The recent history of Argentina with the IMF shows that the negotiation of extensions in the payment terms is not a simple or guaranteed process.
The Government of Javier Milei announced his intention to send to Congress a decree of necessity and urgency (DNU) with the aim of obtaining support for a New agreement with the International Monetary Fund (IMF). However, this decision is not exempt from controversy, since it seems to conflict with the Law of “Strengthening of Public Debt Sustainability”. In its article 2, this law clearly establishes that “any public credit financing or operation program carried out with the IMF, as well as any expansion of the amounts of these programs or operations, will require a law of the Honorable Congress of the Nation that expressly approves it.”
The current situation raises multiple questions about the government’s strategy and its possible consequences for the country’s economic stability. First, the use of a DNU to approve the agreement with the IMF is questionable from the legal and constitutional point of view. Current regulations require that legislators analyze and approve any credit operation with the IMF, which implies that they must know the details of the agreement, including the amount, the return deadlines, the availability of the funds and conditionalities that this program will impose on the Argentine economy. So far, these details have not been disclosed because the agreement continues to be negotiated.
Another critical point of the agreement is the creditor change. The Government says that extra funds will be used to cancel existing debt. Currently, the debt to be canceled is in the hands of the Central Bank of the Argentine Republic (BCRA), allowing some flexibility in its cancellation, depending on the tax result of the Treasury. However, if the debt is transferred to the IMF, the country will go from an internal debt to the BCRA to an external debt with the multilateral body, which imposes more strict payment terms and limits the government’s ability to refinance it with flexibility. The recent history of Argentina with the IMF shows that the negotiation of extensions in the payment terms is not a simple or guaranteed process.
The Government has affirmed that “the net result of the operation will imply a reduction in the total public debt.” This statement is based on the accounting of the BCRA and the Treasury. Currently, the Treasury has issued non -transferable letters to the BCRA for a nominal value (VNO) of approximately US $ 62.4 billion, which in the balance sheet of the Central Bank are registered at a market value close to US $ 23,000 million. At the accounting level, the BCRA has already reflected that loss in its balances, but if it maintains these portfolio titles and the Treasury, the BCRA would eventually recover those funds. On the other hand, if the operation is carried out as indicated by the Government, the BCRA would confirm a substantial loss in its assets, which would further weaken its financial position.
Beyond the accounting impact, there is a history of Argentine economic history that generates concern about the final destination of these funds. If the treasure takes new debt with the IMF and uses it to cancel its debt with the BCRA, the latter could have those dollars to intervene in the exchange market and artificially hold the exchange rate. In the last eight months, the current BCRA account has registered a deficit of approximately USD 8.2 billion, reflecting the pressure on international reserves. If this scheme is repeated, the result will be a new reduction in the reserves of the Central Bank but having generated a new increase in external debt, replicating situations such as those lived in 2018.
From a pragmatic perspective, it is evident that the government needs to reach a new agreement with the IMF. None of the parties involved would benefit from an Argentine default, and currently the country lacks access to international credit markets, as well as the possibility of generating the necessary dollars to cancel its obligations. However, the key lies in the strategy adopted to manage this agreement. Instead of increasing the debt with the IMF without a clear output plan, the government should seek a strategy that reduces the dependence of the multilateral organism and move towards greater economic stability in the medium term.
The challenge facing the government is not less. The implementation of this agreement must balance the need for financing with the sustainability of debt and macroeconomic stability. Argentine economic history demonstrates that the agreements with the IMF have not always resulted in long -term solutions, and the lack of transparency in the execution of these policies only increases uncertainty between investors and analysts. As the negotiations develop, it will be crucial to evaluate whether the Government manages to design a credible program that not only guarantees the continuity of the agreement with the IMF, but also contributes to a sustained economic recovery.
Source: Ambito
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