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International Finance

Argentina Says IMF Economic Plan Would Derail Its Recovery

Martin Guzman, Argentina's economy minister, speaks during an interview in Buenos Aires, Argentina, on Wednesday, May 6, 2020. Argentina and its biggest creditors have begun ironing out possible revisions to the country’s $65 billion debt restructuring proposal before crucial bond payments come due later this month.

Argentine Economy Minister Martin Guzman said the economic plan proposed by the International Monetary Fund as part of a $40 billion debt renegotiation would derail the country’s recovery. 

While Argentina and the IMF are “on the same page” on the level of foreign reserves needed to support the country, they disagree on how quickly the government must reduce its fiscal deficit, Guzman said Wednesday as he laid out his most detailed vision yet for negotiations with the Fund.The IMF’s proposal would probably “halt the economic recovery that Argentina is witnessing and is essentially a program of real spending cuts,” the minister said during a presentation to governors in Buenos Aires, alongside President Alberto Fernandez.

“What’s the priority?,” he asked. “For us, the priority is that Argentina continues on the path of recovery. For others, the priority could be different.”

An IMF spokesperson declined to comment.

Guzman’s tough stance comes at a critical stage in negotiations with the Fund. After two years without concrete progress, Argentina has large payments due to the IMF this year and Fernandez has already said the government can’t pay.

What Bloomberg Economics Says

“The press conference by Argentina’s leaders on Wednesday looked like an attempt to buy time and convince markets, the International Monetary Fund or the government itself that time and bargaining power is on the country’s side. The tone from President Alberto Fernandez and Economy Minister Martin Guzman suggests that no deal is imminent.”

— Adriana Dupita, Latin America economist

Lack of Support Abroad

Without naming countries, Guzman acknowledged that Argentina doesn’t have enough international support at the IMF to reach a deal.

“What we have is support of part of the international community but not all of it,” he said. “That’s the reason why there isn’t yet an agreement on this fundamental point, which is the fiscal issue.”

Guzman detailed the technical steps of the negotiations in a series of charts showing projections based on Argentina’s proposal for the primary fiscal deficit, monetary financing and international reserves. He said Argentina and the IMF agree that central bank’s reserves should grow between $3 billion and $4 billion a year. However, Guzman didn’t provide precise numbers on the fiscal deficit or monetary financing.

Argentina owes the IMF $2.8 billion in March, a payment many analysts see as a deadline to reach a deal considering the central bank’s thin reserves. Some economists became more pessimistic about that deadline after watching Guzman on Wednesday, noting that he made no mention of improving Argentina’s business climate.

“The odds are rising every day that they will not have a done deal by the time the March payment comes due,” says Arturo Porzecanski, an economics professor at American University in Washington. “The impression I get is that the negotiations are stuck because the Fund is seeking a greater fiscal effort.”

Lack of Support at Home

The presentation itself stirred up controversy before it began. Opposition leaders didn’t attend, labeling the forum a “political meeting” that shouldn’t be held at the presidential palace, but instead in the legislature. The lack of participation from the opposition bloc doesn’t bode well since the IMF said in December that the future program needs “broad support” within Argentina.

Read More: Argentine Opposition Refuses to Attend Meeting on IMF Talks

The debt stems from a record bailout the Fund gave to Argentina’s previous government in 2018 that failed to stabilize the economy. Guzman referred to the IMF’s recent evaluation of that program and criticized the institution for focusing too much on rebuilding market confidence and not the real economy.

In the 2018 deal, “the focus was on reestablishing market confidence,” he said. “Of course, we’re working so that there’s more market confidence but the first thing above all is to improve the real economy’s situation.”

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