IMF board signs off $44 bln Argentina debt deal, warns on risk

INA-  sources

 The board of the International Monetary Fund approved on Friday a new program with Argentina for about $44 billion, the IMF said, but acknowledged that it comes with "exceptionally high" risks.

The agreement, reached by consensus according to two sources, marks the 22nd IMF program for Argentina and comes after more than a year of negotiations. It replaces a failed $57 billion program from 2018, for which Argentina still owes over $40 billion.

About $9.66 billion will be disbursed immediately, the fund said.

The approval comes after Argentina's Congress signed off on March 17 on the financing aspect of a staff-level agreement, but not on the policies expected to keep the economy on track and the debt sustainable. 

"Risks to the program are exceptionally high and spillovers from the war in Ukraine are already materializing," Kristalina Georgieva, the IMF's managing director, said in a statement.

"In this context, early program recalibration, including the identification and adoption of appropriate measures, as needed, will be critical to achieve the program’s objectives."

An IMF official said at a news press conference that the recalibration of targets is being considered from the beginning of the program due to the ongoing shock of the war in Ukraine.

Russia's invasion of Ukraine late in February and the sanctions that followed have pushed prices of many commodities, including energy and food, sharply higher and are expected to drive inflation even higher than has been expected.

Argentina's fiscal deficit and inflation are expected to be among the most affected by the shock.

"The 2022 fiscal consolidation strategy entertained in the IMF program is already compromised on higher energy costs," said JPMorgan earlier this week as it revised its primary fiscal deficit forecast to 2.8% of gross domestic product, above the program's target of 2.5%.

The economic shock of the war in Ukraine is also behind the pulling forward of the agreement's first review to mid-May, from the original date in June.