The Development Bank of Latin America (CAF, its Spanish acronym) approved a short-term US$1 billion loan for Argentina Friday night, which the country will use to pay part of its upcoming maturities with the International Monetary Fund (IMF).

Earlier that day, the IMF and Argentina reached a staff-level agreement granting the country access to a US$7.5 billion disbursement in the second half of August. The country, however, has to pay the lender US$2.6 billion by July 31.

As Argentina is going through a severe international reserve scarcity crisis — net reserves are calculated to be negative US$7 billion — the rest of the payment will be made with yuan, as June maturities were faced, and through “an extra financing source,” an official source told the Herald.

In a report published on Friday, consulting firm 1816 calculated that after the payment, Argentina’s net reserves will hit negative US$10 billion taking the CAF loan into account.

According to a press release by the CAF, the loan was decided in “an extraordinary virtual meeting of the Board of Directors” in which it reflected on the possibility that its member countries “can react swiftly and effectively, with a sense of urgency and a spirit of solidarity and trust, to the needs of a shareholder country.”

“The approved operation will serve as a ‘financial bridge’ for Argentina to continue with the implementation of the Extended Fund Facility agreed with the IMF,” the CAF press release said. The text refers to the deal the government and the IMF signed after renegotiating the US$44 billion debt former President Mauricio Macri acquired in 2018. The agreement includes an economic program that Argentina must comply with to receive disbursements every three months, which the government uses to pay the previous debt.

Consulting firms chime in on the IMF-Argentina deal

On Friday, the IMF announced that the fifth and the sixth reviews of the program implementation were approved simultaneously.

According to consulting firms in Argentina, the approval means that the IMF supported some of the policies implemented by the country. However, they commented on the uncertainty regarding the situation regarding future disbursements and potential events after the August 13 primary elections.

In a report published hours after the agreement was announced, consulting firm 1816 said that the lender “validated a good chunk” of the country’s economic policy despite quoting “policy slippages and delays” — some of the approved policies were the crawling peg (the gradual depreciation of the official exchange rate), the “fiscal devaluation” (the taxation of imports announced on Sunday), and the intervention in the parallel exchange rates through secondary bond markets.

However, the report added that the revised international reserve accumulation target “looks impossible” to fulfill and that it “looks very unlikely” the country can achieve the goal of meeting the unchanged 1.9% fiscal deficit.

Moreover, the consulting firm said that the IMF is “not showing its hand” regarding August’s disbursement and that the remaining November’s disbursement — the amount of which wasn’t announced — depends on [the compliance of] the September 23 so-called “sequential” goals, “which were not announced.”

The informal “blue” dollar exchange rate decreased AR$2 the day the staff-level agreement was announced, ending the day at AR$551, after a whole week in which it saw a sharp increase.

However, consulting firm Ecolatina added that there was “some divergence” between the alternative exchange rates this week, as the informal “blue” dollar exchange rate jumped 4.2% and the MEP dollar did so by 2.7%, while the blue-chip swap rate decreased 6.6%. Argentine sovereign bonds are used to access the U.S. dollar. The blue-chip swap rate is the implicit exchange rate obtained by investors who buy shares or bonds in pesos and sell them in dollars on the international market. The “MEP dollar” is the same, but in the local market. 

The difference, concludes the report, “evidences the government’s intervention to keep the exchange rate gap at bay.” In the first half of the year, the report calculated, it used some US$1.2 billion to that end.

“The government’s main goal remains intact in view of the need to sustain its electoral competitiveness almost two weeks before the primaries,” said the Ecolatina report.

This would include avoiding a crisis associated with a sharp and disorderly jump in the official exchange rate — a devaluation — that could generate an inflationary spiral, that is “a greater deterioration in real income and a sharp contraction of economic activity that impacts on employment, within a complex social situation.”