Current support provided by the International Monetary Fund may not be enough to cushion Argentina against uncertainty in the run-up to the October general elections, according to the Institute of International Finance, or IIF.
Argentina and the IMF have reached a three-year financing deal for about $56 billion in late 2018, which was raised from the initial $50 billion earlier that year.
The institute believes that Argentina faces pressures that "warrant a re-assessment of the country's financing needs," including the possibility of increased domestic capital flight and fiscal adjustment targets that are in the upper range of what past IMF programs attained.
"Outflows moderated somewhat late in the year, but monthly data on private sector purchases of foreign assets and increasing deposit dollarization indicate that domestic capital outflows are picking up again as the election approaches," the IIF said. Low nonresident bond rollover rates and private-sector local currency deposits also increase the risk of capital flight.
These scenarios raise the risk of central bank reserve losses, which could be significant if uncertainty remains high after the election. The IIF noted that reserve losses could happen even with a marked reduction in domestic capital flight next year.
As a result, Argentina will need additional IMF support even under more favorable scenarios, the institute said. "Argentina received sizeable IMF support and tightened policies significantly, but we think important sources of external funding pressure remain in upside and downside scenarios, given fluid politics," it noted.