The IMF and Argentina, Part I: Blame the Sovereign
In a recently released report, the International Monetary Fund analyzed its biggest sovereign bailout and came to the easy conclusion that its failure is squarely in Argentina’s hands. The “ex post evaluation” of the 2018 Standby Arrangement worth $ 57 billion (1.227% of Argentina’s IMF quota, as the report duly noted) does not no mention of the political nature of the swift approval of the “biggest deal in the history of the Fund” and ends up concluding that it acted within its limits, acknowledging it was “risky” from the start. If the Argentinian political class is indeed the culprit, starting with Mauricio Macri – let’s not exonerate the Kirchnerists – the IMF proves once again that it is incapable of learning from its mistakes, and continues to be the “bad guy” of global finance. ecosystem.
In 2018, Argentina collapsed again after a peso rush and had to ask the IMF for an emergency bailout. Macri, a center-right president who ousted Cristina Fernàndez de Kirchner after more than 12 years in power, presented himself as a reformist who sought to end populism once and for all. He paid off recalcitrant creditors like Paul Singer’s Elliott Management and lifted capital controls, resulting in increased portfolio flows. Argentina has once again emerged as the darling of emerging markets, and Macri and his economics team abused their position and recently gained market access to deal with a shipment of dollar-denominated debt.
While Cristina and the Kirchnerists relied on government sacking and capital controls to meet the country’s galloping deficit, Macri sought to finance it with debt. The second the global economy sneezed, with a race in emerging markets starting in Turkey, Argentina suffered a debilitating devaluation. From then on, the Macri government went into crisis mode and never recovered, failing to get re-elected in 2019 and leaving the country in ruins. Macri received a time bomb from Mrs. Fernàndez de Kirchner, defused it, and then reactivated it.
As the report notes, Argentina’s lack of lasting reforms as well as Argentina’s “political economy” resulted in a loss of confidence that quickly fueled a stampede on the country. Still, IMF officials structured a deal with then-Economy Minister Nicolas Dujovne that was clearly unsustainable. With Christine Lagarde at the helm, it was approved in record time by the board of directors and the funds were quickly disbursed. Macri announced this in a speech lasting no more than two minutes and forty seconds.
Indeed, the political nature of the speed with which the IMF board approved the bailout was confirmed by Mauricio Claver-Carone, a key adviser to Donald Trump on Latin America who served as executive director of the United Nations. United States at the IMF, where it is the largest shareholder. In a speech to the Chilean Council on Foreign Relations in 2020, Claver-Carone explained how Argentina, under Macri, was seen as a key ally of the United States, especially in its tough stance with Venezuela and Cuba. A return of Peronism, and the most extreme Kirchnerist variant, to power in Argentina would lead to an erosion of support for American interests in the region, as ultimately happened. European board members opposed such a large disbursement to Argentina, noting that the program seemed unsustainable, an issue Lagarde raised in the White House, which ultimately tipped the scales in favor of Argentina. ‘Argentina. Trump had a personal relationship with Macri based on previous business relationships and ideological similarities. Claver-Carone ended up leading the Inter-American Development Bank, defeating Argentinian candidate Gustavo Bèliz and shattering the diplomatic norm that the IDB should be run by a Latin American.
The current Peronist administration has accused Macri and the IMF of structuring the loan in order to guarantee capital flight and to finance the failure of Macri’s re-election campaign. They even opened a criminal investigation and accused IMF officials. This position seems extreme. While the IMF made the clear political decision to back Macri, the underlying problem was unsustainable debt that was generated in order to pay off a massive budget deficit, which was a Kirchnerist creation that was compounded by the lack of government reforms. Macri. The flight of capital, known as the formation of foreign assets in Argentina, was a consequence of a lack of confidence in the economy and the peso, as it has for decades.
The IMF, however, should recognize that it is also part of the problem.