The maximum objective of Minister Guzmán with the Monetary Fund is not Extended Fund Facilities (EFF for its acronym in English or Expanded Fund Service, SAF) with lower interest rates or longer special terms for Argentina as a “political favor “-as the referents of Kirchnerism postulate it-; Rather, it proposes that the agency evaluate the creation of a new credit scheme outside of the products it already offers.
Is that under the EFF the maximum term is ten years and the interest rate is already set and is 4.05% plus commissions, given that Argentina had an “extraordinary access”, that is, an amount higher than that corresponding to your fee. And it’s not the only one. For more than a decade the agency has not granted credits other than extraordinary access. In other words: every time a country needs to turn to the Fund to put out a fire of the proportions generated by the new international finances, the old fire trucks do not have enough cargo capacity to provide the necessary liquidity, then the countries ask liquidity of several trucks. And what at the time was designed as an exceptionality became the rule.
It should be remembered that both debt rating agencies and think tanks of world finances warned in 2018 that the 57,000 million loans with the IMF were not enough liquidity to put out the fire of balance of payments crisis that the country was facing.
The IMF ruled out that the extension of terms and lower rates is under discussion in the negotiations with Guzmán
From the point of view of Argentine officials, it is not a question of mounting novel financial engineering -such as incremental rate schemes- on an obsolete bodywork, but of understanding that Argentina’s credit is not exceptional in its nature even if the amount is enormous and for That is why the Fund needs to incorporate a more modern fire engine to the fleet of credits it offers. The argument is that Argentina is the first to not be able to pay for many others to come and therefore, it is not a matter of making an exception for a country, but rather of addressing a systemic problem of which the Argentine case is the first obvious symptom.
However, they acknowledge that due to their own long-standing difficulties, the Argentine economy is the hardest hit, but other countries such as Pakistan, Ecuador and Egypt are not so far from needing a more far-reaching program than the EFF, nor are the more than 40 countries that requested extraordinary assistance “one time only” to cope with the collapse of the global economy due to the pandemic.
A more modest objective is to make it clear that the surcharges charged by the Fund were born as an incentive for countries to hasten their return to voluntary debt markets and not linger on IMF financing. However, this is not an option for countries that do not have markets to return to, so surcharges become a punishment that makes credit more expensive and reinforces the difficulties of countries to get out of debt. Thus, a country that requested a “large amount” credit pays 2 percentage points above the IMF rate (currently 1.05%) and an additional 3 percentage points if the amount of outstanding credit exceeds 187.5%. of your quota.
In other words, as the “extraordinary access” of credit to Argentina was 1,277% of the quota, the interest rate already includes a charge of 3 percentage points (or 1,500 million dollars a year of additional interest). These are the positions that part of the ruling party considers that the IMF should resign in a sort of “50-50” recognition of the Stand By failure. And to this we must add the 0.6 percentage point of initial commission.
Cristina asked the United States for a request to the IMF: “We cannot pay”
This being the case, the results of the negotiations so far remain on the semantic level. The public recognition that inflation is a “multi-causal phenomenon” and not only monetary has two corollaries: first, that the 2018 monetary adjustment program was incomplete at best by not considering the other causes of inflation; and second, that it may eventually translate into the approval of a looser interest rate program so as not to hinder the economic recovery, or at least that is what the Argentine technical team hopes.
For Guzmán and his team, semantics is crucial in negotiations and he has already established it in several of his presentations by pointing out the relevance of gaining the space of “common sense” when defining a problem and thinking about its solutions. He did so with the concept of “debt sustainability” with the negotiation with bondholders, and that is what he points to with the IMF when seeking “growth sustainability.”
With the elections ahead, the IMF has little incentive to reach an agreement before October when the government is ratified (or not) at the polls and, therefore, Guzmán as the negotiating partner. The only incentive, official sources say, is to have a “bird in hand” and get out of the imminent threat of default.
It is that, at the end of the day, the operating expenses of the organization are covered with what Argentina has been paying for its debt services. In February they were 315 million dollars and between April 30 and May 1, a similar amount, the last “small” payments before the 2,200 million dollars in September and December.
For now, now on Guzmán’s agenda, the destination of his attention is moving away from Washington and traveling to Europe to renegotiate the 2.4 billion dollars in maturities with the Paris Club. And later he will return to Washington to try to reach an agreement, although at the moment the negotiations are taking place within the framework of a formal request from an EFF.
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