In 2018 under the government of Mauricio Macri, A stand-by loan was signed for US $ 50,000. At that time, the managing director of the agency, Christine Lagarde congratulated the Argentine authorities and stressed the need to accelerate the reduction of the fiscal deficit.
“The government’s economic plan revolves around a rebalancing of the fiscal position,” he said at the time. Stand-by agreements have a particularity: they constitute a credit instrument used by the organization, which, generally, are granted so that countries can temporarily solve problems in the balance of payments. These loans are subject to regular reviews – quarterly – and debtor countries are usually required to stabilize programs based on fiscal adjustment.
But the problem at that time was not only the deficit, but also, once again, the imbalance in the exchange market. Among the loans granted by the agency, 61% have it Argentina – the highest signed in history-, Ecuador 13%, Iraq (6%), Bosnia (5%), Angola (4%), Ukraine (4%), Egypt (3%). From an economic point of view, the amount would not affect the creditworthiness of the Fund: to its member countries, the IMF can lend up to 1 trillion dollars. Most of the time, a maximum of US $ 30,000 million was granted, but with Argentina, he made an exception.
A blow to reputation
“Within the loans granted by the IMF, what is delivered to the country represents the largest exposure and that raises a question that ranges from reputational issues to how it will influence its results. In terms of reputation, one could say that this may have been a bad decision by the officials in the first instance or it can also be said that it was something that was sought to be solved, “he said. Daniel marx, Argentine economist and Special Financial Representative and Chief Negotiator of the Argentine foreign debt from 1989 to 1993 consulted by Ambit.
In the same vein, he expressed Claudio Loser, Argentine economist, former IMF director for the Western Hemisphere: “I don’t understand the amount, it’s not illegal, but everyone agreed that so much was being lent. It was a serious mistake ”.
Obviously, in most economists there is consensus regarding the amount. But how much does it represent for the IMF in fiscal terms?
“It is true that Argentina is the main debtor of the fund with US $ 45,000 million. But the Fund has a lending capacity of $ 1 trillion. This is a relatively small amount. Obviously it is a blow in terms of capital and all the countries that have their quota in the Fund are going to have a part that is going to be reduced from the total quota of up to 10% of the capital, ”said Loser.
Where does the IMF get the money from?
Most of the resources to finance the loans granted by the IMF come from the member countries through the payment of quotas – based on the size of the country’s economy in relation to the world economy. When a country becomes a member of the IMF, it usually pays a quarter of its quota in accepted currencies or Special Drawing Rights (SDR). The remaining three-quarters are paid in local currency. On the other hand, there are holdings in gold amounting to 90.5 million troy ounces, so the IMF is one of the largest official holders of gold in the world.
The amount immediately available to the IMF to provide financing is indicated by its capacity for future commitment. In this sense, Daniel Marx raises the scenario of what would happen if Argentina fails to comply with the payments: “From the point of view of the balance and impact on results, the IMF says it is in a position to absorb the loss of an Argentine default for a time because in relation to its capital it is a relatively smaller amount but it is not a comfortable matter to recognize this difficulty ”.
Is the Fund in a hurry to agree?
“Some IMF officials are not as urgent because a loan they made is still current. As long as it is current, it is a relatively comfortable situation for some because it charges and does not increase their exposure to risk. In the medium term, as the IMF’s mission is to assist its members, others they judge you by your ability to do it”, Expresses Marx in this regard.
Claudio Loser also adds that the delay in the negotiation does not have a great impact on the organization: “From a political point of view if Argentina enters into default it will not be accused because they will say that the Argentines are the ones who do not want to have a more or less reasonable program ”.
Argentina is seen by the Fund with the “rebellious” child, the one who borrows, but does not want to make changes in economic policy: “Argentina does not want to follow the policies because we have to fix fiscal things. Most countries try to do it without the Fund, and Argentina blames it. The vision of the Fund and of international economists is that Argentines do not want to understand how the economy works ”.
“In reality, Argentina is the country that has handled its things the worst in Latin American countries. There should be mistrust in both, and Argentina is in the rhetoric that everything is the Fund’s fault. There is mistrust, but he is like the prodigal son, he always comes back and they say yes. There is no hatred for Argentina, there is anger. There is frustration with Argentina ”, defined Loser.
Co-responsibility?
The Government’s proposal of “shared responsibilities” for Loser does not make a dent in the negotiation: “The revision of the G20 flight attendants is a sign of saying that it was over-lent. The IMF makes the analysis that they were wrong, but there are no debt reduction mechanisms. The question is why do my taxpayers have to pay for the mistakes of Argentina? the lady who made the loans is no more – in reference to Christine Lagarde-, but beyond that it’s hard to think of financial co-responsibility”.
“What they do in general is separate the issues. What is happening at the moment is a prospective negotiation taking into account the current situation to see how it can be fixed. The other thing is to do a review of the past, of what the errors were, corresponds to another department of the IMF and different sides that do these investigations, give their opinions and point out responsibilities. It seems to me that today the first part is the one that matters more in terms of the solution to be sought than the second, which is to see how to correct the system ”, added Marx.
What alternatives does the government have
One of the options proposed by Alberto Fernandez in the G20 it was debt forgiveness for climate actions. Loser defined it as “look for the five legs of the cat, look for alms “. A third option would be for Argentina to seek an alliance with Ecuador to review the flight attendants, something that the body itself has already confirmed that it will discuss it in December. That option is the most viable for the economist Daniel Marx and would be the first achievement for Argentina. It would represent a kind of understanding about your share of responsibility.
On the Argentine side, the government somehow assumes that it has no alternative but to have the accounts in order. A sign gave her Martin Guzman this year when in the first nine months the negative balance of the national State fell 68% compared to the same period of 2020. The government of Alberto Fernández will have an internal debate that is played in the political arena: Will it be able to adjust the accounts with growth economic?
Source From: Ambito
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