Alberto Fernandez, presidential candidate for the Citizen's Unity Party, speaks during an event in Buenos Aires, Argentina, on Monday, July 29, 2019. Fernandez said Sunday that, if elected, his government would stop paying interest on central bank notes known as Leliq, which are used to implement monetary policy. Photographer: Sarah Pabst/ Bloomberg
Alberto Fernández’s strong showing has scared investors © Bloomberg

The next payment in the IMF’s $57bn bailout of Argentina is at risk of being delayed beyond the crisis-stricken country’s presidential elections in October, according to people with knowledge of the talks.

Market turmoil has complicated assessments of the programme’s compliance with targets after President Mauricio Macri’s defeat in primary polls last month triggered a massive sell-off of Argentina’s assets, said the people, who declined to be named because the discussions were private. The Washington-based institution, which will soon have a new leader, was expected to disburse $5.4bn this month.

Mr Macri’s pre-electoral defeat to Peronist Alberto Fernández prompted investors to reduce exposure to the Argentine peso, shares and debt because of the likelihood that a populist leftwing government would take power next month.

This forced the government into a series of measures to prevent a meltdown, including asking creditors to accept delays in payments on some of Argentina’s $100bn mountain of recent debt, the implementation of capital controls and extra subsidies.

The IMF sent a team to Argentina last month to assess the bailout programme ahead of a decision on disbursing the next $5.4bn tranche.

However, Hernán Lacunza, the country’s new finance minister, is now due to travel to Washington on September 26 to meet IMF officials for further talks. Complex market conditions and policy uncertainty have made the situation more difficult, IMF spokesman Gerry Rice told reporters on Thursday. 

“Our engagement remains strong with Argentina,” said Mr Rice. “The IMF’s objective has been to try to help the authorities stabilise the challenging situation and allow for a return of confidence that would pave the way for growth.”

The IMF declined to comment further. But people with knowledge of the situation said the decision on the next tranche would take much longer than originally expected because of the difficulty of assessing compliance in a fast-changing situation where the government was announcing new measures on an almost daily basis.

The people with knowledge of the bailout said the fund was closely watching the steady drain of foreign exchange reserves from Argentina. Both individuals and companies have rushed to buy dollars and move them out of the country to dodge rapidly rising inflation, now running at more than 50 per cent a year.

Since the August 11 primaries the central bank has lost more than $15bn in reserves, although the bleeding has been staunched from more than $1bn a day immediately after the vote to less than $90m on Thursday. But confidence is fragile and concern high over whether reserves will hold until the end of Mr Macri’s term in December.

IMF officials are also monitoring Argentina’s parallel market dollar rate, which began to diverge sharply from the official rate after capital controls were imposed and now stands 20 per cent higher.

Under its rules, the IMF must assess whether Argentina is meeting a series of economic targets in areas such as the budget, money supply and balance of payments. Most economists believe this will be straightforward.

Much more problematic is a requirement to certify that the programme has a reasonable long-term chance of success and that it enjoys the political support to succeed.

Mr Fernández, a former cabinet chief, has given mixed signals on possible polices. Concern has been heightened by his running mate, former president Cristina Fernández de Kirchner (the two are not related). Ms Fernández’s time in office was marked by large budget deficits, high inflation, nationalisation and price controls. She is being investigated for her involvement in numerous corruption cases. She has denied wrongdoing.

In public Mr Fernández has blamed the country’s economic crisis on the Macri government and the IMF and vowed to reflate the economy without the fund’s permission. In private he has sent more conciliatory signals, indicating he is ready to work with the fund on a modified programme.

“The market is already pricing in a delay in the IMF disbursements for both September and October,” said John Morton, a portfolio manager at Lord Abbett. “Any type of disbursement before the new government would actually be quite positive for the market.” 

A source at Argentina’s finance ministry said: “With the financial and exchange [control] measures that we have taken, the disbursement is not an immediate necessity. We are in permanent dialogue with the fund.” 

But Ed Al-Hussainy, a senior currency and rates analyst at Columbia Threadneedle, argued that the IMF was in a “tough spot”. Its programme needs to be revised because the devaluation of the peso since the primary elections had led to a significant deterioration in the sustainability of Argentina’s debt burden. 

“To disburse this tranche without an acknowledgment that the situation on the ground has dramatically changed, and not for the better, would do a lot of damage to their credibility,” he said.

Mr Al-Hussainy added: “At the same time if they delay significantly, that itself adds to market volatility, arguing that there is a danger that the IMF could be accused of worsening Argentina’s debt sustainability by delaying the disbursement.”

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