticipated mission is the first since President Alberto Fernandez was sworn in in December. He took power in the middle of a crippling recession: both unemployment and poverty are sharply up. The value of the peso has dropped, and according to the National Institute of Statistics and Censuses, inflation was more than 50 percent in 2019.
The centre-left Fernandez has made restructuring Argentina’s debts his key mission on the road to recovery, arguing that the current payment arrangements are not sustainable.
It was former conservative President Mauricio Macri who brokered Argentina’s $56bn deal with the IMF – the largest loan in the fund’s history. Some $44bn has been delivered so far. The terms of the original deal stated it had to be paid back by 2023, but that is unlikely to happen: the government has already said it needs more time.
Restructuring the IMF agreement will significantly impact Argentina’s economic forecast and wider renegotiation with other creditors.
At a speech on Wednesday in the Argentine Congress, Economy Minister Martin Guzman outlined a strategy to deal with the South American country’s economic challenges.
“In order to grow, Argentina needs to relieve itself of this suffocating debt,” Guzman said, with legislators, trade union leaders and representatives of the IMF watching.
“This is a crisis in which all parties bear responsibility. Argentina has responsibility, the bondholders who decided to bet on a risk rate and charge a high interest rate in case things went badly … and the International Monetary Fund bears responsibility,” he said.
Guzman noted that “there is a lot of money at play, and there are people who are playing very strongly”.
“We’re on the side of the people,” he said.
According to figures on the government’s website, Argentina is carrying a total $311bn debt.
Argentine bonds dropped in value on Tuesday, and the country risk rose after the Fernandez government announced that it would be postponing a $1.47bn principal payment on the country’s AF20 bond that was due Thursday.
In a statement on Tuesday, the ministry of the economy said it would continue paying interest on bonds. Still, it noted, the amortization will be postponed until September 30, 2020 “in order to have more time to restructure this bond in a way that is consistent with restructuring the rest of the external debt”.
Technically, the action constitutes a default, said Argentina economist Lucia Pezzarini, noting that it does not comply with the terms of the contract, but not in the classical sense since Argentina has set a new date for payment.
The IMF visit is an important one, and so far, there have been positive signals from the international lender, Pezzarini, a senior economist with the firm Elypsis, told Al Jazeera.
IMF Managing Director Kristalina Georgieva attended a summit hosted by the Vatican earlier this month alongside Guzman and other financial leaders. In the past, Georgieva has described talks with Argentina as “constructive”.
If Argentina is able to confirm IMF support, it will be an important precedent for the rest of the talks, said Pezzarini. “I don’t think any bondholder will accept a restructuring if you don’t already have an agreement with the fund,” she said.
“Of course, we still need to see what support from the fund means,” she added.
Both sides need a deal
Ramiro Albrieu, an economist and investigator with the Center for the Study of State and Society in Buenos Aires, says the first thing the IMF is going to want is clarity from Argentina on its macroeconomic plan. For the Fernandez government, the line in the sand will be ensuring that whatever new deal it hammers out does not come with strict conditions.
“The mood from the government is: I’m going to pay, once I grow,” said Albrieu, who believes the costs of not having a deal are too high for both parties.
“The IMF cannot have a country with which it signed an agreement just two years ago fail, and enter into default,” he said.
And Argentina needs to resolve its debt crisis to move forward.
“If you don’t resolve that, it will be impossible to bring back certainty to consumers and to companies – so that they go back to creating employment, investing and producing,” said Pezzarini.