Argentina can’t delay its economic reforms

Argentina is in a familiar place, buried in debt, unloved in the financial markets and at the mercy of the International Monetary Fund (IMF) — or is it the other way around? When a country owes $45 billion, the balance due on the IMF’s biggest rescue loan ever in 2018, it’s not so much in hock to its creditor as joined at the hip. What’s worse, after nine sovereign defaults, 21 previous IMF bailouts, and six straight decades of 200% annual inflation, never mind the pandemic that already has claimed nearly 57,000 lives, Argentina’s predicament surprises no one.
The IMF and Argentina are currently arguing over the terms of an Extended Debt Facility to resolve the country’s funding crisis, and what reforms it will undertake in return. The deep travails of the continent’s serial profligate and the high stakes for the IMF have fed a consensus that any deal will have to wait until after Argentina’s midterm elections in October. True, committing to a new IMF agreement and the fiscal retrenchment any deal would entail is unlikely to help President Alberto Fernandez at the polls, where his slim ruling Peronist majority — and hence the IMF’s payback — hangs in the balance. Yet here’s the rub: Shelving salutary reforms for partisan advantage until after the election may be the bigger peril, threatening not just to derail Argentina’s return to sustainable growth, but also to tar Fernandez and his allies for squandering an opportunity to set the country right.
Argentina’s debt debacles have many makers. After acknowledging yet another default last year, it reached an agreement with private lenders to reschedule $65 billion in overdue debt, itself part of unfinished business from the quarrelsome 2000s. Economy Minister Martin Guzman led last year’s talks and now is back in the trenches with the IMF, whose 2018 rescue loan now looks in need of rescue.
Leave it to Vice President Cristina Fernandez de Kirchner, who was the bane of bondholders when she was president (2007-2015), to turn the already conflicted tryst toxic. “We can’t pay because we don’t have the money to pay,” she said late last month, plumping for an unheard of 20-year repayment schedule. Stiffing lenders is a problematic habit that has won Argentina a captive place in the Siberia of capital markets. Blowing off the lender of last resort amid a global economic convulsion is even grander folly. The last thing Argentina or its biggest enabler needs is a default on top of a default.
That may not happen. With prices surging for Argentina’s soybeans and wheat, an export bonanza might just tide the economy through until a new pact is struck with the Fund. Since Argentina wants its cash but not the discomfiting bits — fiscal retrenchment, overhauling taxes, lifting price and exchange controls, ending profligate feel-good subsidies — that come bundled with it, the government is struggling to keep the voters close and lenders guessing.
So Argentina is talking tough while counting on the commodities second wave on top of the promise of up to $4 billion in IMF special drawing rights to meet their payments this year. “They can conceivably pull it off,” said Carlos de Sousa, an emerging market debt analyst at Vontobel, a consultancy.

—Bloomberg