[Asia Economy Reporter Jeong Hyunjin] The International Monetary Fund (IMF) has assessed Argentina's debt burden as "unsustainable" and emphasized that private bondholders must share some of the losses. The $13 billion financial support that the IMF had planned to provide additionally to Argentina has become uncertain.
On the 19th (local time), the IMF concluded debt restructuring talks held in Buenos Aires with the Argentine government from the 12th to that day, stating in a press release, "We had very productive discussions on Argentina's macroeconomic plans and policies," while emphasizing the role of the private sector.
This discussion was the first since the inauguration of the Alberto Fernandez administration in December last year and was conducted to prevent Argentina's default. The Argentine government is pushing for debt restructuring amounting to $100 billion. The IMF has lent $44 billion of this amount and maintains a stance that there will be no debt forgiveness.
The IMF pointed out that Argentina's debt situation has "definitely worsened" compared to the evaluation in July last year. At that time, the IMF assessed Argentina's debt situation as sustainable but with low probability. Compared to the current evaluation labeling it as "unsustainable," the previous assessment was relatively lenient.
As the likelihood of Argentina's default increases, financial markets are greatly shaken. The peso-to-dollar exchange rate closed at 61.7281 pesos, hitting an all-time high. Considering that the exchange rate was 41 pesos in July last year, the currency value has dropped by nearly 50% in just half a year.
The yield on Argentina's 100-year government bonds has also surged sharply since President Fernandez was elected in August last year, reflecting market anxiety. Each time debt restructuring talks with the IMF take place, yields move by 1 to 2 percentage points, showing increased volatility.
The IMF stated, "It seems difficult to create fiscal and political space necessary for debt reduction and risk management," adding, "Therefore, a meaningful debt restructuring with significant contributions from private creditors will help secure debt sustainability." It further emphasized to the Argentine government the need to continuously strive to maximize private creditors' participation in the debt restructuring.
The execution of the $13 billion bailout that the IMF planned to provide to Argentina has also become uncertain. The IMF decided in October 2018 to support Argentina with $57 billion but has only disbursed $44 billion so far. IMF Managing Director Kristalina Georgieva is scheduled to meet with Argentina's Minister of Economy Mart?n Guzm?n at the upcoming G20 Finance Ministers meeting on the 22nd and 23rd to discuss the bailout. On the same day, the Central Bank of Argentina lowered the policy interest rate from 44% to 40% and took measures to prevent economic slowdown.
This evaluation reflects the IMF's willingness to take tailored measures for Argentina. In a recent op-ed published in a foreign media outlet, Managing Director Georgieva emphasized the need to provide individualized prescriptions for emerging markets with volatile capital flows. This means taking an integrated policy approach using four tools: monetary policy, macroeconomic policy, exchange rate intervention, and capital flow measures.
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