Argentina and the IMF have reached a staff-level agreement to consolidate reviews on a $44 billion loan.

Argentina and the IMF have reached a staff-level agreement to consolidate reviews on a $44 billion loan.

Argentina Strikes Preliminary Deal with IMF, A Ray of Hope Amidst Financial Crisis

Argentina

LONDON, July 28 (ANBLE) – Argentina’s preliminary deal with the International Monetary Fund is set to combine reviews of its $44 billion loan program, according to four sources, potentially paving the way for streamlining payments to the cash-strapped country.

Argentina, Latin America’s third-largest economy, has been grappling with a severe financial crisis. To alleviate its economic woes, the country has been seeking to expedite IMF disbursements scheduled for this year. The lack of international reserves has further exacerbated their situation.

In an effort to address these challenges, Argentine government officials are working towards a “Staff Level Agreement” with the IMF. This agreement would cover the country’s progress in relation to the fund’s fifth and sixth reviews of a 2022 loan.

Combining the two reviews would grant Argentina access to 5.5 billion of the IMF’s special-drawing rights (SDRs), equivalent to about $7.3 billion. However, it remains uncertain whether merging the reviews would automatically lead to a combined payment, known as a rephasing of disbursements, as per IMF terminology.

The negotiations for the fifth review were postponed due to discussions surrounding certain economic measures necessary to maintain IMF disbursements. These measures include introducing more peso exchange rates to safeguard reserves.

A spokesperson for the Economy minister did not provide immediate comments on the matter. However, an IMF spokesperson stated, “Discussions between the teams continue to be very constructive” and “are aimed at reaching staff level agreement.”

Upon reaching a Staff Level Agreement, it is presented to the IMF executive board. Approval by the board would trigger the release of funds to Argentina, providing much-needed financial relief.

The completion of the fifth review, linked to a $4 billion payment, was scheduled for June but was delayed due to undisclosed “prior action” demands from the IMF. Prior actions refer to measures a country must implement before the Fund approves a revision or loan program.

The sixth review, linked to a $3.3 billion payment, was initially planned for September. However, it can be brought forward due to the availability of the required second-quarter data.

It is worth noting that the Fund has merged reviews in the past with other programs. For instance, earlier this year, the reviews for Uganda and Nepal were combined, along with a similar merger for Pakistan a year ago.

A Long-Awaited Deal

Both Argentina and the IMF have expressed optimism regarding the imminent conclusion of a Staff Level Agreement. However, the timing of the approval poses a challenge. The IMF board cannot convene before the summer recess in the first half of August, pushing the final approval and disbursements to next month.

The urgency to secure financing arises as Argentina is obligated to pay back $3.4 billion to the IMF on a 2018 loan, with payments due in the coming days. To avoid defaulting on their debt to the multilateral lender, Argentina needs to pay $2.6 billion on July 31 and nearly $800 million on August 1.

With minimal liquid currency reserves, Buenos Aires may have to utilize a swap line with Beijing. Notably, Argentina already utilized $1.1 billion in yuan from an extended and expanded swap line with China’s central bank to fulfill its June payment to the IMF.

Given its ongoing recession and triple-digit inflation, Argentina has scheduled four reviews between December 2021 and September 2024 for its IMF program. These reviews will play a crucial role in gauging the country’s progress and financial stability.

While challenges persist, Argentina’s preliminary deal with the IMF represents a ray of hope amidst its financial crisis. Streamlining payments and securing financial support will aid the country in stabilizing its economy and charting a path toward prosperity.