IMF, Argentina reach staff deal on loan reviews to unlock $7.5bn

The International Monetary Fund (IMF) said on Friday that it has reached a staff-level agreement with Argentine government to unlock about $7.5 billion and complete the fifth and sixth reviews of the struggling country’s $44 billion loan program.

The agreement, which still needs IMF Executive Board approval, eases some program requirements because a devastating drought has created a “very challenging” economic environment in Argentina, causing some end-June financial targets to be missed.

Reuters first reported that the agreement would combine the fifth and sixth reviews of Argentina’s IMF program — a move that provides additional loan funds sooner. The IMF said its board would meet to consider the agreement in the second half of August.

The Fund said in a statement that since the fourth review of the loan program in March, Argentina’s economic situation has become very challenging due to the larger-than-anticipated impact of a drought, which had a significant impact on exports and fiscal revenues.”

“There have also been policy slippages and delays, which have contributed to strong domestic demand and a weaker trade balance,” the IMF added.

Measures ahead
To sustain demand for Argentina’s peso currency, the agreement calls for authorities to ensure that policy interest rates remain “sufficiently positive in real terms.”

The agreement projects a more gradual accumulation of reserves, with a target of around $1 billion by the end of 2023, compared to an $8 billion goal set in March.

The agreement calls for Argentina to tamp down import demand with new foreign exchange taxes for imported goods and to strengthen expenditure controls. But its 2023 primary fiscal deficit target remains unchanged at 1.9% of GDP, the IMF said.

With no liquid currency reserves in the central bank, Argentina has recently introduced more peso exchange rates to stop the drainage. The Fund said that the program will need waivers because these measures are “against the introduction of multiple currency practices.”

The government will need to take some additional measures, known as prior actions, between the staff level agreement and the board approval, according to a source familiar with the matter, who asked not to be named because the measures are still not public.

The next review is expected to take place in November, a month earlier than originally scheduled.

Argentina is set to have another three reviews on its 2022 IMF program by September 2024, though the IMF statement didn’t specify what would happen with those.

The IMF’s board approval of the reviews would come after a primary vote on Aug. 13 in which Economy Minister Sergio Massa runs as one of the presidential candidates for the ruling coalition.

The country still needs to avoid a default with the Fund next week, with maturities of $2.6 billion due on July 31 and almost $800 million due on Aug. 1. Argentine officials are working to “get financing from several sources” to meet these obligations, the source added, without providing any further details.

While it is not clear how the country will make those payments, Buenos Aires could potentially use a swap line with Beijing, a move it recently made to complete part of its June payment to the IMF.