Argentina and the International Monet-ary Fund share a rocky history spanning seven decades – and it looks as if things could get worse.
Just five years ago, Argentina became the Washington-based global lender’s biggest single debtor, receiving a $57 billion bailout to help then-President Mauricio Macri’s market-friendly government steer out of an economic crisis marked by high inflation and a gaping budget deficit. But that programme failed to put South America’s second-largest economy back on its feet.
Fast forward and Argentina is about to enter a recession, with inflation running at more than 100% and its dollar reserves deep in the red. Meanwhile, the Peronist-led government that took over in late 2019 has missed the modest economic targets mandated by a 2022 IMF loan tailored to refinance $44 billion still owed from the previous programme.
Although the current programme is off track, the IMF is pushing ahead with reviews and disbursements because it does not want to force Argentina into a default that would likely worsen the country’s grim economic circumstances.
Pressure, however, is building inside and outside the IMF to ensure Argentina’s treatment is in line with those of other countries. Analysts said the IMF needs to take a harder stance when a new government takes power after elections in October.
“No matter who wins after the vote, the IMF should insist that the government either bite the bullet – or otherwise the Fund should pull the plug on its support,” said Mark Sobel, a former US representative at the IMF.
“Even if that means huge arrears.” The next government might feel the heat quickly.
Javier Milei, a far-right outsider who vaulted into the front-runner’s position after primary elections last month, wants to dollarise the economy and said the Fund should encourage Argentina to more quickly reduce its primary fiscal deficit, which is targeted at 1.9% of gross domestic product for 2023.
Even if he wins the Oct. 22 election and takes power in December, Milei would need alliances in Congress to push through reforms and a new IMF programme – Argentina’s 23rd.
Sobel said the country will require sweeping fiscal consolidation, a halt on reserve money creation, and an extensive and sequenced liberalisation of multiple foreign exchange rates, capital controls and other restrictions.
Economy Minister Sergio Massa, the center-left Peronist coalition’s presidential candidate, promised this week to exempt millions of workers from paying income taxes shortly after a fresh IMF disbursement.
Stricter conditions and deeper structural reforms for Buenos Aires should come with a “very strong social component,” said Martin Muehleisen, the former director of the IMF’s Strategy, Policy and Review Department (SPR), adding that a new programme “can’t mean more people living on the streets.”
Four out of 10 Argentines live below the poverty line.
“The message to Argentina from the IMF but also from G7 shareholders needs to be clear: You fix your economy for real or there is just not more money,” Muehleisen said.
A top soybean meal and oil exporter, Argentina is at the mercy of boom-and-bust cycles. Its economic policies have gyrated between protectionism – capital controls, export quotas and tariffs – and market-friendly reforms, leading to a topsy-turvy relationship with the Fund. In the 1990s, the global lender was a continuous feature in Argentina, providing financing and technical assistance while the government fixed the peso to the US dollar. But quick IMF disengagement in 2001 worsened an economic crisis as the country’s overseas debt bulged.—ReutersJorgelina do Rosario, "IMF has a tough call on Argentina: force major reforms or pull the plug," Business recorder. 2023-09-16.
Keywords: Economics , Monetary fund , Economics policies , Money creation , Economics crisis , Economy , Mauricio Macri’s , Pakistan , China , South America , US , IMF , SPR