Flash Report /

It's official! Argentina and IMF reach an understanding

  • An IMF statement today confirms overnight reports of an understanding on key policies with the authorities

  • The agreement includes the fiscal consolidation path and monetary policy framework

  • IMF staff and Argentine authorities will continue working towards staff-level agreement in the coming weeks

It's official! Argentina and IMF reach an understanding
Stuart Culverhouse
Stuart Culverhouse

Chief Economist & Head of Fixed Income Research

Tellimer Research
28 January 2022
Published byTellimer Research

Argentina and IMF staff have reached an understanding on key policies as part of their ongoing programme discussions, according to an IMF statement. It confirms the surprise news overnight that Fund staff were due to update the IMF board on progress in an informal meeting today after the two sides had reportedly reached agreement on the fiscal path, as we highlighted in our Tellimer Today newsletter this morning.

According to the IMF's short statement, there are three main areas of agreement:

  1. The fiscal consolidation path that will form a key policy anchor of the programme. The statement says the "agreed fiscal path would gradually and sustainably improve public finances and reduce monetary financing". However, no figures, or further detail, was given.

    According to the overnight reports, the understanding sees Argentina reach primary balance in 2025, two years earlier than Minister Guzman had planned, although there is no confirmation of this in today's IMF statement. Local reports had suggested the primary deficit would fall from 3% of GDP in 2021, to 2.5% this year, narrowing to balance in 2025.

    Crucially, the fiscal agreement would allow for spending increases on infrastructure and science and technology, and protect targeted social programmes. The two sides agreed that a strategy to reduce energy subsidies in a progressive manner was also essential.

  2. A framework for monetary policy implementation as part of a multi-pronged approach to addressing persistent high inflation. The statement says "this framework aims to deliver positive real interest rates to support domestic financing and strengthen stability".

  3. Additional financial support from Argentina’s international partners would help bolster the country’s external resilience, and its efforts to secure more inclusive and sustainable growth. The statement, which is essentially a truism, does not say how much or who from.

We await more specifics however.

The statement noted that IMF staff and the Argentine authorities will continue to work towards reaching a staff-level agreement in the coming weeks (so, to be clear, this understanding is not yet at the level of a staff-level agreement). Final agreement will, obviously, be subject to Board approval.

Recall, too, that President Fernandez has also made it a domestic requirement that an IMF programme needs to be approved by Argentina’s Congress.

Meanwhile, Argentina is due to make a cUS$730mn principal payment to the Fund today.

The news is encouraging. It clearly represents more substantial progress than we had expected, following Argentina's IMF presentation to a local audience earlier this month, and suggests that the chances that an agreement on a new programme can be reached by the March deadline, to avoid a Paris Club default and when bigger IMF repayments come due, have improved. However, the devil might still be in the detail.

We maintain our Hold on Argentina's US$ bonds, with the 2030s priced at US$33.4 (yield of c24%) at the time of writing on Bloomberg (mid-price basis). The '30s are up c2.5pts today, after languishing around the 31 handle for the past two weeks, while the other bonds are up 2.5-3pts.

Argentina US$ bonds – price