Argentina Rejects Investor Advice for IMF Credit Line
The Argentine government rebuffed an investor proposal that it should request a flexible credit line from the International Monetary Fund to shore up the nation’s finances, according to three people with direct knowledge of the matter.
The proposal was discussed with Finance Minister Luis Caputo and his team the week of March 4 at private meetings on the sidelines of a larger gathering of about 50 investors in New York, according to the people, who asked not to be named because the talks were private. Government officials rejected the suggestion as unfeasible given the current political situation.
Yael Bialostozky, a spokeswoman for the ministry, said she had no immediate comment and that Caputo was unavailable.
The meetings were held after Argentine assets were pummeled during the global market selloff in January. Argentine companies and provinces found themselves shut out of capital markets, compounding concern that a $9 billion sovereign-bond sale in January had crowded markets. Caputo’s team promised it would seek to finance the nation domestically for the rest of 2018, seeming to ease investor anxiety.
The flexible credit line was seen as a tool to ease concern about Argentina’s ability to finance itself in turbulent markets, the people said. Argentina, rated four levels below investment grade, saw borrowing costs surge 100 basis points this year, twice that of the riskiest emerging markets. Two initial public offerings have been shelved and provinces have put financing plans on hold.
Caputo’s team dismissed the IMF plan as unfeasible, and argued that such a move would damage President Mauricio Macri’s plan to run for re-election in 2019, the people said. The IMF remains a source of deep division in Argentina, where many people blame the Washington-based lender for the world’s largest sovereign-debt default in 2001 that plunged the country into a depression.
Despite those tensions, the relationship with the IMF has improved since Macri came to office in 2015. Managing Director Christine Lagarde visited Argentina earlier in the month, and the nation is now under the Article IV consultation process.
Investors insisted that Argentine officials explore the idea of a credit line similar to the one that Mexico got in 2009. Mexico has never touched the $67 billion from the IMF but kept renewing the credit line every two years and raised the amount to $88 billion recently.
Argentina could easily get a $50 billion credit line and like Mexico might never need to touch it, one portfolio manager told Caputo’s team. Latin America’s third-largest economy would be better positioned to weather external shocks with the credit, the person said.
Raphael Anspach, an IMF spokesman, declined to comment if Argentina qualifies as the decision is to be made by the board. He reiterated that Lagarde said Argentina didn’t apply.
The first signs of increased volatility in the capital markets were seen in January. Both Corporacion America Airports SA, the world’s largest airport operator, and renewable energy company Central Puerto slashed the price for shares in their IPOs. Bioceres SA canceled its initial offering, and provinces including Buenos Aires, Entre Rios, Rio Negro, Neuquen have put on hold a plan to sell as much as $1.9 billion in bonds.
While an IMF credit line would cost the country around 150 to 200 basis points, Argentina will instead seek to secure around $3 billion in repo lines from private-sector banks, according to a Finance Ministry official. On Wednesday, it announced it got the first of these loans with the Argentine branch of HSBC Holdings Plc. The 18-month facility of $1 billion carries interest of Libor plus 2.5 percentage points, according to a person with direct knowledge of the terms.
— With assistance by Ignacio Olivera Doll, and Jorgelina Do Rosario