Breaking down Argentina’s USD 44 billion IMF pre-agreement

After two years of negotiations between Argentina and the International Monetary Fund (IMF), the two sides struck a pre-agreement to restructure the country’s 2018 USD 44 billion loan, steering clear of a massive debt default that both were eager to avoid.

The initial understanding still needs to get into finer details and secure approval from Congress and the IMF board of directors. Regardless, Argentina’s Economy Ministry and the IMF’s technical staff outlined a roadmap of disbursements, repayments, and macroeconomic policies that settled multiple contentious issues that once held the deal back.

Argentina’s center-left Peronist government accepted many of the fund’s demands with regards to fiscal and monetary policy, while the IMF seems close to making the unprecedented concession of exempting Argentina from so-called “structural reforms” — the idea of which sent shivers down the government’s spine.

The country agreed to gradually cut its primary fiscal deficit, reaching zero in 2025. Intermediate targets of -2.5 percent of GDP in 2022, -1.8 percent in 2023, and -0.9 percent in 2024 are also included in the terms, said the Economy Ministry.

With regards to monetary policy, Argentina will have to drastically cut its Central Bank financing of the treasury from the 3.5 percent of GDP seen last year to 1 percent in 2022, 0.6 percent in 2023, and near zero in 2024. The country also promised to change its interest rate policy from the negative real rates seen throughout most of the Alberto Fernández presidency ​​— in which rates remained below inflation, making local debts more easily payable — to a positive real rate that props up the returns of Argentinian Peso-denominated bonds.

In exchange, the fund will...