Bank loan

Argentina says it has reached an initial agreement for a $44.5 billion loan from the IMF and pledges to reduce its deficit

Argentina has struck an initial deal with the International Monetary Fund worth $44.5 billion as part of efforts to stabilize its economy and refinance an earlier loan with the Washington-based organization.

Argentina has pledged to slowly reduce its budget deficit and reduce central bank financing of the Treasury as part of an economic program discussed with the IMF, Economy Minister Martin Guzman said. The deal would give Argentina a grace period of at least four and a half years before starting to pay down its debt, he said.

“We have reached the best deal possible,” Guzman said in Buenos Aires.

The deal, which still needs to be approved by the country’s congress and the IMF’s board, would help refinance more than $40 billion in outstanding debt Argentina owes the lender after a record bailout in 2018.

It also provides new funding and sets the first framework for an economic plan under President Alberto Fernandez, who chose to govern through short-term policies.

The announcement sets the stage for Argentina to sign its 22nd loan with the international lender, after public disagreements between members of the ruling coalition last week raised questions about whether the nation would default on its biggest creditor.

A deal will help Argentina avoid an even worse economic crisis as the country battles inflation of more than 50%.

Bonds due in 2030 soared as high as 3 cents — the biggest one-day gain since the notes were issued in September 2020 — before falling to 33 cents on the dollar. These price levels show how deeply the country’s debt remains in trouble.

The benchmark Merval stock index rose 2.9%, the second-best global return on Friday, led by banks and energy companies.

“We suffered a problem and now we have a solution,” Fernandez said Friday in a speech from the presidential residence in Olivos, on the outskirts of Buenos Aires.

“We will be able to access new funding precisely because this agreement exists.”

In a separate statement, the IMF said it had reached agreement “on key policies”, including the country’s fiscal trajectory, monetary policy and the reduction of energy subsidies as a means of closing its budget deficit.

Staff at the lender will continue to work with government officials in the coming weeks to reach a staff-level agreement, he said.

“The devil is in the details, and there’s still a lot we don’t know,” said Daniel Marx, a former finance secretary and founder of Buenos Aires-based consulting firm Quantum Finanzas.

IMF staff also told board members at an informal briefing on Friday that the two sides have agreed on the goal of achieving primary fiscal balance in 2025, according to a report. source.

In his presentation, Mr. Guzman only sketched the trajectory of spending through 2024.

He also said the country would maintain its foreign exchange policy and not quickly devalue its currency. The Argentine peso is worth less than half its official price in the unregulated foreign exchange markets that Argentines use to circumvent capital controls, a policy criticized by the IMF.

This is clearly a step in the right direction. But as with all IMF deals with Argentina, this one is fraught with implementation risks

Edwin Gutierrez, portfolio manager at Aberdeen Asset Management

Argentina made a $717 million payment due to the IMF on Friday, a source said.

The pledges that underpin the economic deal will last two and a half years under a 10-year financing agreement, known as the Extended Financing Facility, Guzman said, without providing details on the timeline. debt refund.

The deal does not include labor reform or the privatization of state-owned enterprises, he said.

“The plan assumes the Treasury will eventually fund itself through the local market, which might be achievable,” Marx said.

Approval of the deal is not guaranteed, especially on the Argentinian side.

Mr. Fernandez’s 2022 budget proposal was rejected in December by a new congress. His ruling coalition lost its majority in the Senate after being defeated in November’s midterm elections.

If the deal is approved, Argentina must meet program fiscal targets and pass quarterly reviews with IMF staff to continue receiving debt relief.

It is a difficult task with the presidential election next year and a divided ruling coalition after its defeat in the midterm elections.

“It’s clearly a step in the right direction,” said Edwin Gutierrez, portfolio manager at Aberdeen Asset Management in London. “But as with all IMF agreements with Argentina, this one is fraught with implementation risks.”

Updated: January 29, 2022, 1:58 p.m.