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March 3, 2021

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ARGENTINA: Electoral considerations outranking speedy IMF resolution

BY Nicholas Watson

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It looks increasingly as if the government will try to push talks with the International Monetary Fund (IMF) beyond October’s partial mid-term legislative elections. President Alberto Fernandez’s combative 1 March speech to mark the opening of the new congressional session appears to confirm this plan of action, which powerful VP Cristina Fernandez (CFK) has been advocating for some time already.

CFK has long held that the kind of economic orthodoxy that the IMF will demand as part of any new program – cutting back high public spending and undertaking structural reforms – would be an act of political self-sabotage ahead of the October mid-terms. A weaker Front for All (FdT) position after October would complicate governability in the second half of Fernandez’s presidency and undercut the chances of the coalition (or whatever version of the Peronist coalition CFK crafts) retaining power in 2023.

To judge from his 1 March speech, Fernandez is now on board with CFK. In his address, the president announced the launch of legal action to investigate former president Mauricio Macri (2015-2019) and his economic team over the way in which the 2018 IMF loan deal was arranged and utilized. An investigation will probably focus most on Fernandez’s persistent charge that the IMF contravened its own articles of agreement by enabling capital flight, as well as the accusation that the deal was politically biased since it was designed to facilitate Macri’s re-election.

Ordering an investigation involving the IMF mainly serves domestic political ends. Fernandez needed a distraction from the recent scandal over Covid-19 vaccines for government insiders. The government’s polling numbers were already falling before the scandal broke. Fernandez’s strategists will hope that polarization with Macri will regain the trust of floating voters, with the added benefit that a doubtless lengthy investigation would bog the former president down in legal entanglements (never mind that this represents the “lawfare” that CFK and Fernandez so decry). Changing the electoral timetable remains a parallel option.

Two other developments are likely to have swayed Fernandez. Prices for agricultural commodities are buoyant, encouraging producers to liquidate holdings over the first two months of this year, which – alongside the new wealth tax – should tide things over until the 2021 harvest gets going in Q2. This creates some extra breathing space, which could grow if – as appears likely – the IMF moves forward with a new allocation of Special Drawing Rights (SDRs). That could help enable Finance Minister Martin Guzman to either make Paris Club and IMF payments due in May and September respectively, or possibly reach some kind of extraordinary refinancing agreement (using the pandemic as justification).

However, CFK’s approach – assuming Fernandez remains consistent (not a given) – is far from risk-free. The inflation situation remains problematic. Soybean prices and/or a sustained period of currency calm are not assured. Criticism of the IMF is hardly conducive to trouble-free relations with the Fund, and a deal will eventually have to be reached given the fiscal imbalance. On the political front, following CFK’s playbook risks losing crucial middle-ground voters who were prepared to vote for the FdT precisely because of Fernandez’s pragmatism and differentiation from his VP. Finally, tacking leftwards could boost the popular opposition mayor of Buenos Aires, Horacio Rodriguez Larreta, who polls indicate is building support in the center-ground.

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