The IMF has admitted its biggest-ever bailout, a $57bn loan to Argentina in 2018, was part of an economic programme which was “too fragile” to deal with the country’s deep-seated problems and could have benefited from capital controls and a restructuring of private creditor debt.
The IMF programme veered off track after barely a year and was cancelled by the incoming Peronist government of President Alberto Fernández in July 2020 after $44bn had been disbursed.
The Peronists accused the Fund of financing capital flight and extending the loan as a political favour to the previous president, Mauricio Macri, in his unsuccessful bid for re-election.
An internal IMF report by deputy director Odd Per Brekk published late on Wednesday said the Fund had accepted over-optimistic government projections when agreeing the programme. It described the Macri government’s structural reforms as “unaspiring” [sic] and fiscal consolidation as “low quality”.
“Government ownership was given high priority and with that, potentially critical measures — notably a debt operation and reintroduction of capital flow management measures — were ruled out from the beginning,” the 132-page report said.
“Ultimately, the programme’s strategy proved too fragile for the deep-seated structural challenges and the political realities of Argentina . . . as a result the programme did not succeed in improving confidence and delivering on its objectives.”
The review, which is required by IMF procedures for all lending programmes above normal borrowing limits, said the fundamental problem with the Argentina bailout was “a lack of [investor] confidence in fiscal and external sustainability”.
It recommended that future IMF programmes use more conservative macroeconomic assumptions, consider unconventional measures if necessary, sharpen the assessment of whether a country has access to capital markets and consider burden-sharing in bigger loan programmes.
“Being the largest creditor to a relatively large country is both exceptionally risky to the Fund and potentially self-defeating to the purpose of catalysing a return to market access,” the report concluded.
Argentina’s current economy minister Martín Guzmán, who is negotiating a new agreement with the IMF, described the report as “not sufficient, but a step forward”.
“The Fund has recognised that the [bailout] money was used to pay debt which was unsustainable to private creditors,” he said in television interviews. “It was basically a rescue for creditors who had come in to make a bet in 2016 and it was also used to finance the formation of assets abroad”.
Nicolás Dujovne, Macri’s finance minister who negotiated the IMF deal at a time when Christine Lagarde was running the Fund, launched a series of tweets after the Fund published its report to explain the programme. “The agreement with the IMF came during an exceptional period due to drought, the rise in interest rates in the US and the high deficit we inherited,” he wrote. “It had the support of all the IMF member countries.”