Argentina and the IMF Agree to Disagree
The fund has shown rare tolerance for the country’s unorthodox economic management.
Welcome back to Foreign Policy’s Latin America Brief.
Welcome back to Foreign Policy’s Latin America Brief.
The highlights this week: Debt-strapped Argentina gets unusual flexibility from the IMF ahead of an upcoming election, a U.S. leak suggests the Wagner Group tried to peddle its services in Haiti, and English translations of Brazilian modernist works bring domestic cultural debates to new audiences.
A More Relaxed IMF?
This week, the International Monetary Fund (IMF) and World Bank are holding their annual spring meetings in Washington. Officials have devoted the gatherings to updating their lending practices to address needs such as climate finance and trying to hammer out emergency deals for crisis-stricken debtor countries, from Sri Lanka to Zambia.
Argentina, the IMF’s largest borrower, is struggling to carry out the policy reforms in its own loan program, and Argentine Economy Minister Sergio Massa arrived in Washington on Thursday to participate in the meetings. A historic drought in the country has caused grain exports to plummet, hampering the government’s pledge to build up its dwindling dollar reserves. Foreign currency reserves are key to the stability of Argentina’s financial system.
Around-100 percent annual inflation is also straining state coffers as Argentina pays out inflation-adjusted pensions and other social benefits. The country’s poverty rate soared to around 39.2 percent in the second half of 2022, and one of Buenos Aires’s two international airports has partially transformed into a homeless shelter.
Massa, meanwhile, has implemented a range of currency controls that run counter to standard IMF advice. The Argentine government has introduced sector-specific peso-to-dollar exchange rates to avoid a currency devaluation, even though the fund opposes such restrictions.
Still, the IMF board last month rated Argentina’s economic policies satisfactory enough to justify another disbursement of loan money. The fund issued a waiver to allows Buenos Aires to continue Massa’s currency controls and lowered its target for foreign currency accumulation.
The IMF “is being less strict than it intended to,” elDiarioAR economics reporter Alejandro Rebossio said. “It doesn’t want to provoke a bigger crisis in Argentina.”
The fund’s less-than-orthodox attitude toward the country reflects a mix of geopolitics, ideological changes among IMF leadership, and Argentine domestic affairs ahead of the country’s October general election, Rebossio and several economic analysts told Foreign Policy.
The United States is the IMF’s largest shareholder. Supporting IMF concessions to Argentina’s left-wing government—presumably to avoid a messy default that could spook foreign investors—is part of the Biden administration’s efforts to draw closer to the country, Rebossio said.
It would not be the first time that geopolitics played a role in the fund’s lending practices. Academic studies over the last two decades have found that IMF loans included more lenient policy requirements on borrower countries that voted with the United States at the United Nations or served as temporary members of the U.N. Security Council. Meanwhile, as China has emerged as a competing lender, scholars have noted that Chinese loans often correlate with cooperation on other fronts, such as dropping diplomatic relations with Taiwan.
Argentina’s deals with the IMF under President Alberto Fernández could also point to changing ideologies at the top of the fund, as its leadership shows openness to relaxing some elements of its traditionally free market doctrine, Rebossio said. Argentina’s current loan with the IMF, which included lower austerity targets than usual when it was designed in 2022, is one example of this newfound flexibility. Whether it will apply to other countries facing climate-related shocks—such as Pakistan—remains to be seen.
Economist Andrés Borenstein of Econviews said Argentina’s domestic politics are also at play. Because the IMF recognizes that compliance with the plan will soon need to be negotiated with a new government, the outgoing government’s efforts to meet its IMF targets amount to “role-playing,” he said. “The only tool the fund could use [to discipline Argentina] would be to say no to the next disbursement of the loan,” but pushing Argentina into default just before a change in government “does not make a lot of sense.”
The economic consequences of Argentina’s poor harvest are expected to worsen throughout this year. Total 2023 sales of the country’s top five grain exports are expected to fall by nearly half of 2022 levels—putting even more upward pressure on inflation. “Massa made [the] 2023 budget with an assumption of 60 percent annual inflation,” economist Martín Kalos of EPyCA Consultores told Foreign Policy. But while the monthly inflation rate had generally fallen between last July and November, it began to rise again starting in December 2022.
Argentina’s rising poverty and inflation rates have not yet yielded widespread social unrest because Fernández’s leftist Peronist movement is in government, Rebossio said. The Peronists are close to unions and other groups that have organized demonstrations in the past.
Primaries in August will determine the presidential candidates for both the Peronists and the center-right Juntos por el Cambio opposition coalition. Massa is thought to be a potential Peronist candidate, though he has not yet declared; nor has the unpopular Fernández. Juntos por el Cambio, for its part, presided over a recession and debt crisis as recently as 2019.
Polls in recent months have identified growing support for a third option: self-declared anarcho-capitalist lawmaker Javier Milei, who pledges to slash state regulations, turbocharge austerity, and dollarize the country.
At present, Milei’s lack of support outside big cities could make victory in October difficult, said political scientist María Celeste Ratto, an analyst for Politico Tech Global. And while Brazil embraced the “anti-system” Jair Bolsonaro in 2018, Argentines on average are more averse to Milei’s anti-feminist positions, she said.
Still, deeper economic strife could change attitudes before October. Argentina’s center-right, while criticizing Massa’s measures, are not fully obstructing them, said Borenstein of EconViews. That may reflect their fear of an economic meltdown that could pave the way for an outsider such as Milei. For now, relative cooperation among the country’s biggest political camps has also apparently helped keep the IMF deal afloat.
Friday, April 14: Brazilian President Luiz Inácio Lula da Silva concludes a visit to China.
Saturday, April 15: Lula visits the United Arab Emirates.
Friday, April 21, to Wednesday, April 26: Lula visits Portugal and Spain.
Wednesday, April 26: The U.N. Security Council discusses Haiti.
What We’re Following
Lula in China. After delaying March travel plans due to pneumonia, Lula is wrapping up a state visit to Beijing with a mega-delegation of Brazilian government officials and businesspeople. Brazil and China are poised to sign several agreements on bilateral trade and investment, and in a meeting with Chinese President Xi Jinping, Lula is expected to tout his efforts to try to negotiate an end to Russia’s war in Ukraine.
On Thursday in Shanghai, Lula oversaw the instatement of former Brazilian President Dilma Rousseff as president of the New Development Bank, which is headquartered in the Chinese financial capital. The bank is often called the BRICS Development Bank because of its founding members Brazil, Russia, India, China, and South Africa.
Wagner in Haiti? Copies of apparent U.S. intelligence documents that were posted to social media in recent weeks include a report from the U.S. Drug Enforcement Administration that as of February, representatives of the Wagner Group—a private military contractor close to the Kremlin—planned to travel to Haiti to assess the possibility of selling their services to the government to better control the country’s security crisis.
Wagner mercenaries are active from the Central African Republic to Syria and have been accused of war crimes in Ukraine. A senior Haitian official told the Miami Herald that interim Prime Minister Ariel Henry himself had not held a discussion with a Wagner representative but it was possible that Russian emissaries had been in touch with others in Haiti.
No Wagner involvement in Haiti has been credibly reported until now, longtime Haiti journalist Michael Deibert tweeted this week. “Tempting as his own army of private mercenaries might be, it is hard to imagine that Henry would risk falling afoul of his patrons in the United States and elsewhere in order to have them,” Deibert wrote.
Migration deal. The United States, Panama, and Colombia agreed to reduce illegal migration around the dangerous Colombia-Panama jungle border area known as the Darién Gap, the three countries said in a joint announcement this week. The authorities said they planned a two-month effort that would also introduce legal pathways for migration.
Panama has repeatedly pressed Colombia to close its border to illegal migration as the number of people moving through the Darién has grown, a Colombian official said in February, but until now Colombia has not given an indication that it would comply. No further details about the deal—and what exact measures the countries plan to take—were immediately reported.
Question of the Week
Which criminal group is thought to control migration routes in the Darién Gap?
Law enforcement efforts in the Darién Gap are complicated by the Gulf Clan’s influence in the area, journalist Molly O’Toole tweeted this week. On Wednesday, public defenders’ offices from both Colombia and Panama said publicly that the Gulf Clan is among the criminal groups that control migration routes in the region.
FP’s Most Read This Week
• The Real Motivation Behind Iran’s Deal With Saudi Arabia by Saeid Golkar and Kasra Aarabi
• Crimea Has Become a Frankenstein’s Monster by Anatol Lieven
• Ukraine’s Leopard Tank Crews Are Trained and Ready to Fight by Elisabeth Braw
In Focus: Brazilian Modernism
Two new English translations of Brazilian writer Mário de Andrade’s work are bringing early 20th-century Brazilian modernism to new audiences.
During that time, Brazilian intellectuals strove to cultivate a modernist movement distinct from its European counterpart. They included writers and painters who incorporated Indigenous and Afro-Brazilian imagery and language as well as Brazilian flora and fauna into their work.
In more recent decades, Brazilian scholars as well as Black and Indigenous activists have critiqued the idea of putting Brazilian modernism on a pedestal, precisely because the movement occurred during a period when the mostly white elites in the country enjoyed vast socioeconomic advantages over the Black and Indigenous Brazilians whose culture and imagery they borrowed so freely from.
Outside Brazil, the country’s modernist writers are relatively little known beyond specialized academic circles—mostly due to few English translations of their work. Until this year, only one English translation of Andrade’s magnum opus Macunaíma had been published: a 1984 version that has been panned by Brazilian literature scholars over the years. The novel follows a shape-shifting character as he travels through Brazil, mixing satire with magical realism.
A new English translation of Macunaíma published this month aims to be more faithful to the original work and acknowledge contemporary Indigenous critiques of Brazilian modernism, Lucas Iberico Lozada wrote in the New York Times.
Another new translation of Andrade’s work, Flora Thomson-Deveaux’s English version of his diaries from traveling through the Amazon, was also published this month. The compilation of travel notes, titled The Apprentice Tourist, documents Andrade’s growing doubts about Eurocentric ideas.
“There are a lot of very sincere and serious questions” at the heart of Andrade’s work, translator Katrina Dodson told Iberico Lozada. Now more readers can ask them, too.
Catherine Osborn is the writer of Foreign Policy’s weekly Latin America Brief. She is a print and radio journalist based in Rio de Janeiro. Twitter: @cculbertosborn
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