— in Washington D.C.

The executive board of the International Monetary Fund (IMF) unanimously approved a disbursement of US$7.5 billion to Argentina, albeit with comments from China and Japan. Minutes later, Economy Minister Sergio Massa met with IMF Managing Director Kristalina Georgieva at the organism’s Washington, D.C. headquarters.

The release of the disbursement approved today was the culmination of a process of tense negotiations that continued for longer than expected. Over the course of four months, the IMF staff and Argentine officials negotiated two program revisions together, the fifth and the sixth, with the aim of bringing forward one of the disbursements envisaged in the original schedule.

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However, that aim was not met, and Argentina paid its last two maturities to the Fund using Chinese yuan, a short-term loan from the Development Bank of Latin America and the Caribbean (CAF, by its Spanish initials) and special drawing rights borrowed from Qatar. This Wednesday, as soon as it received the IMF disbursement, Argentina issued payment orders to return the loans to the CAF and Qatar, as well as putting money back into its currency swap with China.

In order to approve the fifth and sixth reviews, the IMF requested the implementation of a package of measures that would allow Argentina to increase its international reserves. The greatest difference between the Argentine and IMF technicians was the devaluation. 

Massa and his team claimed that a devaluation was not necessary to accumulate reserves, because it would trigger inflation and cause more uncertainty. According to the Minister, the IMF first asked for a 100% devaluation, but in the face of resistance, the percentage was lowered to 60%. Ultimately, the devaluation was 20%.

IMF: controlling dollar volatility is OK

Although the IMF has issued a press release announcing its approval of the disbursement, the Staff Report will not be published until Friday, when it will release the analysis its technicians presented before the Board of Directors in Washington on Wednesday. 

In the IMF document, Massa said, there will be an explicit endorsement by the organization of the possibility of the Central Bank intervening in the financial dollars (MEP dollar and blue chip swap or CCL).

The criteria the Central Bank will use to give greater stability to financial dollars will not be published. A source with knowledge of the details told the Herald that the main objective will be to contain volatility and not to defend a specific dollar value. Thus, the government will constantly monitor the gap between the official dollar and the financial dollar rates, although it will also closely follow the MEP and blue chip swap exchange rates. 

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According to the economic cabinet, the government plans to maintain the official exchange rate at AR$350 until November 15. The objective is to reduce uncertainty and anchor any devaluation expectations that may arise amid Argentina’s electoral season.

Meeting with Georgieva

“It was a sincere, frank, serious and mature meeting,” Sergio Massa told the Herald at the end of the meeting with Georgieva and the rest of the IMF’s senior officials. The minister was relieved to have finished the arduous four-month negotiation process with the IMF staff. 

 “We took an important step in the administration of the mortgage that [former President Mauricio] Macri left Argentina, but we still have the mortgage and Argentina will be an autonomous country the day the IMF loan condition is removed,” he added. 

Massa’s mentions of a “mortgage” and ex-President Macri referred to Macri’s decision to turn to the IMF to request a massive US$44 billion loan in 2018, when his government was experiencing a severe exchange and financial crisis.