Waiting for the Fund
Discussions between the IMF and Argentina on the new Extended Facilities Agreement (EFF) that will replace the one that just expired seem to be on track. Negotiations accelerated in the last two months, and it is quite likely that the agreement will be reached before the end of March. Taking the previous loan facility as a reference, which was signed in March 2022, during Alberto Fernández's administration, it is not unreasonable to think that it would have similar characteristics, or perhaps even better in terms of net inflows for the first year, although this is likely to be reversed in 2026 and 2027.
In this report, we look at recent economic developments, including the above-average November EMAE performance and the reduction of export duties for the agricultural sector, a key objective of which is to speed up the settlement of foreign currency in the coming months.
We also discuss the prospects for the export dollar blend and the cepo. Contrary to our expectation that the BCRA would eliminate the export dollar blend (80% MULC and 20% CCL or MEP) in February, no announcement has been made in this direction. It is possible that the issue is being negotiated with the IMF as part of the new lending agreement along with the dismantling of the cepo. In our view, the IMF is less concerned about the cepo than it is about the blend. Nothing worries the IMF more than debtor-member countries not accumulating foreign reserves, which it sees as collateral for the loans it grants. Exchange controls are less of a concern for the Fund because these discourage capital flight, hence helping to keep reserves at home. This is unfortunate and shortsighted, especially in Argentina, where the cepo discourages capital inflows, too.
The Government of Argentina, on the other hand, would like to keep both the cepo and the blend, at least until the midterm election, to avoid disruptions that could delay the reduction of inflation to a figure consistent with the 1% monthly rate of crawl. However, we argue that postponing an exit from the cepo until after the election does not guarantee that the FX market will not be destabilized before the election.
Finally, we speculate on what a hypothetical new lending agreement with the IMF would look like, including quarterly disbursements and net financial flows between Argentina and the Fund. The main assumption we are making is that while the Fund's board will accept increasing the IMF's already high exposure to Argentina during the life of the program, it will make sure that, by the end of program, exposure will not be higher than it is now.
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