Argentina is the tango partner the IMF can’t quit

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Argentina, the land of Malbec and steak with a side order of inflation, reached a preliminary deal with the International Monetary Fund on Friday to stave off default on the lender’s biggest bailout in history. In the end, it will be years before Argentina is repaid the billions of dollars that the IMF lent. This country appears to be in a financial black hole and cannot escape the wrathful IMF.

The rough agreement between the IMF and the left-leaning Peronist government — which inherited the bailout from the right-leaning administration of former president Mauricio Macri — came after more than a year of intense talks. Analysts were concerned that Argentine pockets might become linty as huge repayments loomed. This led to negotiations reaching a halt. As powerful Peronist groups threatened to withdraw from the agreement if terms weren’t agreed upon, negotiations were pushed into a stalemate. This is basically like telling your credit card company it must follow your guidelines or risk losing its license.

“In the last two weeks, the president, the vice president and the speaker of the House in Argentina all gave speeches where they talked against paying the debt,” Gabriel Torres, a senior analyst at Moody’s Investors Service, told me. “This is something you don’t hear anywhere else in the world anymore.”

Argentine officials told the nation Friday that the IMF had given in on one key point: There will be no swift spending cuts. Some specifics of the deal remain to be worked out, but it envisions a gradual reduction in the fiscal deficit by 2024 without austerity measures, and relies in part on age-old promises to fight tax evasion and wean the country off energy subsidies. The relatively long timeline gives room for the Peronists — known for spending binges before elections — to keep the country’s creaking coffers open ahead of the pivotal 2023 presidential race. The IMF, of which the United States is the biggest contributor, will have to wait and hope that Argentine promises this time are more reliable than previous.

The track record for Argentina adhering to its promises isn’t exactly stellar, and the deal marks a good moment to consider who’s to blame for the IMF’s long tango with a country that steps from one financial crisis to another, all while spending other people’s money.

Pundits are taking swipes at the IMF and Argentina alike. There is one common story: Argentina is a debt addict, and the IMF is its dealer.

But if Argentina is a victim, it’s from self-inflicted wounds.

In its early-20th-century heyday, Argentina, blessed with fertile plains that made it a global breadbasket, was richer than Japan and had more cars per person than France. But from the ashes of the Great Depression came not a rebirth, but a long, slow decline propelled by destructive military governments and the populism of the complex political machine launched in the 1940s by Juan and Eva “Evita” Peron.

In a candid self-assessment of the 2018 bailout, the IMF in December acknowledged the folly of the $57 billion deal. In December, the IMF admitted that the lender had not understood the deep-rooted financial problems in Argentina. Argentina is a nation that print money like paper but whose citizens have such little faith in the currency that they keep storing away U.S. Dollars whenever they can.

The current Argentine government and some critics agree on one thing: that the 2018 bailout should have never happened. In Forbes, Agustino Fontevecchia described that deal as being opposed by the Europeans at the IMF, but championed by the White House to help out Macri, considered a friend of President Donald Trump. It was intended to boost Macri and also block the political return of a notorious critic of Washington, former president Cristina Fernandez de Kirchner.

Despite the bailout, investors never regained faith in Argentina, the peso dived, inflation soared and Macri went down in an easy defeat in 2019, paving the way for Fernandez de Kirchner’s return as a vice president who looms large over President Alberto Fernandez.

But the IMF’s machinations, Fontevecchia notes, “shouldn’t excuse the Argentine political class, which is the main guilty party here.”

All this comes from a place of tough love for a country I know and adore. As a journalist who covered Argentina on and off for three decades, including five years spent living there, I have long compared it to my first — and last — Alfa Romeo. Argentina’s shiny surface has a classic beauty. Buenos Aires, a Potemkin capital is replete in Belle Epoque architecture, elegant wrought iron balconies, and chic cafes. Like the Alfa, Argentina is constantly breaking down. The hood doesn’t open because it has no internals.

The IMF has long been criticized for demanding austerity of countries in crisis. In Argentina, however, the IMF’s greatest problem is its insistence on overspending. The legacy of misappropriated funds and corruption is the root cause of Argentina’s crippling debt. One senior Peronist — the socialite and former environmental minister Maria Julia Alsogaray — was convicted in 2004 for financial crimes against the state involving hundreds of millions of dollars’ worth of transactions. Fernandez de Kirchner, meanwhile, has been accused of accepting irregular payments from Aerolineas Argentinas, the state-owned airline, and being involved in an illicit association with a friend and businessman in lucrative public works contracts — allegations she has long denied.

Voters, meanwhile, seem willing to accept corruption as a cost of being Argentine. “I know Cristina robs,” one of her supporters in a low-income suburb of Buenos Aires told me ahead of the 2019 elections. “But at least we were better off with her.”

“Taxpayers in Chile conform better to tax laws in part because they perceive their own tax authorities as more effective and legitimate than Argentines perceive theirs to be,” Bergman wrote.

Argentina, meanwhile, tends to agree to terms with foreign lenders and the IMF with its fingers crossed behind its back.

“They have this idea that you pay off your debt only if everything is perfectly fine in the economy, but if you’re in crisis, you won’t,” Torres said. “What you’re telling investors is: ‘Don’t trust us.'”

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