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Washington (AFP) – The IMF on Friday approved a $44 billion bailout program for Argentina with $9.65 billion in immediate disbursement, but highlights the “exceptionally high risks” associated with its implementation in the context of the war in Ukraine.
This new agreement, in place since August 2020, is a real lifeline for Buenos Aires. The previous government (center-right) took out a record $57 billion loan in 2018. But struggling to pay its repayments, South America’s second-largest economy is in danger of defaulting.
“This is an important step forward for Argentina in its macroeconomic stabilization process and allows the country to continue creating the conditions for the continuation of the current strong economic recovery,” Argentine Economy Minister Martin Guzmán told AFP in Paris.
According to Mr Guzmán, who met in France with representatives of the Paris Club and the International Energy Agency (IEA), the refinancing of the 2018 and 2019 debts will “improve stability” and will stimulate “investment growth” as well as the recovery of employment and production.
The new 30-month bailout plan, provided under an “extended credit line” from the International Monetary Fund, should allow Argentina to “improve debt sustainability, fight high inflation, increase reserves, fill the country’s social gaps,” the institution explained.
If the economic and employment recovery is on track after the Covid-19 crisis, Argentina “continues to face exceptional economic and social challenges,” IMF Managing Director Cristalina Georgiava said nonetheless.
And refer to “reduced per capita income, high poverty rates, persistently high inflation, heavy debt burdens, and low external reserves.”
Even before the pandemic, the poverty rate was close to 36%, according to the IMF.
Ms. Georgieva believes that the economic program developed by the Argentine government and supported by the Fund “sets pragmatic and realistic goals, as well as sound policies to enhance macroeconomic stability.”
Thus, the program should allow for the consolidation of the Argentine budget and support for growth, which will strengthen debt viability and control “sustainable and high inflation.”
However, the head of the IMF notes that “a strong political and public consensus is needed to support the implementation of the reform program.”
Last week, the Argentine Congress approved this loan amount. On the other hand, he did not vote on macroeconomic policy itself.
Despite the political controversy, an IMF official, who asked not to be named, said he had “total confidence” in the program.
Kristalina Georgieva acknowledged that the risks were “exceptionally high” as the consequences of the war in Ukraine are already materializing.
“The recent sharp rise in geopolitical tensions heightens uncertainty about global growth prospects, inflation, commodity prices and capital flows, with significant potential implications for Argentina and the program,” IMF economists said in a report released Friday evening.
They also note that a resurgence of the pandemic is not ruled out, not to mention tightening global financial conditions and climate shocks.
“Furthermore, the program may not inspire confidence and provide stability over time, especially if political support for the program wanes, including ahead of the October 2023 presidential election,” the report’s authors warn officials.
“In this context, an early recalibration of the program, including identifying and taking appropriate measures if necessary, will be essential to achieve the goals of the program,” said Kristalina Georgieva.
An IMF spokesman, who wished to remain anonymous, said that the first review of the program should take place as early as mid-May. However, he did not name a date for a possible mission to the country.
© 2022 AFP