Argentina debt crisis inevitable failure of IMF bailout

  • IMF broke own rules to agree loans last year without a debt restructuring taking place
  • By bailing out reckless lenders, the IMF repeats the same mistakes it made in Greece

Reacting to news that Argentina is seeking a debt restructuring, and has brought in currency controls, Sarah-Jayne Clifton, Director of Jubilee Debt Campaign said:

“This was an inevitable consequence of the Macri government’s decision to pay off the vulture funds through extensive new borrowing, and of the IMF’s willingness to bail out reckless lenders with new loans.

“The IMF have a policy of not lending when debt levels are unsustainable, unless the debt is restructured. But last year they once again breached their own policy and lent Argentina $56 billion, effectively helping to pay off previous reckless lenders. From Greece to Argentina, Ghana to Pakistan, the IMF keeps on making the same mistakes. It needs to stop incentivising reckless lending and start requiring lenders to restructure debt before it issues bailout loans.”

In 2016 the newly-elected Macri government in Argentina borrowed $12 billion at 8% interest to pay off vulture funds who had refused to take part in a debt restructuring following the country’s early 2000s debt crisis. Because the vulture funds had bought the debt cheaply when it was in default, they made profits of over 1000%.

The borrowing to pay off the vulture funds was part of a huge increase in foreign lending to the country. In 2016 and 2017 external lenders disbursed $49 billion of loans to the country, up from $19 billion disbursed in 2014 and 2015, the last two years of the Kirchner government.

A protest against the IMF in Buenos Aires in 2018. The banner reads “Down with Austerity, Macri, IMF, the Governors. No to the Payment of the Debt.” (Photo credit Dan Ozarow)

In June 2018, after the peso fell in value and speculators became concerned whether they would be repaid in full, the IMF agreed a loan programme with Argentina, which has so far disbursed $44 billion to the government, with a further $12 billion agreed for the future. Under IMF rules “The Fund may only lend if debt is assessed to be sustainable in the medium term … If debt is not sustainable, the Fund is precluded from lending unless the member takes steps to restore debt sustainability, including through either debt restructuring or the provision of concessional financing.”

However, for upper-middle and high-income countries the IMF does not define what a sustainable debt is. In Argentina’s case, debt indicators are well above limits the IMF sets for sustainability for low- and lower-middle income countries. For example, external government debt service is 47% of exports in 2019, over double the limit of 21%.

Under the IMF programme the economy has been in recession in 2018 and 2019, while unemployment has increased from 6.5% at the end of the Kirchner government in 2015 to 10% in 2019.

The Argentine government has now said it intends to reschedule long term debt, but this is after some creditors have already been bailed-out by the IMF. Previous IMF research has shown that debt restructurings are “too little” and happen “too late”. The IMF’s actions in Argentina have once again allowed debt to be restructured too late.

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