The IMF has no good options—but it may have just selected the worst
Yet the economy may implode before any candidate gets to fix it. On August 23rd the government persuaded theto release a $7.5bn tranche of its bail-out programme, its only hope of meeting dollar-debt repayments and staving off default. The’s reluctance stemmed not from the fact Argentina is broke—lending to such countries is the fund’s purpose—but from the fact that most of the cash Argentina must repay this year is promised to the fund itself.
is the first to be repaid. It never takes a loss during debt restructuring. This lets it and other multilateral institutions, including the World Bank, hand out cheaper rescue packages. The approach has worked when packages are small enough that even troubled countries are able to repay them.took a gamble and offered the country a bail-out worth $57bn, the fund’s biggest ever. At the time, many observers thought it was too much for a country with Argentina’s patchy track record.
Meanwhile, Argentina desperately needs a lasting fix. Each month without one deepens the country’s economic woes. Inflation worsens as imports become more expensive and monetary policy flirts with fiscal dominance, where the government borrows so much the central bank has no choice but to bail it out. The longer Argentina limps on without restructuring, the more damaging the process will be when it happens. In the past three months, Argentina has racked up short-term debts of $1.
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