World Markets

As 'do-or-die' IMF talks draw to a close, Argentina faces prospect of another default

Key Points
  • Last week, the IMF sent a team of economists to Buenos Aires for the fund's first formal negotiation with Argentina's newly-elected government.
  • The talks, which are scheduled to end on Wednesday, are being held in order to avoid the prospect of history repeating itself.
  • Jimena Blanco, head of Latin America at Verisk Maplecroft, told CNBC that the risk consultancy had assigned a 77% probability that Argentina would default before the end of the year.
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Is Argentina heading toward economic crisis – again?

Argentina is on the cusp of registering another devastating default, analysts have told CNBC, as international investors anxiously await the outcome of "do-or-die" debt restructuring talks.

Argentina's government has said it needs to restructure $100 billion in debt, including $44 billion to the International Monetary Fund (IMF).

Last week, the IMF sent a team of economists to Buenos Aires for the fund's first formal negotiation with Argentina's newly-elected government.

The talks, which are scheduled to end on Wednesday, are being held in order to avoid the prospect of history repeating itself.

In 2001, Argentina defaulted on around $100 billion of debt. It triggered the worst economic crisis in the country's history and resulted in millions of middle-class citizens falling into poverty — a consequence many in Argentina blame on the fiscal policies enforced by the IMF at the time.

Demonstrators rest during a protest against the International Monetary Fund (IMF) on February 12, 2020 in Buenos Aires, Argentina.
Patrick Haar | Getty Images

Speaking from Buenos Aires, Jimena Blanco, head of Latin America at Verisk Maplecroft, told CNBC via telephone that the risk consultancy had assigned a 77% probability that Argentina would default before the end of the year.

The risk of the country registering another sovereign debt default — it's ninth — had increased in recent weeks, Blanco said, citing a growing lack of policy cohesion within the coalition and a shortening timeframe to secure strong political backing.

"This is not a coordinated administration by any means," she added.

The government's timeline 'looks optimistic'

At present, the Peronist coalition of President Alberto Fernandez and Vice-President Cristina Fernandez de Kirchner are attempting to orchestrate a delicate balancing act.

The administration has vowed to refuse to agree to the kind of budget cuts the IMF usually insists on for crisis-hit countries, but it is also desperate to restructure commitments with its single biggest creditor. Further to this, Argentina's government is anxious to receive the green light from the fund to pursue a renegotiation with private bondholders.

It hopes to agree on all these stipulations by March 31.

Meanwhile, the IMF has underscored its reluctance to accept a loss on its biggest-ever bailout package.

In an interview with Bloomberg News on Sunday, IMF Managing Director Kristalina Georgieva said that the fund would not be prepared to offer a so-called haircut on its $44 billion loan with Buenos Aires.

"Our legal construct is such that we cannot do measures that may be possible for others without this big global responsibility," Georgieva said.

International Monetary Fund Managing Director Kristalina Georgieva speaks during the Global Women's Forum in the Gulf emirate of Dubai on February 16, 2020.
KARIM SAHIB | AFP via Getty Images

Her comments followed remarks by Argentina's de Kirchner, who had previously called on the fund to write-down a substantial amount of its record deal.

"We expect there to be a haircut, in principle," Fiona Mackie, regional director for Latin America at the Economist Intelligence Unit (EIU), told CNBC via telephone.

The EIU has tentatively forecast a haircut of 25%, Mackie said, before adding: "There's not a lot of time to get all of this done and the government's timeline looks optimistic."

When asked to what extent bondholders, creditors and international investors should be worried about the prospect of Argentina registering another default, Mackie replied: "It is about as high risk as it can get without it being our forecast."