Argentina Reaches Groundbreaking IMF Deal in $45 Billion Debt Talks | Investment News

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By Agustin Geist, Nicolás Misculin and Adam Jourdan

BUENOS AIRES (Reuters) – Argentina has reached an agreement in principle with the International Monetary Fund on a new $44.5 billion stand-by deal, the two sides said on Friday, a major breakthrough in tense talks to restructure loans that the country cannot repay.

The South American country has been in talks for more than a year with the IMF over a new program to reorganize outstanding debt following the collapse of a 2018 $57 billion loan deal, the largest ever achieved by the fund. He was facing a $700 million payment due Friday.

“We had unpayable debt, which left us with no present or future. We now have a reasonable agreement that will allow us to grow and meet our obligations through growth,” President Alberto Fernandez said in an address to the nation.

He said the deal would not limit Argentina’s economic plans or spending, which had been something of a red line for a country emerging from years of recession and the harsh impact of the COVID-19 pandemic.

The IMF said in a statement that its staff had reached “agreement” with the government on key policies that would underpin the final deal, including the path to fiscal consolidation, which had been a point of discussion. key stumbling block in the talks.

“IMF staff and the Argentine authorities have reached agreement on key policies in the context of their ongoing discussions on an IMF-supported program,” Luis Cubeddu, mission chief for Argentina, said in a statement. communicated.

“The agreed fiscal path would gradually and sustainably improve public finances and reduce monetary financing.”

The deal would allow increased spending on infrastructure, science and technology, and protect targeted social programs, the IMF said, while energy subsidies would be reduced “gradually”.

The two sides will continue their work in the coming weeks with a view to reaching an agreement at the staff level, the IMF added.

Recent uncertainty over a deal has hammered Argentina’s sovereign bonds, while anti-IMF rhetoric has intensified in the grain-producing country, with some protesters calling on the government on Thursday to halt repayments.

The country’s sovereign bonds jumped 6% on average on Friday morning, while stock indices and the freely traded black market peso all jumped Friday morning after the news.

“It’s far from a perfect deal, but it does mean the current government will be able to fend for itself economically and investors can start focusing on political change in the (presidential) elections next year. “, said Ted Pincus of the Swiss fund Mangart Capital.

“The IMF appears to have capitulated to political pressure.”

Argentine Economy Minister Martin Guzman told a press conference that under the deal the country would aim to reduce its budget deficit to 0.9% by 2024 and put phasing out central bank financing to the treasury.

“We hope to meet our deficit targets with real spending that does not halt the economic recovery and be able to gradually strengthen tax collection,” Guzman said.

He ruled out a sharp devaluation of the exchange rate, said the country would seek to have positive real interest rates and bring down runaway inflation currently above 50% on an annual basis, which hurts the economy. savings and wages.

Argentina and the IMF were at odds in discussions over how quickly Argentina should reduce its budget deficit, with the country saying it needed to be able to maintain spending to preserve the fragile recovery in economic growth.

Nikhil Sanghani, Latin America economist at Capital Economics, said the deal – after months of “hardball” tactics – would bring “some relief to holders of short-term international bonds”, although many problems subsist.

“This is just the start of a long journey to correct Argentina’s macroeconomic imbalances, and there are still many things that could go wrong over the next few years,” he said in a statement. note.

Argentinian USD bond prices continue to fall (interactive version) https://tmsnrt.rs/3FzHvdH

Argentina: budget deficit https://tmsnrt.rs/33TUSsr

Argentinian USD bond prices continue to fall https://tmsnrt.rs/3fz89Zs

Argentina: Budget deficit (Interactive version) https://tmsnrt.rs/33S7dNO

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(Reporting by Nicolas Misculin and Adam Jourdan; Additional reporting by Lucila Sigal, Agustin Geist and Marc Jones; Editing by Kirsten Donovan and Jonathan Oatis)

Copyright 2022 Thomson Reuters.

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