Economy

Is Argentina ‘too big to fail’ for the IMF?

22nd August 2019

By The Essential Staff

Is Argentina ‘too big to fail’ for the IMF?

Argentina will not find it easy to repay the debts from its Stand By Agreement (SBA) with the International Monetary Fund (IMF), but the Fund also has big incentives to allow for a flexible renegotiation that makes it as easy as possible for the country to stay on track.

The chart below shows the relative weight of each country’s outstanding debt with the IMF, combining all of its Lending Arrangements.

</p> <img class="wp-image-3090 aligncenter" src="https://gettheessential.com/wp-content/uploads/2019/08/imf-300x220.jpg" alt="IMF's debt portfolio suggests Argentina might be too big too fail for the Fund's decision-makers" width="697" height="511" srcset="https://gettheessential.com/wp-content/uploads/2019/08/imf-300x220.jpg 300w, https://gettheessential.com/wp-content/uploads/2019/08/imf-768x563.jpg 768w, https://gettheessential.com/wp-content/uploads/2019/08/imf-1024x751.jpg 1024w, https://gettheessential.com/wp-content/uploads/2019/08/imf-600x440.jpg 600w" sizes="(max-width: 697px) 100vw, 697px" /> <p>The <a href="https://www.imf.org/external/np/fin/tad/extarr11.aspx?memberKey1=ZZZZ&amp;date1key=2019-07-31">figures</a> show that Argentina amounts for a staggering 60 percent of that portfolio, at 31 billion in Special Drawing Rights (SDRs), roughly equivalent to 44 billion US dollars.</p> <h2>Leverage goes both ways</h2> <p>In a presentation last week, <a href="https://gettheessential.com/economy/2019/05/23/infographic-alberto-fernandezs-economic-advisers">Alberto Fernández’s adviser</a> Emmanuel Álvarez Agis said “the only joke that we economists know how to tell is that one about how if you owe a million dollars to someone the problem is yours, but if you owe him 10 billion the problem is theirs. It doesn’t mean we can do whatever we want [with regards to the IMF], but there’s a lot of room to turn this into something different to what happened in Greece, which is something the IMF bureaucracy also fears.”</p> <p>Greece is seen as a relatively unsuccessful IMF bailout program, in contrast to others in which the countries were back growing and repaying their debts after a shorter period of time. Another bad precedent is that of Argentina 2001, when the IMF stopped its loans to Argentina and triggered the country’s biggest financial crisis in its history, a move that also didn’t end well for the Fund as its image suffered globally in the aftermath.</p> <h2>Distant second</h2> <p>The second largest debt is that of Ukraine, at 7.3 billion SDRs or 10 billion dollars. Jamaica and Armenia complete the quartet of nations under SBAs, but they owe less than a billion dollars combined.</p> <p>The 13 countries owing money from Extended Arrangements (Angola, Barbados, Bosnia, Cote d’Ivoire, Ecuador, Gabon, Georgia, Jordan, Moldova, Mongolia, Pakistan, Sri Lanka and Tunisia), combined, also owe much less than Argentina, for a total of 10.5 billion SDRs.  The same is true of the 15 countries under Extended Credit Facilities (Afghanistan, Benin, Burkina Faso, Cameroon, Chad, Congo, Cote d’Ivoire, Guinea, Madagascar, Malawi, Mauritania, Moldova, Niger, Sierra Leone and Togo), who owe just above 3 billion SDRs, one tenth of Argentina.</p> <p>

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