After the devastation in Argentina, the finance minister…

Martin Guzman

Urges a $44 billion debt repayment agreement with the International Monetary Fund by May. To get IMF approval, he will close the gaping hole in the budget, he said in an interview Friday.

This is the traditional path taken by Argentina, where the public debt has already shrunk nine times when the economy was at a low point, as is now the case with the punishing pandemic that has led to a 10% economic contraction by 2020. But Guzman said his plan was inconsistent with the draconian austerity measures introduced by the IMF along with other governments.

We are using the talks with the IMF as an opportunity to try to break the patterns of the past, said Guzman, an economist at Columbia University.

Government expenditure as a percentage of GDP


Nestor and Christina

Kirchner government

The problem this time is that Mr. Guzman and the President…

Alberto Fernandez

Both belong to a party that has long opposed the IMF and blamed it for Argentina’s problems. And they face a formidable opponent in the ruling Peronist coalition, which unites lawmakers against IMF austerity policies.

Vice President

Cristina Kirchner,

The leader of the leftist parliamentary group is pushing for strong government intervention and public spending to maintain the purchasing power of Argentine workers, policies that have characterized her two terms as president.

Here, economic activity is determined by demand. And there’s no other way to boost demand than through affordable wages, pensions and food prices, Kirchner said on Twitter. I’ll tell everyone: For all those who are afraid or do not have the courage, there are other professions than being a minister or an MP.

An agreement between the government and the IMF would require Congressional approval. Since Ms. Kirchner is the president of the Senate, her approval is critical.

Mr. Guzman downplayed the threat she posed. The coalition is working together, with a common voice, he said.

Argentine President Alberto Fernandez and Vice President Cristina Kirchner at a political rally in December.


esteban collazo/Agence France-Presse/Getty Images

The long-term program Mr. Guzmán requested from the IMF would allow Argentina to extend the repayment of its debt for up to 10 years, of which about $5 billion is due this year. This provides financial leeway.

But Argentina will have to reduce its spending or increase its revenues. This year, Gusman wants to reduce the budget deficit from 8.5% in 2020 to about 6% of annual economic output.

Mr. Gusman said the gradual approach to stabilizing the economy is to stimulate growth by reducing inflation by about five percentage points per year. More government revenue would reduce the reliance on printing money to cover spending, fueling inflation and making dollar debt even more expensive. Inflation reaches 36% in 2020.

Economists are skeptical about Argentina’s ability to generate revenue. And they say subsidies and price controls should be eliminated.

Argentina distributes subsidies to electricity companies, heating gas suppliers and public transport companies to compensate for the low prices they have to pay. Subsidies for public services rose from 1.6% to 2.3% of gross domestic product last year.

Kirchner has her sights set on the October midterm elections, where voters could punish her peroneal move if the IMF deal leads to higher energy prices. Many of their supporters live in the poor and densely populated suburbs of cities like Buenos Aires, where aid workers have observed an increase in the soup kitchen population, with the poverty rate reaching 45% last year.

Opinion polls show Argentines are increasingly dissatisfied with the Fernandez government, which is facing one of the world’s longest work stoppages after a decade of high inflation and three years of recession.

Graciela Baez, a 58-year-old owner of a small business, has already scaled back her purchases of beef and in the past year her income has fallen by more than 50%. It fears that an agreement with the IMF could lead to additional difficulties.

Increased revenues would make Argentina less dependent on printing money to cover expenses, which would fuel inflation.


Ricardo Chappie/Getty Images

I don’t think they’re going to sacrifice the people who voted for them, Baez said, because everyone will be against it. That would be a mess.

IMF Managing Director Kristalina Georgieva said IMF commitments will be maintained as long as Argentina needs to clarify what its medium-term objectives are.

What complicates things is politics.

Mohamed El-Erian,

Chief Economic Advisor of Allianz SE and President of Queens College, Cambridge.

Since the late 1950s, Argentina has benefited from more than 20 IMF financial assistance programs, the last of which was implemented in 2018, when then-President Carlos was appointed head of the World Bank.

Mauricio Macri

in the face of a currency crisis.

It will be difficult for Argentina, which has a long tradition of refusing to reduce spending and of rejecting the policies of other governments, to accept austerity.

It is not clear that the ruling coalition has a plan for the country, says former IMF Managing Director Hector Torres. They clearly have a plan to stay in power.

Insolvency risks

The Argentine government and companies must repay $15 billion in foreign debt this year


Kirchner’s faction is likely to break any deal that might undermine her attempt to gain control of the House of Commons from Congress, she said.

Eduardo Levi Yeyati,

Dean of the Management School of the University of Torcuato di Tella in Buenos Aires.

They are extremely influential and are likely to block any fiscal adjustment measures that they feel run counter to their policy objective, he added.

Last year, Argentina reached an agreement with private bondholders to defer payment on a further $65 billion of debt.

While other countries in the region are using the bond markets to raise money to fight the pandemic – Peru recently sold a 100-year bond – Argentina is even more isolated. Argentines fled to the safety of the dollar, depleting the central bank’s dollar reserves to about $1.5 billion. Argentine government bond prices have fallen as the government has failed to present plans to stabilize the economy and ensure future debt repayments.

Large companies are also facing a drop in demand as the central bank is unable to supply the dollars needed to pay off foreign debt or import equipment. Among them is the government-owned energy giant


which is currently trying to restructure over $6 billion. The United States went into $500 million debt to avoid its first ever default.

Among the Argentines fighting is Marta Maturano. She works in a soup kitchen and talks about the rising food prices and other difficulties the people in the neighbourhood are facing.

We live from day to day, she says. You can’t save anything.

-Sylvina Friedlevska contributed to this article.

Email Santiago Perez at [email protected] and Ryan Dube at [email protected]

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