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Argentina: IMF technical mission positive, but still a long haul

    Stuart Culverhouse
    Stuart Culverhouse

    Chief Economist & Head of Fixed Income Research

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    Tellimer Research
    29 January 2020
    Published byTellimer Research

    An IMF mission to Argentina is planned in February, according to a short statement issued by the Fund last night. It follows previous rounds of discussions and meetings by IMF management, officials and the new government since December, although we don't know much about the nature of those discussions and their outcomes. Yesterday's IMF statement did say that an IMF team held a "productive" meeting with Economy Minister Guzmán in New York, although that could be interpreted in a number of ways. Discussions between the two sides will continue on 5 February when IMF MD Kristalina Georgieva meets Guzmán on the sidelines of a seminar organised by the Vatican.

    While an IMF mission is a positive step, we caution against getting too excited that it signals an agreement or that a solution is just around the corner. The IMF visit is a technical mission, according to the IMF statement, rather than an explicit programme negotiating mission. That may follow, but it suggests to us that discussions are still at a very early and exploratory stage. 

    This is critical for the timing of any debt restructuring and normalising the situation with commercial creditors. If the government, as per Guzmán, is intent in concluding a debt restructuring by 31 March, as he reiterated this week (a deadline we don't think is realistic), and if the IMF is going to be part of the solution in some form (as bondholders may prefer), that doesn't give much time to reach an IMF agreement and get it approved by the government's deadline. Nor should this be a surprise, given the lack of specific progress to date. Yes, the IMF can move quickly and has shown itself to be very pragmatic when it needs to be. It has moved heaven and earth before for Argentina (the original SBA in 2018 was approved in just six weeks after the authorities requested it, and staff level agreement was reached in just four), but the situation is different, and arguably more complex, now. That the IMF can reach any kind of agreement with Argentina quickly (in time to allow a debt restructuring by end-March) seems ambitious to us. 

    And we still don't even know what Argentina is looking for from the Fund. The government hasn't formally requested a programme yet; and Guzmán's comments last week suggested there was little appetite to pursue IMF-imposed conditionality. Rather, the government was seeking its own homegrown plan (whatever that is). It might be easier, and quicker, for the Fund to concede to something that involved maturity extension on its own money – without providing new money – rather than agree to a full-blown programme, especially one that required exceptional access and/or where public debt was found to be unsustainable, and therefore required a good-faith commitment to seek a restructuring. Even if the Fund can quickly reach a staff level agreement with the authorities on a new programme, we also need to allow time to schedule a board meeting to get it approved (usually about two weeks) and any time to fulfill any prior actions (which could take much longer, as Ukraine is finding out). 

    Nor do we know what Argentina wants from bondholders. While Guzmán and his team have met with bondholders (and we don't know how well these meetings have gone; perhaps they have surprised positively), we're also still waiting for details on the government's restructuring plan after previous statements that it was somehow imminent, as well as waiting for its fiscal plans and macro programme (which obviously dovetails with the IMF discussions). It would be premature for bondholders to agree to anything without seeing the macroeconomic policy objectives and policy commitment of this government, the assumptions underlying its debt sustainability assessment, and its projected external financing gaps, as well as what the role of the IMF will be (if any). 

    The government may be playing its cards close to its chest for now, ready to go with a detailed and considered plan that has already been developed, and perhaps things may move more quickly after the government's debt restructuring bill is finally approved (expected next week). But we doubt it. Argentina has a history of overstating or exaggerating its position, which investors may need to treat with a healthy dose of scepticism.