Argentinian government makes first principal payment to IMF

Argentinian government makes first principal payment to IMF

The Argentinian government has started paying back a US$44bn loan from the IMF, which was taken out back in 2018. The first principal repayment, made on September 22nd 2021, provides a clear indication that the government is trying to meet its commitments to the Fund. However, the repayment schedule is about to get much more burdensome, and the question of how to repay the Fund will dominate the political and policy agenda heading into 2022.

On September 22nd the government paid US$1.9bn to the IMF, in the first instalment in a series of quarterly payments ending in 2024. There is another US$1.9bn capital payment due on December 22nd, before quarterly repayments ramp up: in 2022 alone, Argentina owes the Fund close to US$20bn in interest and capital.

Ever since the president, Alberto Fernández, came to office in late 2019, there has been a big question mark as to how—and indeed whether—the government would manage to pay back the loan. Argentina cannot restructure its debts with the Fund, but does have the option of signing a new IMF arrangement, which would give it breathing room. Negotiations on an extended fund facility (EFF) have begun, but are painfully slow, owing partly to the upcoming mid‐term elections set for November.

The elections are complicating negotiations in more ways than one. The government, which is a broad coalition of centre-left and left-wing factions of Argentina's Peronist movement, fared badly in open primary elections in mid‐September, and Mr Fernández is under pressure from the left of the party to loosen the purse strings in a way that is likely to be at odds with the IMF's recommendations. More than this, it is likely that the extreme left of the party will lobby against a deal with the Fund altogether.

We have previously highlighted the risk that a new deal with the Fund will be rejected, or delayed so much as to precipitate another balance-of-payments crisis, and that risk is rising. However, our baseline forecasts still assume an IMF deal in the first half of 2022, on the basis that the government is running out of financing alternatives. The Fund's recent global allocation of special drawing rights (SDRs, intended to boost global liquidity to support pandemic recovery) has given Argentina some breathing room: it received SDR3.1bn (US$4.3bn) from the Fund in August, which boosted reserves ahead of the September 22nd repayment.

Indirectly, the SDRs will also allow for an increase in public spending ahead of the November elections.

However, the SDR allocation has provided only a temporary boost to the public finances and external accounts. After declining early in the year, currency pressure has returned since mid‐2021, partly reflecting a softening of the commodity price spike, and partly reflecting increased expectations that the government will sooner or later be forced into another devaluation. If the government fails to agree a deal with the Fund, this scenario does appear inevitable.

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