© Financial Times

This is an audio transcript of the FT News Briefing podcast episode: Argentina vs the IMF

Marc Filippino
Good morning from the Financial Times. Today is Thursday, November 4th, and this is your FT News Briefing.

[MUSIC PLAYING] 

Marc Filippino
The Federal Reserve finally said when it’s gonna start scaling back its pandemic bond-buying programme. The UK is turning to Qatar for its energy security and Iran nuclear talks are back on the table. Plus, Argentina’s in an economic crisis again, and this time it’s warned that it can’t pay its next bill to the International Monetary Fund.

Michael Stott
A default to the IMF would be almost unprecedented. I mean, this is only ever happened very, very rarely with any country.

Marc Filippino
I’m Marc Filippino, and here’s the news you need to start your day.

[MUSIC PLAYING] 

Marc Filippino
The Federal Reserve said it would start winding down its $120 billion a month bond-buying programme in a few months. The pandemic stimulus could wind down altogether by next June. I’m joined by the FT’s US economics editor, Colby Smith. Hey, Colby.

Colby Smith
Hi there.

Marc Filippino
So how big is this moment, Colby? The Fed’s, you know, been talking about this for months.

Colby Smith
I think it is a pretty momentous occasion, even though, as you rightly point out, it’s something that we’ve long been expecting. I mean, for the past, I wanna say six months or so, the Fed has really been trying to prepare markets in a way for this moment by trickling out, you know, meeting after meeting that they were inching closer to this decision even before we got to yesterday. The Fed had even stipulated and signalled in some way the pace at which it would be winding down these purchases. So it didn’t leave much, you know, to surprise investors yesterday. And I think that’s exactly the way in which the Fed wanted to go about doing this. But that being said, it is the first kind of substantive move towards tighter monetary policy for the central bank.

Marc Filippino
Right, and in many ways, yesterday it was kind of the opposite of what’s called the taper tantrum. The S&P was up a little bit. You know, not a lot of market movement. So Colby, one of the big reasons the Fed is doing this is to fight inflation. What’s next on that front?

Colby Smith
So this is just a first step in a broader kind of tightening process over time. Now, this decision came to be not just because of the higher inflation figures, but also because we’ve seen some important strides on the labour market front. But that being said, what Fed chair Powell made quite explicit during his press conference yesterday was that they need to see quite a bit more improvement in the labour market recovery before, you know, the Fed is gonna feel comfortable to eventually raise interest rates, which is the direction that we are heading in at the moment. So I think the big question is how long the Fed can proceed with this process without having to start talking and thinking about when interest rates are going to have to rise. And that’s a conversation that financial markets and investors have kind of started for the Fed. They’ve started pricing in interest rate increases as early as the third quarter of next year, which is right around the same time that the Fed’s gonna be wrapping up these asset purchases.

Marc Filippino
Colby Smith is the FT’s US economics editor.

[MUSIC PLAYING] 

Marc Filippino
As the UK and Europe struggle with an energy crisis, the FT reports that the UK has proposed a long-term arrangement with Qatar to ensure a stable source of liquid natural gas. Downing Street has denied requesting or securing additional gas from Qatar. It also says UK energy supplies remain secure through the winter. Qatar is the world’s largest natural gas exporter. Most of its gas went to customers in Asia this year, but over the past two weeks, at least four large tankers have been rerouted to the UK.

[MUSIC PLAYING] 

Marc Filippino
Argentina is in another economic crisis. Inflation is running at more than 50 per cent. Dollars on the black market cost double what they do at the bank, and now a huge showdown is looming between Argentina and the International Monetary Fund. I’m joined by the FT’s Michael Stott. He was just in Buenos Aires. Hey, Michael.

Michael Stott
Hello, Marc.

Marc Filippino
Michael, how do you see the economic crisis affecting Argentineans? What does this economic crisis actually, you know, look like?

Michael Stott
Yes, Marc. I think one of the most striking things is the number of people, particularly younger people, who are now leaving the country to find work abroad, who’ve just given up on the prospects of Argentina in the near-term. What you also see in Buenos Aires is a lot of closed shops. You see business investment at a standstill. In fact, people are trying to get as much money out of the country as they can. The other thing you see, of course, is the way these price rises are working through the governments trying to control them with a price freeze. It’s ordered that 1400 prices of household items should be frozen until January to try to control inflation. But of course, this is something that’s been tried many, many times before, not just in Argentina, but other countries in the world, and it never works. As soon as the controls come off, of course, the prices just shoot back up again. But it’s a kind of measure of the desperation to which the authorities are going in order to try to get things under control.

Marc Filippino
Now you spoke to the country’s economic minister, Martín Guzmán. What did he tell you about his current negotiations with the IMF?

Michael Stott
Yeah. So what’s happening, Marc, is that Argentina owes the International Monetary Fund $45bn. It’s the biggest programme the IMF has ever done for any country in the world, and this was money handed out under the previous president, Mauricio Macri. Now the current government, which is a leftwing nationalist Peronist government, says that the loan’s illegitimate, it should never have been made. It was made to finance, according to them, Macri’s re-election campaign, and therefore they want special terms for paying it back.

Marc Filippino
And what did he tell you about his hopes for a deal with the IMF?

Michael Stott
Well, he wasn’t willing to put a percentage chance on it. What he said to me was that Argentina would get a deal if the IMF agreed to what Argentina was asking for. And I understand from people close to the process that while in public, both sides have been saying that they’re talking constructively. In fact, privately, what they say is there’s been no real progress in terms of technical negotiation on substantive issues.

Marc Filippino
So the IMF is holding its position. What’s the thinking on its part?

Michael Stott
Well, the IMF doesn’t accept that the loan was illegitimate. It says the loan met all of its normal criteria. It was extended under normal procedures. But also, of course, they’re thinking about precedents because this is a global organisation. Its shareholders are all the countries of the world. And of course, they can’t be seen to be doing a special deal for one country, so they want Argentina to follow the rules.

Marc Filippino
Michael, what happens if there isn’t an agreement by March, are we looking at yet another default?

Michael Stott
Well, yes Marc. This would be an even more serious one. So they defaulted briefly on their debt to private creditors before reaching an agreement with them last year, which was, I think, their ninth default with private creditors. But a default to the IMF would be almost unprecedented. I mean, this has only ever happened very, very rarely with any country and usually only for a few days because you cut yourself off not just from the IMF, but from all sources of, you know, international funding organisations. So organisations like the World Bank, the Inter-American Development Bank, wouldn’t lend to a country that’s in a risk with the IMF. And that’s why it would be a huge step for Argentina to take.

Marc Filippino
Michael Stott is the FT’s Latin America editor. Thank you, Michael.

Michael Stott
Thank you, Marc.

[MUSIC PLAYING] 

Marc Filippino
Negotiations to revive the Iran nuclear deal are back on. At the end of this month, November 29th, Iran will join China, France, Germany, Russia and the UK in Vienna. The meeting will be chaired by the EU. The goal is to salvage diplomatic negotiations over the nuclear pact and to find a way for the US to rejoin the agreement. This comes as concerns grow over the scale of Tehran’s atomic activity.

[MUSIC PLAYING] 

Marc Filippino
And before we go, another reminder that the FT is offering a 30-day free trial for our Moral Money newsletter. Moral Money covers the fast-growing world of socially and environmentally responsible business and investing. You can sign up for the trial at FT.com/cop26podcast. Click on “Get the newsletter”. We’ll also have a link in the show notes.

[MUSIC PLAYING] 

Marc Filippino
You can read more on all of these stories at FT.com. This has been your daily FT News Briefing. Make sure you check back tomorrow for the latest business news.

This transcript has been automatically generated. If by any chance there is an error please send the details for a correction to: typo@ft.com. We will do our best to make the amendment as soon as possible.

Get alerts on Transcript when a new story is published

Copyright The Financial Times Limited 2022. All rights reserved.
Reuse this content (opens in new window) CommentsJump to comments section