Inside IMF, stance hardens on Argentina as $44 billion deal skids off
track
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[November 09, 2023] By
Jorgelina do Rosario
LONDON (Reuters) - The International Monetary Fund has hardened its view
on how Argentina is running a $44 billion loan program that has gone off
track ahead of the country's key presidential vote later in November,
according to three sources with direct knowledge.
The IMF's board of executive directors met in a previously unreported
meeting on Oct. 30 for an informal briefing on Argentina by the Fund's
staff, as the South American nation is battling triple-digit inflation
and with net reserves in the red in the run-up to the presidential vote.
During the meeting, concerns were raised on how fast the country has
been burning through international reserves since the latest program
review in August, said one of the sources, who asked not to be named
because the talks are private.
The wording used during the briefing also reflected a harsher stance,
the source added, with board members talking about "mismanagement" of
the program by Argentina's government, rather than terms such as "policy
slippages" or "underperformance" used previously.
With "depleted reserves and an overvalued currency, recent economic
measures are not aligned with the program," a second source added.
Argentina's central bank has intervened in the parallel FX market for "a
sizeable $2.7 billion in the last three months as FX pressures have been
rising amid the election cycle," according to a JPMorgan note. The bank
added that negative net foreign currency reserves stand at $15.3
billion.
IMF funding has been crucial to keep Argentina's government finances
afloat and the fund has given the agricultural exporter suffering a
historic drought some breathing room to fulfill its obligations in
recent months.
In an August report, the IMF said that Argentina's program had gone off
track, but allowed for changes in some goals - such as easing reserves
targets - to put it back on course.
The harder stance from the IMF reflects a view that despite the
concessions, the program is sliding further off the rails - which could
jeopardize future disbursements.
It also comes at a sensitive time for the cash-strapped country, which
has a review of the program scheduled for early November. A review is a
key step needed for the country to reach a staff level agreement that -
once signed off by the Fund's executive board - would trigger the next
tranche of financing.
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Argentina's presidential candidate Sergio Massa speaks during a
press conference a day after the first round of Argentina's
presidential election, in Buenos Aires, Argentina October 23, 2023.
REUTERS/Cristina Sille/File Photo
A spokesperson for the IMF confirmed that the Oct. 30 meeting had
taken place "in line with the established practice" and added that
no date had been set at this stage for the seventh review.
"As with any Fund review, we will need to establish that the program
remains on track to achieve its objectives and there is work and
further engagement to be done," the IMF spokesperson added.
A spokesperson for Argentina's Economy Minister did not reply to a
request for comment.
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The top global exporter of soybean oil and meal was hit by its worst
drought in 60 years, and the economy derives a large chunk of its
hard-currency revenue from commodity exports.
Farmers were facing losses of over $14 billion in soy, wheat and
corn production, according to the Rosario grains exchange.
Argentina is heading to a runoff between Peronist Economy Minister
Sergio Massa and far-right candidate Javier Milei on Nov. 19, with
polls pointing to an increasingly tight race.
During the Oct. 30 meeting, a representative for Argentina said that
the country was committed to remain current with IMF payments, one
source added. The country's next maturity is for around $900 million
in December.
Battling an acute scarcity of dollars, the country has recently used
a combination of Chinese yuan from a swap line with Beijing's
central bank and other sources of financing to complete payments to
the Washington-based lender since June.
Argentina became the IMF's top debtor in 2018 after receiving a $57
billion bailout to help then-President Mauricio Macri's government
steer out of an economic crisis.
But that program failed and the Peronist government that took over
in late 2019 negotiated a loan with modest economic targets tailored
to refinance $44 billion still owed.
(Reporting by Jorgelina do Rosario in London; Editing by Karin
Strohecker and Matthew Lewis)
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