By Walter Bianchi & Lucila Sigal

BUENOS AIRE (Reuters) – Argentine bonds declined Monday, as a new deal worth $45B with the International Monetary Fund began to pass through Congress. Investor sentiment was impacted by the Ukraine crisis and doubts over the country’s economic outlook.

Late last week, Argentina reached an agreement with the IMF on a 30 month extended fund facility (EFF). This replaces a 2018 failed program that pushes payments back to 2026-2034. The IMF board must approve it.

Martin Guzman, Economy Minister of Argentina, addressed legislators Monday. He warned that blocking the bill could lead to Argentina’s default at the IMF and “destabilizing” Argentina.

He said, “It would produce a situationof deep exchangerate stress with inflationary und negative consequences on economic activities, employment and poverty.”

While opposition lawmakers indicated that they would support a portion of the bill for refinance, but threatened to vote against it, some legislators have indicated their willingness to do so. The IMF wants wide support of the deal, so it is not clear if this would be accepted.

A representative of the opposition said that they had reached a “point of agreement”, and not to make the country default. He was referring specifically to the center-right opposition coalition. He declined to identify himself.

We are also in agreement with IMF to refinance the debt. However, we do not endorse the economic plan.

Many analysts believe that Congress will approve the bill regardless of the opposition. It would aid Argentina avoid default on its billions of dollar IMF repayments this year, which are due amid high inflation and low reserves.

But bonds are down steadily from last week. Russia’s invasion in Ukraine raised investor fears that Russia won’t be able meet its economic targets and revitalize its struggling economy.

On average, the bonds of South American countries were at 1.2%. However, some bonds such as Bonar 2030 are 30cs on the dollar. It is clear that many investors see a potential default and have priced in this.

Investors want to know that economic goals are possible. We’ll then see about bond price recovery,” Antonio Aracre, an analyst with Syngenta, said. Citing Argentina’s miscellaneous history of 22 IMF bailouts, Aracre stated that this is the best way to determine if Argentina can meet its economic goals.

StoneX local brokerage stated in a note, capital outflows from emerging markets funds have also impacted Argentine bonds. “Nullifying the positive impact of the IMF Staff Agreement.”

‘LIGHT DEAL’

Barclays (LON:) 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 claimed that the deal will help to lay the foundations for gradual fiscal consolidation, accumulation of reserve funds and more long-lasting structural changes.

We now know all the terms of the IMF agreement. It is not a complicated deal. Roberto Geretto, a local investor firm Fundcorp said that it would be difficult to fulfill the agreements terms.

This deal includes an economic plan, which sets targets for growth, lowering inflation gradually, moving towards positive rates of interest, building up foreign currencies reserves, cutting back on central bank funding and increasing Treasury financing.

Daniel Artana, FIEL Foundation said that there are two types of reforms: those that aim to increase economic growth and ones that seek to strengthen fiscal solvency.

“The government has not made any progress on these two fronts other than the fact it committed to reduce subsidy for electricity and gas prices.”

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 signs $45 billion IMF debt agreement that targets energy subsidies

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