MercoPress. South Atlantic News Agency

Moody's warns Argentina's unwritten IMF deal does not avert default

Moody's called for a faster rate of devaluation, positive real interest rates and the reshaping (or elimination) of energy subsidies, which the Fernández Government refuses to adopt

Credit rating consultants Moody's Friday issued a report according to which Argentina's ”long history of failure when implementing International Monetary Fund (IMF) programs” meant the risk of default had not been averted.

According to the document, Argentina will likely have to restructure foreign-currency debt payments to private-sector creditors starting in 2024.

The rating agency also believed many details of the agreement remained to be known and pointed out three things needed to happen for economic recovery to start: First, a faster rate of devaluation than last year's, particularly with inflation above 50%; second, real interest rates needed to remain positive in order to promote domestic savings; and third energy subsidies must be redefined.

“The government has so far refused to reduce such subsidies significantly and plans to raise energy prices below the rate of inflation,” Moody's said.

The rating agency also said the South American country will have problems meeting the goals set by the IMF: “Our base scenario is that Argentina will sign an agreement that will incorporate multi-year objectives aimed at reducing macroeconomic imbalances, but that compliance will be, in the best of cases, irregular and will require requests for exceptions and renegotiations of objectives.” These requests could eventually threaten the viability of the program, the company also pointed out.

The program requires the government to commit to medium-term economic goals, ”something it has rejected until now“ and political differences among the leaders within the ruling party were of no help.

The agency still expected Congress to approve the new program. ”We expect strong political pressure on the government from members of their own party to keep spending levels as high as possible, particularly ahead of the 2023 presidential election,“ the report said.

Moody's also believed it will be difficult for Argentina to access international financial markets again to refinance bond maturities, which range from US $ 1,400 million in 2022 to US $ 9,500 million in 2025.

“In practice, the new agreement would renew the overdue payments,” Moody's explained. ”But, even with an IMF program, the probability of a new restructuring of the debt with the private sector remains very high,” the document also warned.

The economists behind the study recalled that, after the restructuring of the debt in 2020, Argentina faces capital payments that begin in 2024, they increase from 2025 and continue throughout the following decade.

“The country will not be able to meet these debt obligations without access to the international capital market. To date, these markets are effectively closed to a country risk of around 1,700-1,800 basis points,” the report says.

“Market access is unlikely to materialize in the absence of fundamental changes in Argentina's economic policy framework that support a substantial improvement in its sovereign credit profile. We expect that Argentina will need to restructure its debt in 2024-25,″ Moddy's forecast

“Given the low level of net international reserves, which we estimate today at US $ 1 billion, Argentina could be forced to restructure its foreign debt with private creditors before that date. Debt service payments on foreign currency bonds will average less than [US] $ 2 billion in 2022 and 2023 and rise to more than [US] $4 billion in 2024 and close to [US] $ 10 billion in 2025,″ the report also pointed out.