Kristalina Georgieva Managing Director of the International Monetary Fund (IMF)
Last Friday, October 11, the International Monetary Fund decided to reduce surcharges on debt, a rate applied to a group of countries with high levels of indebtedness to the organization, among which is Argentina.
This is not a measure that is being pushed for the first time; in the past, it was rejected by both the United States and other G7 nations. However, what was decisive in making this decision in this case was that Ukraine, at the forefront of the Western resistance still engaged in a military confrontation with Russia, is among the large group of over-indebted countries that will receive a percentage of their debt forgiven. This factor allowed the measure to receive the approval of the President of the United States, Joe Biden.
The board of the International Monetary Fund approved reducing the margin of the basic rate from 100 basis points to 60, reducing the surcharge rate based on time from 100 basis points to 75, and increasing the threshold for charging surcharges from 187.50% of the quota to 300%.
The measure will lower the cost of borrowing from the IMF by 36%, or approximately USD $1.2 billion per year, and will take effect on November 1, 2024, as announced by Kristalina Georgieva, Managing Director of the International Monetary Fund. Thus, it will have the impact of reducing from 20 to 13 the countries subject to annual surcharges in the fiscal year 2026.
For Argentina, this represents a significant improvement and a financial breather regarding a debt owed to the organization that directly conditions the national economy amidst an economic crisis.
Officials and former officials of the government expressed their views through their accounts on "X" regarding the fund's decision. The Minister of Economy, Luis “Toto” Caputo, and the Secretary of Finance, Pablo Quirno, celebrated and thanked this decision from the IMF, attributing the achievement to the efforts made by the Executive Branch. Meanwhile, former economy minister Martin Guzmán, who was very active in the issue both during and after his management, also celebrated the measure and urged the government to allocate that budget to university financing.
Argentina, which is currently the largest debtor to the IMF, was among the five countries paying the highest surcharges, alongside Ukraine, Egypt, Ecuador, and Pakistan.
The end of surcharges represents a fiscal relief for the country, but it is far from being a solution to the problem. Argentina remains the principal debtor of the IMF, dragging along a heavy burden produced by a debt taken on by the government in 2017.
The economic structure of a country that is indebted and can only sustain itself by acquiring more debt seems to perfectly represent a snowball in free fall. There are few opportunities for a government where a brief fiscal respite as encouraging as this can be obtained.
Whether the cause lies in the international context, the military conflict in Europe, Martin Guzmán’s management, Luis Caputo's work, or a repentance for excessive fiscal policy by the IMF is irrelevant when setting an agenda to utilize the savings.
What is certain is that for the government, it represents a window of opportunity, whether it will be taken advantage of, used for educational investment, for productive development, or simply as another gear in a model of indebtedness will be a decision of the Executive Branch.
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