By Walter Bianchi and Lucila Sigal
BUENOS AIRES (Reuters) – Argentine bonds fell on Monday as a new $45 billion deal with the International Monetary Fund (IMF) started to move through Congress, with the crisis in Ukraine hitting investor sentiment as well as doubts about the country’s economic outlook.
Argentina agreed on a 30-month extended fund facility (EFF) with the IMF late last week, replacing a failed 2018 program, which pushes repayments back until 2026-2034. It needs approval from the IMF board and Argentina’s Congress.
Economy Minister Martin Guzman addressed lawmakers on Monday, warning that blocking the bill would be “destabilizing” for Argentina and lead to default to the IMF.
“It would generate a situation of deep exchange rate stress with inflationary and negative consequences on economic activity, employment and poverty,” he said.
Opposition lawmakers have indicated they will support part of the bill to refinance the debt, though have threatened to vote against the economic plan. It is unclear whether that would be acceptable to the IMF, which wants broad support for the deal.
“We have a point of agreement, not to push the country into default,” an opposition legislator told Reuters, referring to the center-right opposition coalition. He asked not to be named.
“We also agree on endorsing the refinancing of the debt with the IMF but we don’t endorse the economic program.”
Most analysts still expect Congress to approve the bill despite the pushback, which would help Argentina avert a default on billions of dollars of repayments to the IMF due this year amid soaring inflation and low reserve levels.
However, bonds have dropped steadily since late last week, with Russia’s invasion of Ukraine compounding investor concerns that the grains-producing country will not be able to meet the economic targets from the deal and revive its embattled economy.
The South American country’s bonds were down on average 1.2%, with some bonds like the Bonar 2030 30 cents on the dollar, a reflection that many investors are pricing in a future default.
“Investors first want to see that the economic goals can be met. Then we’ll see about bond prices recovering,” said Antonio Aracre, an analyst at Syngenta, citing Argentina’s mottled history of some 22 IMF bailouts.
Local brokerage StoneX said in a note that capital outflows from emerging market funds had also impacted Argentine debt, “nullifying the positive effect of the IMF staff agreement”.
‘LIGHT DEAL’
Barclays said in a note that the agreement should help reduce pressure on parallel currency exchange rates, where dollars are around twice as expensive as the official rate, and overall uncertainty about policy-making.
“But it is not an inflation stabilization plan, and is unlikely to deliver reserves accumulation,” it added.
Delphos Investment said that the deal would help lay the foundations for a gradual process of fiscal consolidation and accumulation of reserves, though added it was “not very ambitious” in terms of more lasting structural changes.
“Now we know the details of the agreement with the IMF, there is little doubts that it is a light deal. Nonetheless, it will not be easy to meet the terms of the agreement,” said Roberto Geretto of local investment firm Fundcorp.
The deal comes with an economic plan that sets out targets for growth, slowly lowering inflation, moving towards positive interest rates, building up foreign currency reserves and cutting central bank funding to the Treasury.
“There are reforms that are intended to improve economic growth and reforms that are intended to improve fiscal solvency,” said Daniel Artana at the FIEL Foundation.
“The government has not advanced on either of the two fronts, beyond the fact that it has made a commitment to reduce subsidies for electricity and gas rates.”
GRAPHIC-Argentina: Economic Targets https://tmsnrt.rs/3sG3w77
GRAPHIC-Argentina’s USD bond prices (Interactive version) https://tmsnrt.rs/3FzHvdH
GRAPHIC-Argentina’s USD bond prices https://tmsnrt.rs/3fz89Zs
BREAKINGVIEWS-Argentina and the IMF: Hope trumps experience
Argentina agrees $45 bln IMF debt deal that targets energy subsidies
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(Reporting by Walter Bianchi; Additional reporting by Gabriel Burin; Editing by Adam Jourdan, Andrea Ricci and Lisa Shumaker)
