“It’s An Embarrassment”: IMF Faces Humiliation, Billions In Losses As Argentina Braces For Next Default

Monday, August 26, 2019
By Paul Martin

by Tyler Durden
Mon, 08/26/2019

On Friday, when CNBC’s Steve Liesman was interviewing the IMF’s new chief economist, Gita Kopinath, we suggested that he ask what the IMF’s plan is for Argentina now that the country was facing what appears yet another bond default.

And while Steve did in fact ask that question, he didn’t get a direct answer for one simple reason: the IMF has no clue what it will do now that it is facing a historic loss on its latest, and biggest ever, $56 billion bailout of Argentina, which was completed less than over a year ago in September 2018.

It gets worse: not only does the IMF have to scramble to preserve its current bailout, and credibility, having sunk billions into a country which humiliated the IMF at the start of the century when it defaulted last, the monetary fund has to decide whether to keep injecting money into a nation that many believe will soon default on its foreign obligations – and the IMF – again, after President Mauricio Macri just got trounced by the populist opposition in a nationwide primary vote, after his IMF-backed program – based around much hated budget austerity and the world’s highest interest rates – failed to pull the economy out of recession. What happened next, as we reported two weeks ago, was a 20% crash in the peso and a collapse in government bonds, which pushed the implied risk of default above 80%.

It was in this dire context that IMF delegates arrived in Argentina on Saturday and, as Bloomberg reports, immediately began meetings with policy makers, facing a deja vu choice from two decades ago: risk making the turmoil even worse by withholding a $5.3 billion installment due next month – or cough it up, and risk even more losses with the IMF bailout program on the verge of collapse.

The IMF’s henchmen also have to figure out the economic plans of opposition chief Alberto Fernandez – who is set to head a less market-friendly government in a few months, an outcome which the IMF clearly not even once considered when it “offered” Macri’s regime tens of billions in loans in exchange for draconian terms that flipped public opinion against him in just a handful of months. And while elections are still two months away, and miracles can certainly happen, Macri’s 15-point primary defeat has led analysts to write him off as a lame duck.

“The IMF has put a lot in – not just money, but prestige,” said Hector Torres, a former executive director at the Fund who represented South American countries. “The fact that the arrangement is not performing well right now is an embarrassment,” he said. And the September installment is “going to be a difficult call.”

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