Increasing risk of "low quality" Argentina IMF programme - JPMorgan

JPMorgan said it expected a deal struck before the middle of this year


LONDON- The risk that Argentina and the International Monetary Fund strike a deal that fails to fully address the country's economic pressures is increasing, investment bank JPMorgan said on Wednesday.

Argentina and the IMF are currently in talks to renegotiate a failed $57 billion programme from 2018 which was the largest in the fund's history. Getting it right is seen as key for the country after its ninth sovereign default last year.

JPMorgan said it expected a deal struck before the middle of this year but it was not optimistic that it would tackle the key "frictions" weighing on investment, exports and thus economic activity.

"Moreover, there is increasing risk of a low quality programme," JPMorgan said. "Implying just the removal of short-term pressures on the external accounts (of Argentina) stemming from the due repayments of the IMF's (previous) Standby Arrangements".

Argentina's more than $100 billion restructuring last year provided around $70 billion of debt relief, but its bonds have slumped since their relaunch as worries over the government’s economic strategy have persisted.

Economy Minister Martin Guzman, who led the restructuring for Latin America’s No. 3 economy, is seeking an IMF Extended Fund Facility (EFF) to replace a failed $57 billion programme agreed under Mauricio Macri’s previous government.

An EFF is a longer-term programme that typically requires more economic reforms than standby IMF agreements.

The IMF talks come amid ongoing efforts to ease debt burdens. State energy firm YPF sweetened an offer to its bond holders on Tuesday in a bid to strike a $6.2 billion debt swap deal. 

JPMorgan said its near-term attention was also focused on Argentina's latest wave of COVID-19 infections, as well as the risk of another dry spell hitting agricultural production.

Government data published on Tuesday showed economic activity fell 3.7% in November against the same period a year earlier. That was the smallest decline since early 2020 but a deeper drop than analysts had predicted.

(Reporting by Marc Jones; Editing by Angus MacSwan) ((; +44 (0)20 7513 4042; Reuters Messaging: Twitter @marcjonesrtrs))

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