Frances Coppola

The IMF has just published a new review[1] of Argentina’s economy. It is grim reading. Argentina is in trouble: economic conditions have worsened considerably since the last IMF review, back in June 2018. But the review also reveals that the IMF could be in even bigger trouble. It is repeating the same mistakes it made in the Greek crisis – but with a much larger amount of money at stake.

Nicolas Dujovne, Argentina's treasury minister, left, greets Christine Lagarde, managing director of the International Monetary Fund (IMF), ahead of a private meeting at the IMF headquarters in Washington, D.C., U.S., on Tuesday, Sept. 4 2018. Photographer: Jose Luis Magana/Pool via Bloomberg

Argentina has been struggling all year. A drought has severely curtailed agricultural production[2], widening the current account deficit and triggering a mild recession. Concurrently, Fed interest rate rises and a booming U.S. economy have driven up the U.S. dollar, making it ever more expensive for Argentina to obtain the dollars needed to pay interest on its massive dollar-denominated debt pile. The central bank has been printing money to finance the government’s growing deficit, but this has helped to fuel inflation that now runs at over 40%.

In June, the IMF agreed a standby credit arrangement[3] of $50 billion with Argentina, the largest in the Fund’s history. $15 billion would be drawn immediately and the remainder would be made available as needed over the next three years. Half of the $15 billion would be used for government budget support.

But it quickly became apparent that, enormous though this financing agreement was, it would be nowhere near enough. In September, as the peso crashed and Argentina stared default in the...

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