IMF Staff Statement on Argentina

IMF News, February 19, 2020

Source details

Press Release No. 20/57
IMF staff visit dates: February 12 to 19, 2020.
Visit led by Julie Kozack, Deputy Director of the Western Hemisphere Department, and Luis Cubeddu, Mission chief for Argentina.
Purpose: discuss recent macroeconomic developments and learn more about the Argentine authorities’ economic plans and policies.
Meetings included Economy Minister Martín Guzmán, Central Bank President Miguel Pesce, Ministers Daniel Arroyo, Ginés Gonzáles-García, Matías Kulfas, and Claudio Moroni, Secretary Gustavo Belíz, Deputy Chief of Cabinet Cecilia Todesca, Indec Director Marco Lavagna, and other senior public officials.

Authorities’ stated objective: restore growth and reduce poverty, while achieving an improvement in the fiscal and external balances.
Policies implemented:
- Higher taxes to partly finance increased social spending, most of which is targeted towards the most vulnerable.
- Capital controls and a trade surplus have supported stabilization of international reserves and the peso.
- Authorities are taking steps to secure a sustainable and orderly resolution of Argentina’s debt situation.
Inflation and inflation expectations: have come down in recent months, but efforts are needed to reduce them further from current high levels.

Reference point: IMF’s July 2019 Debt Sustainability Analysis (DSA) in the context of the Fourth Review under the Stand-By-Arrangement (SBA).
July 2019 DSA noted downside risks including:
- (i) heightened rollover risk due to the shorter maturities on new issuances;
- (ii) vulnerability of the debt trajectory to exchange rate movements, given the large share of foreign currency public debt;
- (iii) large external financing needs.
Subsequent realized developments (since July 2019):
- The peso has depreciated by over 40 percent.
- Sovereign spreads have increased by about 1100 basis points.
- International reserves have declined by about US$20 billion.
- Real GDP has contracted more than previously projected.
- Gross public debt rose to nearly 90 percent of GDP at end-2019, 13 percentage points higher than the projection at the time of the Fourth Review.
Policy responses since August 2019:
- Introduction of capital flow management measures.
- Imposition of maturity extensions on certain debts.
- Resort to central bank financing of the fiscal deficit.

IMF staff assessment: Argentina’s debt is now assessed to be unsustainable (based on the July 2019 DSA and subsequent developments).
Rationale: the primary surplus that would be needed to reduce public debt and gross financing needs to levels consistent with manageable rollover risk and satisfactory potential growth is not economically nor politically feasible.
Required action: a definitive debt operation—yielding a meaningful contribution from private creditors—is required to help restore debt sustainability with high probability.
Emphasis: continue a collaborative process of engagement with private creditors to maximize their participation in the debt operation.

IMF staff and the authorities will continue to engage closely, with further discussions planned as the authorities advance in defining their economic plans and policies.
In the context of the upcoming G20 Finance Ministers meeting, IMF Managing Director Kristalina Georgieva will meet with Economy Minister Martin Guzmán to discuss the next steps in the IMF’s engagement with Argentina.

IMF Staff Statement on Argentina, February 19, 2020