Argentina becomes entangled in negotiations with the IMF two months away from a crucial payment

Negotiations between Argentina and the International Monetary Fund (IMF) are going through a bad time. Time is running out for the Government of Alberto Fernández, and the reluctance of some shareholders of the Fund, such as the United States, to accept the offer for an agreement undermines the emergency in Buenos Aires. In March, the South American country must pay the IMF 3,588 million dollars of the 19,115 million that expire this year; he doesn't have that money. The Argentine Executive has admitted for the first time since the beginning of the talks that the multilateral organization demands a greater fiscal adjustment than it is willing to carry out. At the same time, the political opposition avoids giving its support to the negotiations and does not grant the photo of internal unity that Fernández intends to display in Washington.

The Government of Argentina has been in negotiations with the IMF for two years to postpone the payment of the 44,000 million dollars that President Mauricio Macri received in 2018 as a financial bailout. The sum, the largest ever granted by the Fund to a country, should generate sufficient confidence for the country to get out of the economic quagmire it was in three years ago, when private lenders turned off the dollar tap. Since then, things have only gotten worse. A year after receiving the money, Macri had to admit that he could not return it within the agreed deadlines. When in December 2019 he handed over power to the Peronist Fernández, the country was in default. Fernández agreed at the beginning of 2020 with private creditors a new schedule and an interest reduction to cancel a debt of 67.Billion dollars. And he announced that soon after there would also be an agreement with the IMF. But things have not been as easy as expected.

A week ago, the Minister of Economy, Martín Guzmán, said in an interview with EL PAÍS that Argentina was ready to sign with the Fund, but that "the necessary international consensus to have an agreement between both parties was still lacking." He thus referred to some IMF shareholders who, he said, did not have a full understanding of the problems Argentina was facing. He then asked them to heed the self-criticism that the organization had made about the results of the loan granted to Mauricio Macri, considered a failure. Guzmán did not name the United States in that interview - "there are issues that each shareholder must decide when to make public," he said - but days later the ministry directly targeted Washington.

With the external front complicated, Argentina's strategy then concentrated on the internal front. President Fernández and Minister Guzmán received governors and representatives from the country's 23 districts on Wednesday and gave details of the negotiation for the first time. The Minister of Economy was clear: he said that if an agreement had not been reached, it was because the IMF was asking for more adjustment than is acceptable. “What they are asking for is a program to adjust real spending versus having a program that gives continuity to this recovery of the economy. The fiscal path is the point where there is no agreement, "he said. "The word adjustment is banished from the discussion, for us the secret is to grow."

Guzmán did not detail the size of the IMF demand. The percentage of fiscal deficit demanded by the

is a secret that the minister keeps carefully. It is only known that Argentina offers a red of 3% for this year and a primary fiscal balance for 2027. The IMF asks that this balance be reached in 2025, in line with what it demanded of Ecuador at the time.

When Ecuador agreed with the IMF in August 2020, it committed to a 0.1% surplus in 2024. Argentina may not be being asked much more. The problem is that the second largest South American economy has other worrying imbalances. Without external credit, it does not have many weapons to finance the deficit, whatever it may be. So far it has done so with monetary issuance, a strategy that undermines the value of the peso and promotes inflation, which this year will close above 50%. The imbalances have generated a disaster on the financial front, where the official price of the dollar against the peso is half that of the black or parallel market. The “exchange gap”, as they call it in Argentina, is a concern for the IMF, because closing it would imply a devaluation of the peso.

Like a juggler who throws oranges into the air, Guzmán tries every day to make sure none of them fall. Closing an agreement with the IMF is for now the main strategy to calm the troubled national economy. The Argentine offer "is ready," as Guzmán told EL PAÍS, but to unlock the agreement it is now necessary to make political decisions.

The last three weeks were hectic in Buenos Aires.

On Friday, December 17, the Government had to assimilate the defeat of its Budget bill in Congress.

The opposition, which was the government when the IMF granted the now unpayable loan, used its new majority in deputies to send a fundamental law for the negotiations to a drawer.

He thus demonstrated his firepower, but left the Casa Rosada in a situation of maximum vulnerability in Washington.

"The effect it had was to generate some institutional damage to Argentina, which is not good," the Minister of Economy complained at the time.

A roadmap for 2022

Guzmán's failed budget gave an idea of ​​the roadmap for 2022: growth of 4% of GDP (the product will rise in 2021 around 10%), inflation of 33%, a dollar for next December to 131 pesos ( today the official is at 108 pesos), a fiscal deficit of 3.5% and a real increase in social spending and a reduction in energy subsidies, the main source of red in public accounts. It is in this "real increase" where the luck of the agreement is played. Argentina intends for the deficit to be financed with the growth of the economy, a strategy that would keep it constant and could even allow an increase in state spending, which Guzmán wants as a "countercyclical" force.

Instead, the IMF intends for there to be a real drop in spending, beyond growth. “We seek to lower the deficit, but at the same time be able to play a countercyclical role that underpins the recovery. This is a first step, it will take years to solve the debt with the IMF, "Guzmán said at the meeting with governors last week.

That meeting with the territorial chiefs was supposed to be an exhibition of unity, after the debacle of the Budget in the Chamber of Deputies, but the absence of their own and others took away its luster. Only 12 of the 24 governors participated; the rest sent representatives. There was also a significant absentee: the head of Government of Buenos Aires, Horacio Rodríguez Larreta, the main candidate to represent the opposition in the 2023 presidential elections. The absence of Rodríguez Larreta, who did not even send someone on his behalf , opened a gap between hawks and doves in opposition. On the eve of the meeting, the governor of Jujuy, Gerardo Morales, also in the race for the Casa Rosada, said that his coalition was responsible for the debt with the IMF and should go to the meeting "at least to listen" to the Minister Guzmán.

President Fernández, in any case, has not been able to join forces en bloc, not even among his own forces.

Kirchnerism, the driving force behind the Peronist alliance that governs Argentina, opposes any fiscal adjustment that would be a drag on growth.

Without an agreement at home, the possibility of a consensual pact with the Fund seems increasingly distant.

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