Argentina Agrees $45 Billion IMF Debt Deal That Targets Energy Subsidies

ARGENTINA - BUENOS AIRES. Argentina has sealed a $45-billion debt deal with the International Monetary Fund, the country's government and the IMF said on Thursday, after talks ironed out final wrinkles of an initial agreement reached in January.

"After intense negotiations, the national government managed to seal an agreement with the IMF," the Economy Ministry said in a statement, adding the deal would be sent to Congress on Thursday and would look to refinance some $45 billion.

The IMF said the two sides had reached a staff-level agreement on a 30-month extended fund facility, including a program to tame high inflation, reduce money printing to finance the fiscal deficit, and deliver positive real interest rates.

The deal, which will roll over a failed $57 billion credit facility from 2018, is key to the grains-producing country stabilizing its crisis-hit economy amid rampant inflation and dwindling foreign currency reserves.

Argentina has now had 22 bailouts by the IMF, but Ilan Goldfajn, the Fund's Western Hemisphere Department director, said in a press conference that this time would be different "because it is based on realistic goals, it is based on the pragmatic approach and it its based on ownership of the program by the (Argentine) authorities."

Argentina's Congress and the IMF board still need to approve the agreement, which follows over a year of talks that have weighed on bond prices and limited the country's access to global credit markets.

The country's sovereign bonds showed little immediate reaction, ending slightly lower on the day, still in the mid- to low 30 cents on the dollar area. The peso currency rose in popular alternative markets.

"Notably, the impact of the first news that the government would get an IMF deal on Argentine dollar bonds was surprisingly small," said William Jackson, Chief Emerging Markets Economist at Capital Economics.

"It's perhaps a bit too early to judge the market reaction to Argentina's IMF deal. It seems likely that it will spur a rally in the U.S. dollar debt market, although investors may wait to see all the details."

The Inter-American Development Bank and the World Bank will participate in the program by contributing 0.4% of GDP annually over the course of the program in budget support, said Luis Cubeddu, the IMF's mission chief to Argentina, adding that their participation will ease the transition away from central bank financing. The 0.4% is a net figure, excluding repayments, he said.

ENERGY TARIFFS IN FOCUS

Presidential spokeswoman Gabriela Cerruti said energy subsidies, at some $11 billion last year, were among the most discussed and "intensely negotiated" issues.

"But an understanding and a path have been achieved that take care of the most vulnerable and makes headway on the construction of reasonable tariffs that allow us to focus spending to generate employment and boost the economy," she said.

Julie Kozack, Deputy Director of the Western Hemisphere Department at the IMF, said energy price increases "will be done in a progressive manner so that the lower income segments of the population would be more protected, and those with a higher payment capacity would have their subsidies eliminated."

Subsidies are aimed to be reduced by 0.6% of GDP, the Fund said.

Swift approval in Congress is key as Argentina races to finalize the deal ahead of a payment cliff this month, where it faces a maturity of some $2.8 billion.

The IMF said it sees Argentine inflation falling to between 38% and 48% this year from 51% in 2021, while the fiscal deficit is seen declining to zero in 2025 under the new program.

President Alberto Fernandez told Congress on Wednesday that if the agreement is approved the country would begin making payments to the IMF in 2026 and complete repayment by 2034.

In January, Argentina's government announced that it had reached an understanding in principle with the IMF to replace the failed loan from 2018. IMF head Kristalina Georgieva said then that there was still much work to be done.