At a time when nearly everyone now expects the IMF to suspend Argentina’s current review and withhold the associated disbursement until after the election (due 27 October), the Fund released a statement last night confirming that discussions with the Argentinian authorities continue. Acting Managing Director David Lipton said, “Our dialogue and close collaboration with the Argentine authorities will continue with technical meetings expected to take place later this week and before the IMF annual meetings.”
We noted in our earlier report “Should the IMF walk away from Argentina?” that, amid the Fund’s fifth review of the Argentina’s SBA (which was scheduled on or after 15 September), the arguments on whether or not to proceed with the US$5.3bn disbursement are finely balanced. On the one hand, the IMF may not want to rock the boat in an election period but on the other, it needs to uphold its own principles, while it may also need more clarity on the policy intentions of a likely incoming Fernandez government. We think the Fund should call a halt on the programme and wait until the next government arrives, and it will have the ideal chance to pivot, or re-set its stance, on Argentina under its new leadership.
However, given the tone of the IMF statement, a few more weeks looks likely before the IMF will make a decision on the current review, although the chances of its approval would seem to dim the closer we get to the election. If the review is not completed, that will not come as a surprise to the market, which will wait to see what happens next. If it is completed, that might provide a short-term fillip to bondholders, and investors will look to see what kind of policy commitments the government and opposition have agreed. However, we still think investors will remain sceptical until a likely Fernandez government has set out a clear and credible policy agenda, especially as Fernandez and his team’s criticism of the Fund is hardly the best basis to start negotiations on a new programme.