Argentina is analyzing how to fund part of the USD 3.5bn payments due to the International Monetary Fund (IMF) in the next three months, considering its scarce FX reserves, a source close to and a source familiar with the matter said.
Argentina is also aiming to obtain a financial cushion to better navigate the uncertain period between the 22 October presidential elections and 10 December, when the next administration is due to take office, the sources said.
In this scenario, the country is willing to start negotiations with China to activate a new tranche of a currency swap agreement between the two countries and would also try to tap bridge funding from bilateral creditors, as it did in early August with the USD 776m Qatar loan, said the sources.
The next payments to the IMF include principal amortizations totaling 1.975bn Special Drawing Rights (SDRs) (some USD 2.6bn) to the IMF due at the end of October, and an interest payment of 687.6m SDRs (USD 900m) due on 1 November, according to IMF data. Argentina’s 30-month Extended Fund Facility (EFF) program with the IMF amounts to some USD 44bn, as reported.
President Alberto Fernandez is set to travel to China in mid-October and he will likely request the activation of a USD 5bn tranche under the swap, the source close said. These funds would provide Argentina’s Central Bank with some “firepower” to face depreciation pressures over the Argentine peso as the 22 October presidential elections approach, the source said.
Argentina’s net international reserves at the Central Bank (BCRA) closed 25 September at negative USD 4.92bn, the lowest level since the IMF’s USD 7.5bn disbursement of 23 August, according to calculations by Argentine portfolio manager PPI published in a report. At the same time, the sum of gold holdings plus liquid assets at the BCRA, minus the bank’s reserve requirements and net payments to the IMF until 1 November stood at USD 930m, according to PPI. These USD 930m are the only available funds to the BCRA to stand up to ARS depreciation pressures through interventions in the official FX market, the report said.
In November, Argentina is scheduled to go through the sixth review under the EFF, as reported. If the country meets the revised targets set by the IMF regarding fiscal deficit reduction, FX reserve accumulation and monetary financing reduction, the IMF will disburse the USD 3.3bn payment expected under the program, as reported.
However, Argentina would struggle to meet the IMF’s targets at the end of 3Q23, the source familiar said. Minister of the Economy Sergio Massa, who is also the presidential candidate of ruling party Union por la Patria, is ramping up public spending ahead of the 22 October election, promising tax reductions and cash bonuses for informal workers, the source said.
Massa “decided to break the promises made to the IMF in the last review, in a desperate attempt to win the elections,” the source familiar said. According to estimations of economy consultancy firm EcoGo, the fiscal cost of the measures announced by the government since the 13 August primary elections amounts to ARS 2.5trn (USD 7.7bn), equivalent to 1.3% of GDP, while estimates from consultancy firm Equilibra point to an ARS 2.1trn cost, or 1.2% of GDP.
In order to comply with the targets set by the IMF, as of 30 September Argentina should have limited its primary fiscal deficit to ARS 2.35trn, as reported. As of 31 August, the country’s primary fiscal deficit already amounted to ARS 2.25bn, according to data from Argentina’s Economy Ministry.
“This already challenging scenario deteriorated even more in September, after Massa’s announced measures,” said the source familiar.
The government will try to compensate for the election-related increase in public spending with cuts in other expenses, such as those related to public works, said the source close. Moreover, Argentina will try to get positive net financing in the domestic debt market to fund these measures, the source said.
“The IMF has been very understanding with Argentina so far, but it is not clear how long it will hold on to that attitude,” said the source familiar. Pressure is building inside and outside the IMF to ensure Argentina's treatment is in line with those of other countries, the source stated.
The IMF disbursement expected for November would be key to the administration that takes office 10 December, said the source close. After that date and until 1 February 2024, Argentina has to pay USD 3.6bn, said the source.
A spokesperson for Argentina’s Economy Ministry did not reply to requests for comment.