BUENOS AIRES (Reuters) – Argentina plans to agree a new long-term economic plan with International Monetary Fund staff before submitting it to Congress, a government source said, as talks continued to secure a deal to roll over $45 billion owed to the IMF.
With Argentines suffering from high inflation that is hitting their spending power, the ruling coalition was badly defeated in a recent mid-term election. The country needs a deal with the IMF in order to emerge from the shadow of debts it cannot pay and regain access to international financial markets.
“It is our intention to have an agreement on an economic program supported by IMF staff. The intention of the entire governing coalition to finalise that this year,” the source, who has direct knowledge of the talks, told Reuters.
“Argentina is negotiating the economic program with IMF staff,” the person said.
The IMF did not respond to a request for comment.
The source, who asked not to be named due to the sensitivity of the talks, said that outstanding issues included agreeing “the speed of fiscal consolidation and the speed at which monetary financing gets reduced”.
The person said the government wanted to raise funds by improving tax collection and through agreements with other multilateral lenders, rather than cutting public spending.
“The sticking point is how to finance a path of fiscal consolidation that does not entail a contractionary spending policy,” the source added.
President Alberto Fernandez, whose Peronist coalition needs to win back voters ahead of 2023 presidential elections, has vowed not to cut government spending in a way that would derail Argentina’s recovery from a long recession which was exacerbated last year by the COVID-19 pandemic.
The government, unable to make payments that next year total almost $19 billion, has been locked in talks with the IMF since last year to push back $45 billion left over from a failed loan agreement in 2018 under former President Mauricio Macri.
The negotiations are happening as the governing coalition reels from the bruising defeat it suffered in Sunday’s legislative election, in which the Peronists lost their majority in the Senate for the first time since 1983.
In the wake of that defeat President Fernandez said a multi-year economic plan would be sent to Congress in December.
A new deal will need the IMF to be on board with the plan, which will be debated in Congress with opposition parties emboldened by a strong showing in the mid-term vote.
Although some cracks have since appeared among the Peronists, the source said that “the entire governing coalition is in agreement with refinancing the IMF debt”.
The government is trying to hammer out improvements in tax administration that it hopes will increase revenue by reducing tax evasion. It is also pushing for more financing from other multilateral lenders like the World Bank.
“With better revenue brought by improved tax administration and access to other multilateral lending, it is the view of the government that we would be within striking distance of a roll-over agreement with the IMF,” the source said.
With inflation of more than 50%, speculation has been rife in the markets about a possible shock currency devaluation.
The government source said this was not being planned, adding: “It is the understanding of the Argentine government that neither side wants an abrupt jump in the exchange rate”.
Argentina’s economy contracted by 9.9% last year and is expected by the government to grow more than 9% in 2021.
“It’s going to recover almost everything that was lost in 2020,” the source said.
(Reporting by Hugh Bronstein; Editing by Adam Jourdan and Alexander Smith)