Alberto Fernandez threatens to postpone Debt Payments if IMF demands Economic Conditions

Alberto Fernandez argued in Olivos that he has the political will to close an Extended Facilities Agreement with the International Monetary Fund (IMF) to honor the foreign debt of 44,000 million dollars that he inherited from his predecessor Mauricio Macri. But the President added to his tighter circle that this agreement cannot imply an economic adjustment that adds more social crisis to the devastating effects already caused by the COVID-19 pandemic.

“I still believe that we must close the debt issue as soon as possible, but that cannot mean economic conditions that we cannot meet”, argued Alberto Fernandez in the privacy of Olivos.

–What does conditioning mean?asked a member of the Cabinet who does not need an invitation to reach the fifth presidential election.

–Conditioning means that they require me to achieve fiscal balance in a short time. It is the other way around: in a pandemic scenario and in the current conditions of the Argentine economy, reaching primary fiscal balance takes time.

The fiscal deficit in 2020 reached 6.5 percent of the Gross Domestic Product (GDP), and in the budget for 2021 – without the COVID-19 Package – is set at 4.5 percent of GDP. Macri left a fiscal deficit of 0.4 percent in 2019. And that year he lost the presidential re-election.

Alberto Fernandez and Kristalina Georgieva say in public that an agreement is likely towards the end of May. It is a simple exercise of political faith to prevent Argentine markets from suffering from a possible postponement of payments scheduled for September. There is not a single material indication in Buenos Aires and Washington to support the expressions of wishes of the President and the managing director.

Martin Guzman and Sergio Chodos, representative of Argentina at the IMF 

Martin Guzman and Sergio Chodos, Argentine representative to the IMF, keep as a state secret the demands that come from the offices that Georgieva occupies in Washington. This is a classic adjustment that includes strong structural reforms to the retirement system and the labor market. In addition to the obligation to reduce emission levels, end exchange controls, allow the remittance of profits and bring the fiscal deficit to zero.

Guzman will travel to DC to meet with Georgieva, Julie Kozack, deputy director of the Western Hemisphere Department, and Luis Cubeddu, head of the IMF mission for Argentina. The Minister of Economy has the presidential instruction to advance in the staff report, but Alberto Fernandez will not sign anything that implies an economic adjustment with sufficient capacity to sentence his electoral defeat in October.

In the last fifteen days, the head of state maintained virtual contacts with Angela Merkel, Vladimir Putin, Emmanuel Macron, Antonio Costa -Portuguese premier- and Jair Bolsonaro. In all cases, Alberto Fernandez addressed the bilateral agenda and then requested political support for his negotiation with the IMF.

Merkel, Putin, Macron, Costa, Bolsonaro, and at the time Xi Jinping, made themselves available to the President. And that political disposition means that if Guzman does not reach an agreement with the IMF staff, Germany, Russia, France, Portugal, China and Brazil could endorse on the board of the multilateral organization that Argentina postpone the payments planned for the IMF during 2020.

Alberto Fernandez talks with Emmanuel Macron from the Quinta de Olivos 

Alberto Fernandez considers that the pandemic changed the basic norms of the international system and that it is not possible for the IMF to impose a classic model of economic adjustment on the countries of the periphery. Managing Director Kristalina Georgieva shares the president’s perspective, but her institutional responsibilities include the obligation to close an agreement with Argentina to collect the € 44 billion debt that Macri signed with Christine Lagarde.

The President’s equation is easy to explain: he does not want an adjustment plan imposed by the International Monetary Fund, he wants to win the October elections and go for his re-election in 2023. In this context, The Government will only accept an Extended Facilities Agreement that begins softly in 2022 and deepens only in early 2024.