Why Argentina, IMF Are Wrestling Over Bad Debt, Again

The fact that Argentina is in talks with the International Monetary Fund for emergency aid to stave off default might not sound surprising -- if agreed, this would be the 22nd IMF loan for South America’s second-largest economy in seven decades. What’s unusual is the size of the IMF package being renegotiated and the complications posed by the pandemic, which hammered an already staggering economy. The conflict this time isn’t just between a left-leaning government that wants more freedom to spend and IMF officials pushing for budget cuts, but between the government and even more liberal members of its own party. That’s kept tension high even after a preliminary deal was struck in late January, as Argentina’s foreign reserves dwindle. The stakes are also significant for the IMF, which has sunk a bigger share of its resources into a single country than ever before.

The country, home to 45 million people, wants more time to repay over $40 billion owed to the IMF from the last economic aid program in 2018. President Alberto Fernandez asked for an extended fund facility program, or EFF, that would give the country at least a four-and-a-half year grace period before starting to pay back its debt. The IMF has agreed to the idea, and after more than a year of talks, Argentina reached an initial agreement with the Washington-based organization to reduce its fiscal deficit and cut the central bank’s financing of the treasury.