BUENOS AIRES--A new programme being discussed by Argentina and its biggest lender, the International Monetary Fund, could set up private bondholders for heavy losses without requiring the spending cuts needed to make the country solvent, investors say.
Argentina and the IMF announced last month they would start Article IV consultations - allowing the Fund to inspect Argentina's accounts - as a stepping stone to a possible new programme that would replace a defunct $57 billion loan agreement struck by the previous government in 2018. An IMF technical team is due in Buenos Aires this week to meet with economy ministry officials and review the left-leaning government's economic plans.
The negotiations with the Fund are part of a broader restructuring of about $100 billion in debt that Argentina's government says it cannot pay unless given time to revive stalled economic growth. Analysts and bondholders said discussions on a new programme between President Alberto Fernandez's government and the Fund are better than the alternative of having Argentina unilaterally impose terms without IMF feedback.
But so far, the Fund has not challenged Argentina's refusal to impose fiscal austerity on an economy in recession. That is stirring unease among investors - who are hoping the new programme will include measures to rein in spending - as they brace for hefty "haircuts," or reductions in principal payments on their bonds.
"Our view is that the capacity for Argentina to service its debt is a lot higher than what the government claims and they should be aiming for a higher fiscal surplus," said Steffen Reichold, portfolio manager at ?Stone Harbor Investment Partners, which holds some Argentine debt.
"Many people have raised this point. We've raised it to IMF. This will be a key issue in the discussions once Argentina makes its first offer," he said.
Economy Minister Martin Guzman has stressed two points in talks with the IMF and comments to Congress: the government, in office since December, will not keep paying debts it considers unsustainable and fiscal austerity would only hinder Argentina's repayment capacity by worsening the economy. Guzman insists that growth, not fiscal surpluses, should be first on the agenda as he tries to steer Latin America's third-biggest economy toward solvency. Wall Street, aware of Argentina's decades-long history of financial mismanagement, wants to see close IMF supervision.
"The market would like to see the Fund use its institutional credibility and expertise to encourage the authorities to strengthen their fiscal stance and embrace structural reforms," said Goldman Sachs emerging markets analyst Alberto Ramos.
"But it seems the IMF will not do that. The Fund seems happy with Argentina's lack of commitment to significantly improve the medium-term fiscal picture and deal with its perennial fiscal imbalances," Ramos said.
The last IMF mission to Argentina ended on Feb. 19. At that time, the Fund said Argentina's debt situation was unsustainable and urged Buenos Aires to draft a definitive plan to restore debt sustainability, including a "meaningful contribution from private creditors."
President Fernandez - initially deeply skeptical about continued involvement with the IMF - has set a March 31 deadline to deal with the country's public debt, and the Economy Ministry has published a timeline for the process. Some analysts, however, doubt the deadline is realistic.
"It's a fantasy," said Mariano Marco del Pont, chief of trading at Silver Cloud Advisors in Buenos Aires.
