Argentine Economy Minister Luis Caputo has struck a preliminary deal to borrow nearly $1 billion from Latin American development bank CAF to cover an impending payment to the International Monetary Fund (IMF), La Nación newspaper reported on Thursday.
CAF’s board of directors is due to meet on Friday to vote on the bridge loan, the newspaper reported without naming sources. Argentina is due to make the payment December 21 on its $44 billion loan from the IMF.
Reuters reported that the loan would total $913 million, citing two people with information about the deal.
The negotiations reportedly began on Monday when Caputo met with CAF’s executive director, Sergio Díaz-Granados, at the presidential palace in Buenos Aires.
The expected loan comes as the new right-wing libertarian government of President Javier Milei rolls out a major austerity package in its first week in office to slash the fiscal deficit and rein in 160% inflation. Milei and Caputo said the belt-tightening, which included a 118% devaluation of the peso, is necessary because the country has run out of money.
The central bank has more debt than it has reserves, the officials have said, which has raised concerns about how the country will keep up with its payments on the IMF loan.
DEBT MOUNTAIN
Indeed, the previous left-leaning administration turned to CAF and Qatar for loans earlier this year, and to China for a currency swap, in order to keep on top of the IMF payments.
Argentina faces a further $3.7 billion in payments through February on the IMF loan, plus another $1 billion to multilateral lenders and $1.5 billion on its bonds, La Nación reported.
This is just the beginning for the Milei administration. According to Ecolatina, a local consultancy, Argentina faces $53 billion in maturity payments between 2024 and 2026, equivalent to $17.8 billion per year.
Daniel Marx, a former national finance secretary, said on Radio Perfil he expects the Milei administration to try to negotiate less frequent payments on the IMF loan, now pretty much every month, so that it is “a lot more feasible to pay.”
If progress is made in cutting the fiscal deficit, Marx said he wouldn’t rule out that the sovereign could “within a year” secure new international financing. “It’s not impossible,” he said.
Indeed, the austerity measures have gained support from investors as a move in the right direction to narrow the fiscal deficit, which the government said equates to 15% of GDP, and improve the country’s creditworthiness to eventually borrow again in the international markets.
‘STRONG FIRST STEPS’
Jaime Reusche, a senior credit officer at Moody’s Investors Service, said Thursday that the devaluation and the goal of cutting the fiscal deficit to 5.2% of GDP are “strong first steps toward addressing Argentina’s macroeconomic imbalances marking a forceful departure from gradualist approaches that were applied in the past.”
Reusche warned, however, that the measures likely will lead to an economic contraction before any improvement is felt, and an expected social backlash to the belt-tightening “will restrict the government’s room to maneuver testing the authorities will and ability to continue implementing forceful measures.
He added that in the end, “the government’s capacity to stick to the adjustment path, a challenging task in and of itself, will determine if Argentina’s credit profile can report a lasting improvement.”