Economy

IMF clashes with Vice-President amid visit to Argentina

13th February 2020

By Fermín Koop

IMF clashes with Vice-President amid visit to Argentina

Delegates from the International Monetary Fund (IMF) arrived yesterday in Buenos Aires for a full week visit to begin talks on the restructuring of the country’s foreign debt. It will be the first mission to Argentina since the reshuffle of authorities in both the Fund and the country after the 2018-2019 economic crisis.

But although the government and the IMF have praised preliminary discussions as “constructive” so far, the relationship with Vice-President Cristina Fernández de Kirchner is proving to be tougher.

</p> <p>The former president said that the IMF should accept a haircut of its Argentine debt, even if that goes against the rulebook of the Fund, arguing that the way in which the loan was used also broke IMF rules.</p> <p>&#8220;There was definitely no violation of IMF rules,” IMF spokesman Gerry Rice <a href="https://www.infobae.com/economia/2020/02/13/el-fmi-le-respondio-a-la-ex-presidenta-cristina-kirchner-dijo-que-no-violo-sus-estatutos-al-prestarle-al-gobierno-de-macri-y-que-no-puede-aceptar-una-quita-de-la-deuda-argentina/">replied</a> earlier today. &#8220;The capacity of the Fund to restructure debt and postpone payments is limited by our legal framework. This does not only apply in the context of Argentina but also in general.&#8221;</p> <p>Alberto Fernández’s administration hopes to renegotiate US$195 billion out of a total debt of US$311 billion — including the US$44 billion bailout loan from the IMF in 2018. The Fund so far welcomed the economic measures of Fernández, who gained strength for a restructuring after meeting with <a href="https://gettheessential.com/politics/2020/02/06/fernandez-takes-page-from-macri-playbook-european-tour-argentina-france-germany-italy-spain">European leaders</a> who have a seat at the Fund’s table last week.</p> <p>But while Fernández has said the country wants to pay its debts after climbing out of its recession, his Vice-President has gone further.</p> <p>“Argentina can’t meet the conditions originally set with both private creditors and the IMF. But no one wants to yield. The IMF might be willing to delay payments but with certain conditions, which Argentina won’t likely accept,” said Hernán Letcher, head of the Political Economy Center (CEPA), anticipating a long discussion.</p> <h2><strong>A peak at the visit</strong></h2> <p>The IMF&#8217;s mission team is headed by Julie Kozack, the IMF&#8217;s deputy director of the Fund&#8217;s Western Hemisphere Department, and Luis Cubeddu, the IMF’s mission chief for Argentina. They will remain in the Argentine capital until February 19 &#8220;to permit dialogue and deeper work on [debt] issues,&#8221; a Fund spokesperson said.</p> <p>Kozack and Cubeddu will meet with Argentina’s Economy Minister Martín Guzman and his team, as well as with officers from the Central Bank, private banks and other business leaders. A report with the conclusions of the visit will be made public next week.</p> <p>The Fund’s representatives want to look at the government’s economic plan and, with the numbers at hand, try to figure out what kind of new agreement would be necessary for Argentina’s debt to become sustainable. IMF’s new head Kristalina Georgieva said last week that the mission’s goal will be “to learn about Argentina’s debt strategy.”</p> <p>Guzmán already met with Georgieva for two hours last week in a summit at the Vatican. Both described the meeting as constructive, while Georgieva said the IMF is “aware of the difficult socioeconomic situation of Argentina” and claimed to share Fernandez’ goal of stabilizing the economy while protecting the most vulnerable.</p> <p>“An agreement is clearly necessary and urgent. The government already received signals of support from the IMF, so there could be a light at the end of the tunnel,” said Pablo Salvador, economist at Universidad Nacional de Cuyo. “The problem is our negative record of offering to do changes and then falling short.”</p> <h2><strong>Calls for a haircut</strong></h2> <p>During his recent visit to Europe, President Fernández met with several European leaders and had the same message for each of them. Argentina will pay its debt fully when it achieves a path of sustainable economic growth, hoping to push capital and interest payments to late 2023 to give the country some breathing room.</p> <p>Fernández de Kirchner, however, has been more aggressive. During a presentation of her book in Cuba, the former president said that Argentina should seek not only a delay on its debt payments but also a “substantial” debt haircut from the IMF, an option not contemplated on the statutes of the organism.</p> <p>Fernández de Kirchner said the loan agreed during the Macri administration was also in violation of the statutes of the IMF, as part of the funds were used to prop up the value of the peso, giving a cheap escape route for investors’ capital flight, a practice that the IMF also forbids. The fund decided to <a href="https://gettheessential.com/economy/2019/05/02/imf-bends-rules-to-allow-more-central-bank-dollar-sales">bend its rules</a> after pressure from Macri’s government, which argued that stability in the exchange rate was key to bring calm to Argentines&#8217; economic expectations.</p> <p>“The statutes of the Fund may forbid a debt haircut but they also don’t accept loans for capital flight. I want the statutes to be fully applied, from the first chapter to the last one,” Fernández de Kirchner said.</p> <p>According to the <a href="https://www.imf.org/external/pubs/ft/aa/index.htm">Article IV of the IMF’s statutes</a>, “a member may not use the Fund&#8217;s general resources to meet a large or sustained outflow of capital.” The Macri administration said it used 80% of the US$44 billion from the IMF for debt payments in foreign currency, figures that were challenged by Fernández.</p> <p>“The political understanding between the president and the European leaders makes a debt haircut difficult. But it would be fair to lower interests and agree to longer deadlines. There’s two who are accountable on debt matters, the one who loans and the one who receives,” Jorge Gaggero, a financial analyst and IMF critic in Argentina said.</p> <h2>Reshuffle at the IMF</h2> <p>The appointment of Georgieva at the IMF in replacement of Christine Lagarde after her resignation last year was recently followed by the reshuffling of two more key officers. Deputy managing director David Lipton and acting managing director Carla Grasso were removed from their post last week.</p> <p>Lipton’s exit, experts agree, was likely linked to his active role in the loan given by the IMF to Argentina, which is now struggling to pay its debt back. Lipton, a democrat, had been appointed at the Fund during the first presidency of Barack Obama.</p> <p>The tradition at the IMF is that the role of managing director is assigned by Europe, as was Bulgaria’s Georgieva, while the deputy director is decided by the US. That means that Lipton will likely now be replaced by an economist identified with the Republican Party or allied in some way with US President Donald Trump.</p> <p>

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Fermín Koop

Fermín Koop is an economic and environmental journalist from Buenos Aires. He is editor at Diálogo Chino and co-founder of Claves 21.