LONDON/NEW YORK, March 25 (Reuters) - The board of the International Monetary Fund on Friday approved a new agreement with Argentina for $45 billion, three sources with direct knowledge said, clearing the final hurdle to rework the country's debt with the Washington-based lender.
The agreement, which was reached by consensus according to two of the sources, marks the 22nd IMF program for Argentina and comes after more than a year of negotiations. It replaces a failed $57 billion program from 2018, for which Argentina still owes over $40 billion.
A spokesperson for the IMF had no immediate comment.
Reducing the fiscal deficit, raising interest rates and cutting energy subsidies are core demands of the deal, which doesn't call for labor or pension reforms.
The approval comes after Argentina's Congress signed off on March 17 on the financing aspect of a staff-level agreement, not on the policies expected to keep the economy on track and the debt sustainable.
Political cracks inside Argentina's ruling center-left coalition have widened over the deal and there are fears the economic strings attached will further strain people in the South American country fighting with inflation above 50%.
But targets might be hard to achieve. JPMorgan this week revised its primary fiscal deficit forecast for 2022 to 2.8% of GDP, above the program's target of 2.5%.
"It will very unlikely trigger the positive confidence shock, increase in private investment, and access to international capital markets that the country badly needs," said Alejo Czerwonko, emerging markets Americas CIO for UBS Global Wealth Management ahead of Fridya's meeting
The Fund also risks reputational damage if the program doesn't succeed. Argentina's 2018 agreement was the largest in the IMF's history.
Some private holders of Argentina's debt, restructured in September 2020, criticized early on the negotiations as tainted by politics, allowing the government to carry on "erratic" economic policies.
"There's been a lot of criticism of this deal, that it's going to fall apart, that it’s an IMF-light deal, it's a Band-Aid… But it's an important Band-Aid," said Robert Koenigsberger, chief investment officer at Gramercy, in an interview before Friday's meeting.
"The only thing that would make this stuff worth less than 32 (cents), which is where it trades today, is if the wheels fall off the bus. What this IMF deal does is it tightens the lug nuts on the wheels, so to speak."
The restructured U.S. dollar bonds have been trading in the low 30-cents on the dollar area for most of last year and were last down on the day, with the 2030 down 2.6 cents to 29.50.
Reporting by Jorgelina do Rosario and Rodrigo Campos; Editing by Sam Holmes, Leslie Adler and Chizu Nomiyama
Source: Reuters