Argentine dollar bonds fell the most since September after Economy Minister Martín Guzmán criticised spending cuts proposed by the International Monetary Fund, highlighting the difficulties ahead in securing a new agreement. Notes maturing in 2041 dropped one cent to 32.8 cents on the dollar, the biggest decline since September 20, according to data compiled by Bloomberg. Credit-default swaps widened the most in five weeks.
While Argentina and the IMF are “on the same page” on the level of foreign reserves needed to support the country, they disagree on how quickly the government must reduce its fiscal deficit, Guzmán said late Wednesday as he laid out his most detailed vision yet for negotiations with the Fund. “A fiscal middle ground is possible between the IMF and the government,” said Nathalie Marshik, a managing director for fixed income at Stifel Nicolaus & Co. “But we find the lack of details this far in the conversation worrying, indicating a deal is not imminent and the market will likely have to contend with negotiations going close to the March payment deadline.”
Argentina owes the IMF US$2.8 billion in March, a payment many analysts see as a deadline to reach a deal considering the Central Bank’s depleted reserves. The two sides are in talks to restructure some US$40 billion in loans. The IMF’s proposal would probably “halt the economic recovery that Argentina is witnessing and is essentially a programme of real spending cuts,” Guzmán said during a presentation to governors in Buenos Aires, alongside President Alberto Fernández.
“What’s the priority?,” he asked. “For us, the priority is that Argentina continues on the path of recovery. For others, the priority could be different.” An IMF spokesperson declined to comment. Guzmán’s tough stance comes at a critical stage in negotiations with the Fund. After two years without concrete progress, Argentina has large payments due to the IMF this year and Fernández has already said the government can’t pay.
Lack of support abroad
Without naming countries, Guzmán acknowledged that Argentina doesn’t have enough international support at the IMF to reach a deal. “What we have is support from part of the international community but not all of it,” he said. “That’s the reason why there isn’t yet an agreement on this fundamental point, which is the fiscal issue.”
Guzmán detailed the technical steps of the negotiations in a series of charts showing projections based on Argentina’s proposal for the primary fiscal deficit, monetary financing and international reserves. “The press conference by Argentina’s leaders on Wednesday looked like an attempt to buy time and convince markets, the International Monetary Fund or the government itself that time and bargaining power is on the country’s side. The tone from President Alberto Fernández and Economy Minister Martín Guzmán suggests that no deal is imminent,” said Adriana Dupita, Bloomberg’s economist for Latin America.
He said Argentina and the IMF agree that the Central Bank’s reserves, currently at about US$39.5 billion, should grow between US$3 billion and US$4 billion a year. However, Guzmán didn’t provide precise numbers on the fiscal deficit or monetary financing. “The odds are rising every day that they will not have a done deal by the time the March payment comes due,” says Arturo Porzecanski, an economics professor at American University in Washington. “The impression I get is that the negotiations are stuck because the Fund is seeking a greater fiscal effort.”
Lack of support at home
The presentation itself stirred up controversy before it began. Opposition leaders didn’t attend, labelling the forum a “political meeting” that shouldn’t be held at the presidential palace, but instead in the legislature. The lack of participation from the opposition bloc doesn’t bode well since the IMF said in December that the future programme needs “broad support” within Argentina.
The debt stems from a record bailout the Fund gave to Argentina’s previous government in 2018 that failed to stabilise the economy. Guzmán referred to the IMF’s recent evaluation of that programme and criticised the institution for focusing too much on rebuilding market confidence and not the real economy. “Markets reacted badly to the presentation because it became clear that deep differences remain in the key aspect of policy adjustment,” said Fernando Losada, head of emerging markets research at Oppenheimer & Co.