Argentina played a cat-and-mouse game with the Fund, periodically feeding a national culture of mistrust that undermined domestic ownership of reforms and soured the IMF’s standing as the country fell into recession, inflation and default. This further damaged the institution’s reputation for good judgment, deep expertise and adherence to its even-handed approach to uniformity of treatment for member countries.
The unusual board meeting on May 18 served notice that there is a lot more to the current negotiations than the important objectives of the IMF helping to support Argentina’s reforms, restore calm to its financial markets and contain potentially damaging spillovers to other emerging countries.
The negotiations mean Argentina and the Fund are again underwriting huge reputational risks that extend well beyond the economics and finance of this particular country case.
It wouldn’t be an exaggeration to say that Macri is putting almost his entire domestic political capital on the line. Failure to secure support for a well-designed and effective homegrown program would add political uncertainty, even as Argentina likely would experience recession, high inflation, an unstable currency and other financial dislocations.
The IMF, meanwhile, is bracing for greater demands for its services as the emerging world navigates tougher global financial conditions, and as advanced countries look for ways to better reconcile their domestic priorities with their international obligations and responsibilities. This is not the time for renewed worry about the Fund’s effectiveness.
As they complete their negotiations, the two sides would be well advised to remember simple advice that I heard from a high-level country official in my first exposure to IMF program negotiations in 1983, shortly after I joined the Fund out of graduate school: Always make sure to commit to what you can deliver, and to deliver what you commit to.
Mohamed A. El-Erian is a Bloomberg View columnist. He is the chief economic adviser at Allianz SE and chairman of the President’s Global Development Council, and he was chief executive and co-chief investment officer of Pimco.
This column was provided by Bloomberg News.