Walter Bianchi and Marc Jones

LONDON/BUENOS AIRES – Investors and analysts expect Argentina’s new, $44.5 billion agreement with The International Monetary Fund to support domestic markets. However, the outlook for the future is still uncertain.

On Friday, the South American country announced that it reached a deal to work with IMF on a program called “standby” in order to replace a 2018 failed loan of $57Billion. It is easing concerns about defaults as payments start this year.

This will probably boost bond prices, which had fallen to 20-30c on the dollar over the last year due to the slow pace of fiscal consolidation and talks dragging.

Peter Kisler of Trium Capital’s emerging market portfolio manager said that it gives the holders of Argentine debt some breathing space. He said that bonds could easily rise another 20% with a little more optimism.

The agreement was not as comprehensive as we wanted, so prices don’t fly from here. However, there was the real possibility of defaulting to IMF.

The bond market was up 3 cents after Friday’s announcement from the IMF and government. This agreement still has to be negotiated and approved by Congress as well as the IMF board.

Argentina faced $18 billion of IMF payments this year. This was after years and economic crises that were compounded with the COVID-19 epidemic. The IMF restructured private debts worth more than $100 million in 2020.

(Graphic: Argetina’s bonds had fallen to all-time lows, https://fingfx.thomsonreuters.com/gfx/mkt/byprjxlmzpe/Pasted%20image%201643388344345.png)

“NO FISCAL EFFORTS”

Eugenio Mar, chief economist of Fundacion Libertad y Progreso, stated that the agreement “relieves financing requirements for the future years and reduces uncertainty Argentina’s economy”. This is amid a tentative recovery in the last year.

Vontobel Asset Management’s Carlos de Sousa predicted that the deal struck by the leftist government will be approved by Congress. The conservative opposition is likely to back it.

“I believe the opposition will approve because they don’t want it to be considered irresponsible.” he stated. Argentina got its wish for 2022-2023 because there was virtually no fiscal effort.

Alberto Ramos, a Goldman Sachs analyst (NYSE:), stated that it was still to be determined how strong the plan will be and if it would resolve Argentina’s economic problems.

He stated that the overall macro-financial picture showed deep imbalances, widespread distortions which render a gradual adjustment strategy inherent risky.

A stock trader in Argentina, who requested anonymity, stated that the market remained tense and the announcement had helped to give some more certainty. He wanted to read the details and see how the actual deal was executed in practice.

He said, “The announcement provides some breathing room to the market but we must be careful and watch how the agreement will be implemented.”