Argentine finance minister wants to make $ 44 billion IMF debt deal without tightening

“We use the negotiations with the IMF as an opportunity to try to break with the patterns of the past,” he said. Guzmán, an economist trained at Columbia University, said.

The twist this time is that Mr. Guzmán and President Alberto Fernández are both part of a party that has long fought the IMF, blaming Argentina’s problems. And they face a formidable adversary within the ruling Peronist coalition that is pushing lawmakers against the IMF’s policy of tightening.

Vice President Cristina Kirchner, leader of a far-left faction, calls for strong state intervention and public spending to preserve the purchasing power of Argentine workers, a policy that has characterized her two terms as president.

‘Here economic activity is driven by demand. “And there is no other way to stimulate demand than through salaries, pensions and affordable food prices,” she said. Kirchner said on Twitter. “I say to everyone: everyone who is afraid or does not have the courage, there are other professions besides being ministers or legislators.”

An agreement between the administration and the IMF requires congressional approval. Since Mrs. Kirchner presides over the Senate, her consent is crucial.

Mr. Guzmán downplayed the threat she posed. “The coalition is working together, with a shared view,” he said.

The long-term program that Mr. Guzmán requested from the IMF that Argentina would be able to extend debt payments for as much as a decade, including some $ 5 billion owed this year. This will provide financial breathing space.

But Argentina will have to limit spending or increase revenue. Mr. Guzmán plans to reduce the budget deficit this year to about 6% of annual economic output, from 8.5% in 2020.

Mr. Guzmán said the gradual approach to stabilizing the economy should stimulate growth by lowering inflation by about five points each year. Increasing government revenue will reduce the dependence on the pressure of money to cover spending, fueling inflation and making dollar-denominated debt more expensive. Inflation reached 36% in 2020.

Economists are skeptical that Argentina can earn revenue. And they say subsidies and price controls need to be knocked out.

Argentina distributes subsidies to electricity companies, heating gas suppliers and public transport companies to offset the low prices they are forced to pay. Public service subsidies rose to 2.3% of gross domestic product from 1.6% last year.

Mrs Kirchner has her eye on the midterm elections in October, when voters could punish her Peronist movement if the IMF agreement leads to higher utility prices. Many of her supporters live in the poor, densely populated suburbs of cities like Buenos Aires, where aid workers have seen a surge of people in soup kitchens as poverty rose to 45% last year.

Polls show that the Argentines are increasingly dissatisfied with the Fernández government, after enduring one of the world’s longest barriers after a decade of high inflation and three years of economic contraction.

Graciela Báez, a 58-year-old small business owner, has already cut back on beef purchases and saw her income fall by more than 50% last year. She is worried that an IMF deal will cause further problems.

“I do not think they will sacrifice the people they have chosen,” she said. Báez said, ‘because everyone would oppose it. It would be chaotic. ”

The IMF’s managing director, Kristalina Georgieva, said the IMF’s “commitment will continue as long as it is necessary for Argentina to be clear about its medium-term objectives.”

“What complicates matters is politics,” said Mohamed El-Erian, chief economic adviser at Allianz SE and president of Queens’ College, Cambridge.

Argentina has received more than 20 IMF financial support programs since the late 1950s, the most recent in 2018 when then-President Mauricio Macri experienced a currency crisis.

Agreeing with the spending cuts will be difficult for Argentina, which has a long track record of promising to reduce spending and return to policies implemented by other governments.

“It is not clear that the governing coalition has a plan for the country,” said Héctor Torres, a former IMF executive director. “What is clear is that they have a plan to retain power.”

Mrs. Kirchner’s faction is likely to jeopardize any agreement that could undermine their attempt to take control of the lower house of Congress, said Eduardo Levy Yeyati, dean of Torcuato di Tella’s government school in Buenos Aires. .

“They are extremely influential and are likely to stop with any fiscal adjustment measure that they believe is contrary to their political purpose,” he added.

Argentina reached an agreement with private bondholders last year to defer payments on an additional $ 65 billion in debt, but an IMF agreement is essential to give the South American country back access to international debt markets.

While local counterparts used debt markets for funds to fight the pandemic – Peru recently sold a 100-year bond – Argentina has become even more isolated. Argentina rushed to the security of the dollar and drained the central bank’s dollars it holds in cash to about $ 1.5 billion. The price of Argentine debt has fallen because the government has not set out plans to stabilize the economy and make future debt payments.

Large companies are struggling with declining demand because the central bank is unable to provide the dollars needed to service foreign debt or import equipment. Among them is the state-owned energy giant YPF,

which is now trying to restructure more than $ 6 billion in debt to ward off its very first default.

Among the Argentines struggling is Marta Maturano. She works at a soup kitchen and talks about rising food prices and other hardships facing people in her area.

“We live every day,” she said. “You can save nothing.”

—Silvina Frydlewsky contributed to this article.

Write to Santiago Pérez at [email protected] and Ryan Dube at [email protected]