The future of Argentina's financial lifeline from the International Monetary Fund is in flux as President Mauricio Macri's government seeks to extend its repayment schedule and his likely successor looks to change much more.
Finance Minister Hernán Lacunza on Aug. 28 announced plans to extend the maturity dates on government debt in an effort to give the country a "less demanding" repayment schedule. As part of the effort, the government said it also will work to extend the repayment schedule tied to its $57 billion rescue package with the IMF.
Importantly, Lacunza made no mention of adjusting other terms. The current program includes a commitment that Argentina will take a more austere approach in order to achieve a balanced primary budget by the end of the year, with leeway to incur a deficit of up to 0.2% of GDP solely for social purposes.
The debt extension plans could further complicate matters for the IMF, which is already navigating a difficult political landscape ahead of presidential elections in October that seem increasingly likely to result in a leadership change.
"This puts the IMF in a tough spot," Claudio Loser, a former IMF director, told S&P Global Market Intelligence. "But at this moment of crisis and with some internal consensus I think they will be able to support."
Loser, who once led the same department now evaluating Argentina, noted that with much of the funds already paid, "the IMF already has placed its bet on Argentina." But, he added, it still wants assurances that a "reasonable policy will be continued" by either administration.
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During its mission trip to Argentina this week, IMF representatives met with both the current government and Alberto Fernández, the presidential candidate who is seen likely to defeat Macri in elections later this year.
After that meeting, Fernández and his economic aides issued a statement making clear that they do not agree with the recommendations that the IMF put forward as part of the financial rescue package, while economic adviser Guillermo Nielsen said in an interview that Fernández wants to renegotiate "everything" in the IMF deal — not just repayment schedules — to allow "a greater degree of freedom."
"It is not that we will do what we want. But ... there must be a negotiation," Nielsen, who is a likely finance minister candidate in a Fernández administration, reportedly told Valor.
Fernández's posturing raises questions as to whether the IMF will continue to provide disbursements to Argentina under the record $57 billion bailout loan package agreed to last year.
Argentina's next disbursement, totaling $5.4 billion, is scheduled for September and is badly needed.
While the new debt extension plan may help ease the national treasury's burden to replace $10 billion to $12 billion of maturing debt before the end of 2019, it is still counting on the IMF funds to meet its obligations.
More broadly, however, the IMF's continued disbursements also represent a key vote of confidence in the Argentine market, and a decision to halt or postpone any payment could freeze financing altogether.
"I don't think it's a problem of solvency. It is a matter of liquidity. That's where the problem is [and] why the government went to the IMF [in the first place]," Fernando Diaz, an economist with Citigroup, noted. "If no one wants to finance you then it becomes very difficult to honor debt."
Markets already have reacted harshly since the sudden assent of Fernández and his vice-presidential running mate, former President Cristina Fernández de Kirchner, as Argentina's likely next leaders. His commanding lead over Macri following the Aug. 11 primary contest has caused extensive turmoil across Argentine assets, including its currency and stock market.
Prior to the government's Aug. 28 news conference, the rollover rate on local Letes financing instruments plunged to just 10% from an average of 88%, while Argentina's country risk hit a 14-year high of 2,027, according to the JP Morgan Emerging Markets Bond Index Plus. A reading north of 1,800, experts say, effectively eliminates the potential for foreign financing.
On the one hand, denying the funds would almost certainly jeopardize the more-than $44 billion the IMF already has loaned to Argentina, which is now the organization's largest borrower. On the other hand, with little assurance from the potential next president, it could just be throwing good money after bad.
"Seasoned emerging market investors are not the slightest bit surprised that Argentina once again finds itself in trouble," Jan Dehn, head of research at Ashmore, wrote to investors. "After all, [it] has a history of repeatedly failing basic macro policy challenges, neglecting deep structural reforms and regularly succumbing to rampant populism."
The IMF has been here before too: In late 2001, it turned down scheduled disbursements to Argentina as the country faced a severe recession. The decision further hamstrung the country, ultimately leading it to default on its debt.
"If [a restructuring] is done in the context of a program with the IMF, it could be done in a fairly orderly manner," Loser, the former IMF director, said. "But a default process would be very difficult to handle and would close the doors to Argentina again in tremendously important ways."
Amid the political turmoil, the Macri administration has stressed that it already exceeded the IMF-set targets needed for the September disbursement. Lacunza, Macri's new finance minister, recently said that there is "no reason" for the IMF to hold back the funds, as the government has "fulfilled [the terms of] the entire agreement," a point shared by most analysts.
"The most important aspect of the relationship with the IMF is the fiscal aspect. Even despite recent short term stimulus measures, Argentina is overachieving on its targets," Sebastián Briozzo, LatAm head of sovereigns at S&P Global Ratings, said in an interview.
As a result, most expect the IMF to move ahead with the September disbursement. But as Loser noted, "it gets much more complicated" after that.
The IMF is scheduled to provide another $980 million in December, followed by $3.92 billion in 2020 and a final $1.96 billion in 2021. All of those payments would take place after the winner of the presidential election takes office. And while the $44 billion received already dwarfs the remaining payments, they are still key to Argentina's continued solvency.
"[Argentina's] repayment needs for 2020 and 2021 are not that bulky," Briozzo noted. "Assuming IMF funds and a moderate access to markets, it looks manageable."
The problem, however, is that neither of those assumptions are as sound as they once were, the S&P Global Ratings analyst noted.
"Obviously, if one has fewer funding sources, and does not have the IMF behind it, then it does become too big of a challenge," he said.


