Negotiations between Argentina and the International Monetary Fund (IMF) regarding the country’s economic program are taking place in Washington, D.C., amid official secrecy and strong media speculation.

“Our teams continue to work constructively and face-to-face with the goal of reaching agreement on the fifth review of Argentina’s Fund-supported program,” a spokesperson for the IMF told the Herald. “Discussions continue to focus on policies to strengthen reserves and improve fiscal sustainability.”

In 2022, following the renegotiation of the record-high US$44 billion debt former President Mauricio Macri acquired in 2018, the country signed an economic program with the Fund that Argentina must comply with in order to receive disbursements every three months to pay back the previous debt.

The IMF staff’s upcoming fifth review of the program will evaluate Argentina’s performance until March which, if favorable, would lead to a US$4.1 billion disbursement. 

Some of the issues the IMF and the Economy Ministry team are negotiating in Washington are the country’s fiscal deficit maximum for 2023, the international reserves accumulation target and the limits for monetary emission.

The possibility of allowing the state to intervene in the secondary bond market to stop runs on the peso is also on the table, as well as the Fund potentially making this year’s September disbursements earlier than scheduled.

On Wednesday, the Fund published a report saying that the Argentine peso is overappreciated and suggesting that the country’s many exchange rates should be unified — implying the need for a devaluation of the peso, something that Economy Minister Sergio Massa has vehemently opposed in public.

Sources with knowledge of the negotiations told the Herald that the government is instead analyzing the implementation of a new preferential exchange rate for regional economies (including fishing, wine, grapes, pears, apples, rice, yerba mate, tea, tobacco, among other products) and another one for grain exports — although soybean exports would be excluded this time.

Amid the negotiations and the reserve scarcity crisis — net international reserves are estimated at negative US$7.4 billion — the government further restricted access to US dollars in the official market for imports. 

“We have cases of exporters who do not liquidate their export dollars and go to the official exchange market to ask the Central Bank for dollars at the official value in order to import,” Customs Director Guillermo Michel said on Thursday in an interview with El Destape.

As the Central Bank lost increasingly more US dollars, the parallel exchange rates saw a surge over the last two weeks — the informal exchange rate, or “blue dollar,” went from AR$492 on July 10 to AR$525 on Thursday. In the same time period, the blue-chip swap rate jumped from AR$500.5 to AR$532.5 and the MEP dollar — a market in which the government heavily intervenes — went from AR$490.4 to AR$495.8.

Four worst-case scenarios

In a report published on Thursday, economic consulting firm 1816 listed four possible outcomes of the current negotiations with the IMF. 

The most likely one, according to them, is that the IMF makes the disbursements without asking for structural reforms to avoid Argentina from getting into arrears and using yuan to pay the debt — therefore allowing China to gain ground against the United States in the financial world. This possibility would imply non-structural policy changes, such as putting a tax on imports — as some media outlets have speculated — instead of devaluing the peso. 

The second-most-probable scenario is that Argentina does pay with yuan again, which would imply the need for another extension of the currency swap signed with China. 

Another possibility is a default, a chance 1816 does not consider likely. However, two weeks ago, Massa had a virtual meeting with Egyptian Finance Minister Mohamed Maait — both countries are the two largest debtors before the IMF and account for 40% of the outstanding loans, and speculation about a coordinated default arose after the meeting took place. The final (and less likely) scenario is an agreement with the Fund that includes a devaluation of the peso.

“The outcome of the negotiations with the IMF is crucial because it will determine whether the net reserves end this administration closer to negative US$10 billion or negative US$20 billion, and the conditionalities that the next administration will have,” the report said.

At the beginning of the month, the government confirmed it would postpone all three of its July payments to the International Monetary Fund (IMF) to the last day of the month — together, they amount US$2.6 billion.