Despite a first agreement on debt, Argentina is not at the end of the tunnel

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Argentina has reached an agreement with its creditors to restructure part of its debt, a relief for the government. But the latter must now renegotiate a loan contracted with the IMF and find a way out of the deep economic crisis that is hitting the country.

The agreement announced Tuesday, which allows the restructuring of 66 billion bonds issued under foreign legislation, was welcomed by the International Monetary Fund (IMF) and welcomed by the productive sectors.

It is “a big step forward” which will make it possible to “focus on the productive agenda”, reacted Marcelo Fernandez, president of the General Confederation of Enterprises. “For small and medium-sized enterprises, this means that we can bet on policies that will promote the financing of production and consumption,” he said.

But analysts are more cautious: while welcoming the agreement, they believe that this is not the end of the tunnel for the South American country. “This releases the pressure, but it will not be enough,” warns economist Mariana Dal Poggetto, director of the EcoGo cabinet.

After two years of recession, Argentina remains more than ever in a difficult situation: 40% of its 45 million inhabitants live in poverty and annual inflation remains very high, around 40%.

The Covid-19 pandemic and the long months of confinement have further worsened the situation, increasing unemployment (10.4%) and causing a fall in Gross Domestic Product (GDP) which is expected to contract by 9.9% in 2020, according to the latest IMF forecasts.

In this difficult context, Argentina, whose total debt stands at 324 billion dollars, must now negotiate a new program with the IMF, from which it has borrowed 44 billion dollars – out of the 57 billion initially negotiated in 2018 by the former center-right president Mauricio Macri.

And the country should normally start repaying as early as next year. “The IMF deadlines begin just in September next year, a month before the legislative elections” of mid-term, notes Mariana Dal Poggetto who recommends that the negotiations be “fast”.

No access to credit

And “the burden of the IMF is much more” than the debt successfully renegotiated with private creditors, “that is the real problem, because (the IMF) does not accept discounts” on what is owed, insists the economist Emanuel Alvarez Agis.

Matias Carugati, of the Management & Fit firm, also predicts a difficult negotiation: “The Fund’s technicians will demand a consistent economic plan, which has only been done in broad outline until now”.

Another thorny issue for the government is the restructuring of the debt issued under domestic law of $ 41.7 billion, for which the government has promised treatment as fair as for obligations under foreign law.

The agreement with the creditors “clarifies the deadlines, eases the pressure on the demand for dollars and frees up enormous fiscal resources to deal with the pandemic”, estimates the Argentinian Center for Political Economy.

Resources welcome for a government that had to solicit public spending to cope with the effects of a containment imposed on March 20, which kept Latin America’s third largest economy paralyzed.

But, according to Mariana Dal Poggetto, the health crisis will however complicate tax revenues and the public account deficit could end the year around 8% of GDP.

The deficit will grow “in the same way as in the rest of the world. The difference is that Argentina, which seeks to restructure its debt, does not have access to credit, ”she recalls.

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