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Argentina's opposition candidate says the country cannot pay IMF loan back, wants renegotiation

Key Points
  • The favorite to be the next president of Argentina has suggested that a loan from the IMF cannot be paid back.
  • Alberto Fernandez rocked markets last week when a poll installed him as a likely successor to Mauricio Macri.
  • Argentine Economy Minister Nicolas Dujovne resigned on Saturday and has been replaced by Hernan Lacunza.
Alberto Fernandez at a polling station during the Primary, Open, Simultaneous and Mandatory elections (PASO), in Buenos Aires, Argentina, on 12 August 2019. Argentines vote for pre-candidates to be defined in the general elections of October 27.
Anadolu Agency | Anadolu Agency | Getty Images

The favorite to be the Argentina's next leader has claimed that a loan from the International Monetary Fund (IMF) cannot be paid back.

Argentine assets cratered last week after a shock primary poll indicated that a left-wing ticket of Alberto Fernandez and former President Cristina Fernandez de Kirchner will win elections in October and defeat current leader Mauricio Macri.

In particular, the bond and currency markets reflected investor unease at the move away from Macri's market-friendly policy agenda. Macri borrowed $57 billion from the IMF last year on the agreement he would implement austerity measures to trim the country's huge debt and make the repayments.

In a weekend article published by newspaper Clarin, Fernandez suggested that if he becomes leader, he would look to renegotiate the deal.

"I would say that there is only one incontrovertible reality and that is that Argentina in these conditions is not able to repay the debts it took on," he said.

Argentina's peso and bonds crumble

The peso ended last week more than 17.5% weaker than the dollar, rising to 55 pesos versus the greenback by Friday, despite support by the country's central bank. On the same day, Fitch Ratings and S&P Global downgraded Argentina's debt further, raising fear levels over a sovereign debt default.

On Monday morning, the cost of insuring Argentinian debt via a five-year CDS (credit default swap) rocketed 319 basis points, according to financial data specialist IHS Markit. A CDS is a financial agreement that the seller of the CDS will compensate the buyer in the event of a default.

Meanwhile, the Argentine stock exchange was closed for a public holiday on Monday.

Fernandez told the paper that he would help Macri renegotiate the terms of repayment with the IMF, adding that the current terms were "harmful" to the country.

He said that the relationship with the Washington-based institution had to change to one of "respect" and not "submission."

Fernandez said as leader he would put heavy emphasis on boosting exports in order to earn U.S. dollars that can pay down debt. He added that he would look to negotiate repayment terms for those investors that already hold debt issued by the Argentine government.

Argentina's new finance minister

Hernan Lacunza replaced Nicolas Dujovne as Argentina's finance minister over the weekend as the latter took the bullet for the country's precarious finances.

Dujovne, who was the main negotiator for the IMF deal, said in his resignation letter that there needed to be "significant renewal in the economic area."

Lacunza, who was acting as economy minister for the province of Buenos Aires, officially takes the job on Monday. Teneo Intelligence said in a note that he has two days to prepare for a visit from an IMF team on Wednesday.

Teneo's Latin American analysts added that while Macri may look to limit further changes ahead of the October elections, cabinet chief Marcos Pena could find himself replaced as the president's campaign manager.