Argentina has guaranteed payment of its commitments to the IMF this year

RIO DE JANEIRO, BRAZIL – Argentina has secured the payment of its dollar commitments with international organizations for 2021, after the board of the International Monetary Fund (IMF) passed a new allocation of reserves to countries for US$650 billion through the extension of special drawing rights (SDR), enabling the country to receive some US$4.355 billion on August 23.

On Monday (2), IMF president Kiristalina Georgieva welcomed the organization’s historic decision, which is “the largest SDR allocation in the history of the IMF and a boost for the world economy amid an unprecedented crisis” caused by the coronavirus pandemic.

Georgieva specified that the general SDR allocation will come into effect on August 23 and that the new resources will be credited to member countries in proportion to their current quotas in the institution, with Argentina holding 0.67% of the total.

2021 maturities

This will allow the Argentine government to resume its payments to the IMF while negotiating a new financial plan with the organization for the US$44 billion debt contracted by the prior administration.

After having settled an interest payment to the IMF on Monday, around US$4.38 billion remain to be paid to the organization for the remainder of the year. The first of the maturities will occur in September, for an amount of US$1.870 billion in capital debt payments.

An interest and surcharge payment, totaling US$640 million, is scheduled for November 22, and the last major maturity of the year is scheduled for December 22, corresponding to another capital payment of US$1.870 billion.

Consequently, the payment of commitments to the IMF during 2021 would be virtually settled with the new funds in SDR, the multilateral organization’s currency, which will be added to international reserves held by the Central Bank at the end of August.

In statements to the press on Sunday, Economy Minister Martín Guzmán said that the government needs time to negotiate an agreement and to build up reserves. “The important aspect is that the agreement is good rather than fast and we must create the right conditions to achieve this,” Guzmán explained.

In that respect he explained that “Argentina does not have the payment capacity to face the debt with the IMF and that is why it needs more time.”

“In our program we target a scenario in which regulations and exchange controls will be different: a macroprudential regulatory framework that discourages short-term speculative investment but encourages investment in the real economy. In order to reach that framework, the Central Bank needs time to accumulate more reserves and this does not happen overnight,” he argued.

On the other hand, the final payment to the IMF in interest and surcharges next November may change, as Argentina negotiates a new agreement, should the initiative voted at the G20 last July to review cost overruns on loans weighing on middle-income countries for the duration of the pandemic be successful.

Review of access limits and surcharge policies

“We call on the IMF to finalize its engagement on the review of access limits and surcharge policies and to brief us on the outcome,” the G20 said in its official communiqué issued in July.

There have been no official announcements yet, but this item may be considered at the upcoming IMF Board of Governors meeting next October during the annual meeting in Washington.

Of the US$650 billion to be distributed among all member nations, according to the IMF, “approximately US$275 billion will be allocated to emerging market and developing countries, including low-income countries.”

In addition, the multilateral financial body said yesterday that “a key option is for members with strong foreign positions to voluntarily channel part of their SDRs to expand lending for low-income countries through the IMF’s Poverty Reduction and Growth Trust Fund (PRGT).”

“The IMF is also exploring other options to assist the poorest and most vulnerable countries in their recovery efforts and in this regard, may consider a new Resilience and Sustainability Trust to enable a stronger and more sustainable medium-term growth,” the Fund’s statement ended, although this initiative is still at an early stage of development.