NEW YORK — Bank of America is reiterating its view that the administration of President Alberto Fernández will be able to complete a deal with the International Monetary Fund  in the first quarter of next year, amid execution risks given the “fragile political situation” Argentina lives in.

The U.S. bank expects that President Fernández and the economy Minister Martín Guzmán will manage to seal a “soft” agreement with the Washington-based lender. “Our base case is still an IMF staff-level agreement by January and a finalized deal by March (Paris Club deadline) given massive IMF principal maturities and the very negative FX/inflation consequences of potential arrears,” analysts Sebastian Rondeau and Christian Gonzalez Rojas wrote in research note dated November 21.

Under the scenario the government will shortly after start a gradual stabilization program, “as it has no good options amid critically low FX reserves, limited credit access and politically unacceptable levels of inflation and FX volatility,” they added in the report to investors titled “Argentina: IMF or Autarky”, part of a extended research study discussing the Year Ahead 2022.

Argentina has defaulted nine times on its sovereign debt, has no access to international capital markets and owes USD2.1 billion to the IMF in December, followed by USD18.8 billion in 2022. The nation’s economy contracted 9.9% last year, and in its most recent regional economic outlook the IMF projects a 7.5% recovery for 2021 continued by a 2.5% expansion next year. 

Last Friday, Guzmán said in an interview with Radio Con Vos that the government wants to “reach an accord this year,” adding that the talks with the multilateral lender have the blessing of vice-president Cristina Kirchner, newspaper La Nacion reported on November 19, citing comments made by Guzmán in the radio interview.

Even with an agreement in place, Bank of America sees “pending execution risks amid the fragile political situation” given the defeat of the ruling coalition Frente de Todos endured in midterm elections held on November 14.

Capital Controls

On the night of the midterm elections, Fernández announced in a pre-taped message the government was preparing to submit to the Congress a new economic program on the first week of December and newspaper Clarin reported that day that the multi-year program could be the same plan already discussed with the IMF.

Even with a signed accord with the IMF, Argentina will still deal with several limitations. BofA sees capital controls remaining mostly in place. “Lifting should be very gradual and we see the bluechip gap at around 60% by end-2022.” At the same time, inflation is set to slow down next year to 45% annually from 52%, and to continue a declining trend to 40% in 2023.

“The credibility of the stabilization plan and the potential IMF deal will be key to slow capital outflows in order to start accumulating FX reserves. In the medium term, the election results bode well for potential regime change to more moderate policies,” they concluded in the report.

A new agreement with the IMF will replace a failed USD57 billion three-year stand-by program approved on June 2018 and signed by the administration of former President Mauricio Macri. The South American nation owes USD45 billion to the fund.

Also Relevant:
* Martín Guzmán: “Queremos resolver el acuerdo con el FMI este año”
* Goldman Sachs Says Argentina Midterm Results May Complicate IMF Talks, Precipitate a Large Devaluation
* Morgan Stanley Says Argentina Likely to Sign a ‘Soft’ IMF Program by 2Q 2022
* Former IMF’s Werner Says Argentina Will Not Pay The Fund: Reuters
* Guzman Says Argentina Working on New IMF Credit Line, ‘Healthy Accord’: Pagina 12