An Argentinian Haircut for the IMF
By approving an unprecedentedly large loan to Argentina in mid-2018, despite the country's failure to meet basic borrowing conditions, the International Monetary Fund committed a major blunder. Rather than compounding the mistake with another similar program, it should accept reality – and responsibility.
NEW YORK – Argentina is about to enter another dysfunctional stand-by agreement with the International Monetary Fund – its 22nd SBA since it joined the IMF in 1956. While the details have not yet been settled, we already know that it will be dysfunctional, because there will be no up-front restructuring of the country’s public debt.
Argentina’s public debt is unsustainable. Rather than wasting another two or three years before stumbling into the next disorderly – and economically and socially destructive – sovereign default, Argentinian debt should undergo an immediate, orderly restructuring. The $40 billion that Argentina owes the IMF from its (failed) 21st SBA should be included in that process. And the IMF’s preferred creditor status, which gives it (and other multilateral development banks) priority over other lenders for repayment when a borrower experiences financial stress, should be suspended.
After all, the debt is on Argentina’s books because the IMF decided not to require a significant sovereign debt restructuring before agreeing to the 21st SBA. That agreement was initiated in June 2018, with the government of former Argentinian President Mauricio Macri. By October 2018, the $50 billion lending facility had been increased to $57 billion, but by the following August, the SBA had been suspended, with $44.5 billion paid out – the largest disbursement in the IMF’s history. The inevitable sovereign default (Argentina’s ninth since independence) came in May 2020. In the absence of capital controls, the main “contribution” from IMF lending was that it enabled capital flight.