Argentina Considers Using New IMF Reserves for Loan Payment

Argentina is considering using new reserves to be issued by the International Monetary Fund to make a payment due to the lender in September, according to a person with direct knowledge, a move that would allow more time to overhaul an outstanding $45 billion loan.

The new IMF reserve assets, called special drawing rights, or SDRs, would give cash-strapped Argentina fresh funding to pay the $1.9 billion principal maturity, avoiding a default with the Washington organization if the country can’t reach a deal on the program by September, said the person. The decision to use the reserves for that payment is still being discussed within the government’s leftist coalition, the person added, asking not to be named because discussions are private.

Spokespersons for the Argentine Economy Ministry and the IMF declined to comment.

The South American nation has been in talks with IMF officials on a revamped program since last September after the $45 billion loan agreed in 2018 collapsed, failing to lift the crisis-prone economy. While both parties said a deal could be reached by May, little progress beyond technical talks has been made so far and key midterm elections in October complicate the outlook for the government agreeing to fiscal austerity.

“A new IMF allocation of SDRs would boost reserves further and so could encourage the government to delay an IMF program,” said Pilar Tavella, economist at Barclays Capital Inc. “It would make a delay scenario less harsh on reserves and the macro environment in general.”

The government has already indicated that it will prioritize the content of the deal over the speed of a resolution.

“We want to find a deal, but it has to be a deal that’s convenient for Argentina,” President Alberto Fernandez said at a press conference on Tuesday. “I want a deal that doesn’t cost the Argentines more than what they have tolerated already.”

Read More: Opposition to an IMF Deal Could Prolong Argentina’s Crisis

Boosting Reserves

The Group of 20 largest economies, which includes Argentina, on Friday moved closer to a separate deal on boosting the IMF’s reserves to help nations devastated by the global pandemic, according to other officials familiar with the discussions.

Talks focused on a proposal for a $500 billion allocation of the SDRs, but the final decision likely will come closer to the lender’s spring meetings in April, the officials said, asking not to be identified before a public statement. Argentina would receive about $3.35 billion from such a move.

Fernandez’s administration has previously used existing SDRs for a $305 million interest payment due with the Fund this month. The SDRs are units of account used by the IMF and act as reserves for member countries. They are awarded to all the Fund’s members in proportion to their quota at the organization.

Argentina Considers Using New IMF Reserves for Loan Payment

On top of September’s obligation, the country faces this year another $1.9 billion principal payment with the IMF in December and three interest maturities in May, August and November for a total of about $1 billion, according to the Economy Ministry. The nation currently has 940 million SDR, equivalent to $1.36 billion, as part of its international reserves.

Argentina “fully supports” an allocation of SDRs as they are “urgently needed” for low- and middle-income countries, Economy Minister Martin Guzman said during a G-20 finance ministers and central bank governors meeting on Friday. “If we don’t take the necessary measures at the global level, the recovery will certainly be asymmetric,” he said.

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