By Rodrigo Campos and Agustin Geist

NEW YORK/BUENOS AIRES – Alejandro Bodart, a labor activist marched through Buenos Aires in protest against the International Monetary Fund two decades ago. Many blamed it for the austerity measures that led to Argentina’s worst economic crisis.

Bodart now fears that an agreement to pay $45 billion more for Argentina will not be paid, which is a step closer to war. This would mean additional tightening of the belt in South America, where nearly one-fourth live in poverty.

Bodart, the secretary general for the Socialist Workers Movement (MST), stated to Reuters that there will be “social resistance”.

“We don’t believe there is any chance of viable countries within the IMF framework, and we should reject it.”

Bodart is a conservative, though it underscores both the IMF’s and President Alberto Fernandez’s challenges in trying to find a balance between fiscal responsibility and growth.

Argentines worry about potential consequences of a deal to reduce public spending. Public spending has been critical in supporting growth this year. Government could also take a political hit as a result of any austerity prior to 2023 Presidential elections.

Over the weekend, an Argentinean economic team visited Washington to press forward negotiations with IMF officials. Many analysts see the possibility of a deal increasing – despite the differences between the sides regarding how to finance fiscal consolidation.

“Not agreeing is not an option, because it is worse for the country,” said Hernán Lacunza, finance minister under the previous conservative government of Mauricio Macri, which the ruling Peronist coalition blames for striking a hasty deal with the IMF in 2018 and burdening the country with debts.

He said that there had to be progress quickly because uncertainty was affecting the currency and foreign reserves levels of the country, as well as causing a drop in bond prices.

They have been discussing for over a year without any concrete results. Lacunza stated that time isn’t indifferent because uncertainty can cost resources.

(Graphic: Argentina quarterly IMF schedule of payments, https://graphics.reuters.com/ARGENTINA-IMF/PAYMENTS/dwvkrzadnpm/chart.png)

BELT TIGHTENING

Fernandez’s economy minister Martin Guzman said that any new deal should avoid fiscal adjustments, which could hurt economic recovery after many years of recessions and the COVID-19 pandemic.

A government source said to Reuters in November the IMF had a key problem with how to reduce fiscal deficit. This was without implementing a “contractionary spending” policy. Instead, the government is seeking to improve tax collection as well as find funding from other lenders.

Fernandez faces a difficult task in trying to win back voters before the 2023 presidential elections. This is after Fernandez suffered a devastating midterm loss that saw the Peronist coalition lose their majority in Senate.

These demands might put any policy to decrease public spending under scrutiny, particularly with Cristina Fernandez de Kirchner (powerful Vice President) openly criticizing the IMF while pushing for more public spending.

Benjamin Gedan is the deputy director for the Latin America Program of the Wilson Center in Washington.

But he’s confident of a deal. With the IMF blessing and Congress’ approval, the government plans to present a multiyear economic plan this month.

A government source said that things are “supposedly on track”, but they will need to wait.

A plan for economic development that has been approved by the IMF would most likely include targets to balance fiscal affairs, build up currency reserves and plans to lower inflation to over 50%. It also includes measures to loosen capital controls, which have led to widely diverging exchange rates.

OANDA’s currency broker Edward Moya stated that the new deal could see Latin America’s third-largest economic entity having to get some serious medicine.

Moya explained that Argentina still has a serious debt problem and is in a currency crisis. They also don’t have sufficient reserves to pay the IMF.

This movie won’t be a good one for Argentina, as the IMF will demand major reductions in public spending.