Argentine Government, Wary of Spending Cuts, Drags Feet on Deal With IMF

“Talks haven’t reached the stage that you see when a deal is to be closed in a few months,” this person said. “There has been very little progress.”

The South American country is virtually broke, with just $5 billion in cash and gold reserves available for debt payments. It reached an agreement last year with private bondholders to postpone payments of $65 billion in debt, but must reach a separate deal with the IMF if the country hopes to regain access to international debt markets.

Argentina’s economy was already in recession before the pandemic, and shrank 10{f08ff3a0ad7db12f5b424ba38f473ff67b97b420df338baa81683bbacd458fca} last year, one of the steepest contractions in the world. The IMF expects Argentina’s economy to grow 4.5{f08ff3a0ad7db12f5b424ba38f473ff67b97b420df338baa81683bbacd458fca} this year.

Argentina’s government wants the IMF to allow it to postpone debt payments for at least a decade, including close to $5 billion due this year. But events in recent weeks are making it increasingly clear that leftist President

Alberto Fernández

doesn’t want to agree to spending cuts as part of any such deal, complicating matters.

“I’m going to try to find an agreement with the IMF, but I don’t want a deal that will cost Argentines more than they have already had to bear,” Mr. Fernández said at a press conference in Mexico City on Tuesday.

An IMF spokesperson said the fund has “very active and constructive informal discussions” with Argentine authorities “as they work on laying out their economic plan that could be supported by a fund program.”

But the spokesman said the fund has no date yet for a formal mission of senior IMF economists to assess the country’s finances, a move that is a precondition for any such deal.

Successive Argentine governments have repeatedly driven the country into economic crises due to overspending, leading to chronic inflation, devaluation and default. But the ruling Peronist coalition also pins much of the blame on the IMF, which in the past has mandated deep spending cuts in exchange for loan relief that has worsened the economic pain for ordinary Agentines.

In an interview, Mr. Fernández said he didn’t rule out a deal by May. “Kristalina Georgieva and I inherited this mess,” Mr. Fernández said, referring to the IMF’s new managing director.

Polls show the Peronists have a chance to gain a legislative majority in October’s elections. But spending cuts could prove deeply unpopular at a time when Mr. Fernández’s approval ratings have slipped amid the pandemic and a brewing scandal involving Covid-19 vaccine line-jumping by young government officials, relatives of legislators and allies of the government. Mr. Fernández sacked his health minister on Saturday.

Mr. Fernández is reaching out to world leaders such as Mexican President

Andrés Manuel López Obrador,

Spain’s Prime Minister

Pedro Sánchez

and German Chancellor

Angela Merkel

to garner support for a debt relief plan for middle-income countries like Argentina hit hard by the Covid-19 pandemic.

While the world’s poorest nations get debt forgiveness programs and developed countries boost spending to provide economic stimulus against damage brought on by the pandemic, highly indebted countries like Argentina have limited options to emerge from the crisis, Mr. Fernández told The Wall Street Journal.

Finance Minister

Martín Guzmán

has said he is optimistic that an economic recovery this year can boost growth enough to fill government coffers and narrow the budget deficit this year to about 6{f08ff3a0ad7db12f5b424ba38f473ff67b97b420df338baa81683bbacd458fca} of annual economic output from 8.5{f08ff3a0ad7db12f5b424ba38f473ff67b97b420df338baa81683bbacd458fca} in 2020.

Still, many economists say sooner or later the Argentine government is going to have to make painful choices. Government spending is currently running at almost 47{f08ff3a0ad7db12f5b424ba38f473ff67b97b420df338baa81683bbacd458fca} of annual economic output, compared with about 30{f08ff3a0ad7db12f5b424ba38f473ff67b97b420df338baa81683bbacd458fca} during much of the 1980s, 90s and early 2000s, before the successive governments drove up spending.

“A modest recovery is unlikely to significantly improve fiscal accounts,” said

Arturo Porzecanski,

an international economics professor at Washington, D.C.’s American University. “Any analysis of Argentina’s fiscal situation shows that high public spending is where the problem really lies.”

Government officials also express confidence that higher prices for Argentine commodities like soy might help provide enough cash to meet debt payments in coming months, including more than $2.3 billion to the IMF before October’s election.

The finance ministers of the Group of Seven nations are also considering making billions of dollars available through the IMF’s issuance of Special Drawing Rights, which can be used by member countries like Argentina to cover debt payments, economists say.

And given the pandemic, the IMF might agree to grant a one-year payment extension to the country, which happened in 2002 under former President

Eduardo Duhalde,

said Mr. Porzecanski.

Write to Santiago Pérez at [email protected]