RIO DE JANEIRO, BRAZIL – The Argentine government yesterday received very good news regarding the future of its negotiations with the International Monetary Fund (IMF), particularly with respect to certain improvements in the agreement to be reached with the organization.
Although the visit had other security-related motives, President Joe Biden’s envoy Jake Sullivan assured Alberto Fernández that his country would support Argentina’s case when it reaches the Fund’s board.
Despite not discussing the IMF agenda in depth (the National Security advisor had another when he reached Buenos Aires), Sullivan assured the local head of state that he could expect the United States’ support in securing a positive vote, indispensable to enable the reloaded Extended Credit Facility that Finance Minister Martín Guzmán is pursuing.
However, he clarified that this would always be done with prudence. This is interpreted within the Government House as a chance of securing U.S. backing for a potential reduction of the interest rate imposed by the organization, which could drop from the 4.05% applicable to non-compliant countries to 1.05%, thereby lowering the sum to be paid to the Fund by approximately US$8 billion.
The U.S. would also help to build a solidarity fund with the money from residual SDRs that developed countries will receive, which could be redistributed to developing countries such as Argentina during 2022; thus, the country would potentially receive more than the US$3.45 billion expected on August 23.
However, the possibility of extending the payment terms to more than 10 years is something that the IMF has been unwilling to negotiate and that could only be structurally modified in the future. If this limitation were to be changed, Argentina would be granted the benefits by including a special admission clause. However, it could not be under the Extended Facilities to be signed after the elections.
The United States’ support is essential to achieve the improvements related to the existing conditions. Only with the U.S. positive vote at the board would Argentina secure the changes it is seeking. The U.S. holds 17% of the votes on the IMF board, and changes to the usual structure require a broad majority of 85%.
Argentina believes it would obtain over 60% of positive votes without the U.S., since the support of Germany, France, Spain, Italy and other European states would theoretically be guaranteed. Russia, China, the Arab countries (especially from the Persian Gulf, with a strong presence in the IMF Board of Directors), as well as all of Latin America and Africa, would also join in.
In addition, more consensus is expected to be reached in the coming weeks with key countries such as Canada and the rest of the European Union, which would raise the percentage to close to 70%. Only 10% more would be needed to reach the level required for a proposal that avoids restrictions in the IMF’s by-laws to be passed.
Each sovereign state has a percentage of votes depending on its GDP, reserves and direct contributions to the operation of the Washington-based organization. Any normal agreement (stand-by or Extended Facilities) is passed with a minimum of 70%; but a majority of 85% is required for special plans or alterations to the Charter. This majority was needed in the recent past in cases such as the Greek and Portuguese crises of 2010 and 2011.
The need to secure this percentage was what hindered Argentina in 2001, when the last disbursement under the current agreement was rejected by the Board of Directors due to the U.S. refusal to endorse the proposal; as well as the approval of the 2003 pact when Néstor Kirchner negotiated directly with George Bush a quota plan outside the current treaties.
In the current case, it is also essential that the American director supports the request, since his vote in favor or against (or his abstention) will define the fate of the Argentine proposal. In total, the board is made up of 24 executive directors representing different levels of power within the organization.
The United States, Japan, Germany, France and the United Kingdom can elect a director without the help of any other country. China, Saudi Arabia and Russia each elect one de facto director, while the remaining 16 elect based on blocs of states. Argentina, through local envoy Sergio Chodos, is in the group with Bolivia, Chile, Peru, Paraguay and Uruguay.