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IMF likely to stall Argentina disbursement ahead of elections, reports say

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IMF likely to stall Argentina disbursement ahead of elections, reports say

The International Monetary Fund will likely stall the $5.4 billion disbursement originally scheduled for mid-September ahead of Argentina's presidential elections in October, according to a number of media reports.

In a Q&A session following a Sept. 12 press briefing, IMF spokesperson Gerry Rice implied that the fifth revision of the institution's standby arrangement with Argentina will be continued later this month, in tandem with the visit of Argentina's Finance Minister Hernán Lacunza to Washington D.C.

Financial analysts believe that the IMF will not announce its decision on its next disbursement in the coming days as originally expected, but rather will look to delay until it has a clearer picture of Argentina's political future.

"It's a matter of timing," Martín Vauthier, a director with EcoGo, said in an interview. "The IMF will make use of its own flexibility in order to wait and see who the Argentine negotiator will be. This does not necessarily mean the stand-by agreement is down," he added.

He argued, nonetheless, that such a decision will likely result in tighter currency controls and stronger pressure on debt, which could already be seen as short- and medium-term bonds had fallen as much as 10% by the end of the trading session Sept. 13.

According to Vauthier, a potential delay will make for "a more complex transition" and further deterioration in financial indicators. "The alternative will be to restrict the exchange controls tap a little more," he said.

A fifth review by the IMF of the $57 billion arrangement was originally scheduled for September 15, after which a roughly $5 billion disbursement would be made.

But since the administration of President Mauricio Macri suffered a substantial 15.5-point defeat against Alberto Fernández in primary elections Aug. 11, financial markets tumbled and the government was forced to enact capital controls and other emergency measures. The turmoil has called into question the continuity of the IMF program.

The IMF, which has disbursed about $44 billion so far, is in a tough spot as it will have to choose between continuing to fund a deteriorating program or cut the line short at the risk of further spiraling financial turmoil for its largest borrower.

"I can confirm that [current finance] minister [Hernán] Lacunza and the team will be visiting Washington in late September for continuation of our ongoing discussions with the Argentine authorities on the program there," the IMF's Rice said at the press conference.

He said "complex market conditions" and "policy uncertainty going forward" will be the main topics on the agenda.

Local analysts say the IMF will likely stall negotiations until after the elections. If Macri manages a comeback and makes it into what seems an unlikely runoff vote on Nov. 24, funds could be postponed until late December.

"We believe the IMF will require fiscal and productivity reforms, probably similar to those that Macri was intended to apply, as a condition for delivering more money to Argentina," Ezequiel Zambaglione, head of research with Balanz Capital, wrote in a note.

Macri's responses to the crisis have been a debt restructuring plan and the implementation of capital controls. Despite an immediate reduced burden on debt servicing, financial needs remain in a range of about $7 billion for the remainder of the year. The move also spurred MSCI to review its addition of Argentina to its emerging markets index; the consultation process with market players started Sept. 12 and will last until December.

Lacunza had said he was counting on the IMF, along with cash positions and intra-public sector assistance, to meet obligations.

A Treasury ministry spokesman cited by Reuters said the postponing of the disbursements was a "conjecture."