8.2 Dealing with the IMF itself as a large(senior) creditor in DSAs Under IMF rules, a condition for lending under the“exceptional access policy”(meaning, lending sufficiently large amounts), is that according to the IMF MAC-DSA, the country is likely to regain access to credit markets to roll-over existing debts and repay the Fund at the time the debts come due – the timing of which may depend on the outcome of a debt restructuring. However, given the IMF preferred creditor status, private creditors may not be willing to provide any financing when they see a large outstanding debt stock with short maturity with the IMF. In fact, large loans from the IMF may decrease the likelihood of regaining access to the private credit markets(Krahnke, 2023). In that scenario, if the IMF staff correctly and realistically assesses the situation and if the lending occurs, there will be an inconsistency between the staff’s(realistic) assessment and the IMF lending rules, as under those circumstances the only realistic source of financing for rolling over those debts would be the IMF itself, but the IMF staff is obliged to pretend that that’s not the case(if the IMF program is to proceed). Obviously, that means that some unrealistic assumptions go into the analysis, with the objective of making the DSA overly optimistic. Of course, a realistic assessment would entail recognizing a longer exposure to the IMF, which under current IMF policies also entails assuming higher lending rates in the form of surcharge payments.(Stiglitz and Gallagher, 2022; Gallagher et al., 2024). The implication of assuming(more realistically) no market access for more prolonged periods, when the IMF is a large creditor, is the need for deeper debt restructurings with other creditors, which creates a conflict between the IMF and the other, more junior, creditors – all or most of which may be influential with the IMF shareholders. In extreme cases of too much debt with the IMF and no prospects of access to international credit markets, there might not be a debt operation that restores debt sustainability unless either the debt with the IMF is restructured or the IMF changes its lending terms, for instance by extending maturities. However, neither of those options is a prerogative or decision of the staff, who is responsible for producing the DSAs. In practice, the way the IMF deals with this quandary is by making heroic assumptions about the prospects of markets access, to create a pretence that it is meeting its own rules. The most notable example in this respect is Argentina’s Stand-by-Arrangement of 2018 – a record loan of$50 billion, then increased to$57 billion, out of which almost$45 billion was disbursed(the disbursements were stopped when the government that had signed the deal with the IMF lost the primary elections of 2019 by a large margin). To grant that loan, the IMF Staff had to determine that the criteria for“exceptional access” were met. The IMF deemed that at that time, in a context of a currency run in which the country had been cut from international credit markets, the country’s public debt was sustainable, arguing that there was a liquidity problem rather than a sustainability problem. Argentina’s government position was that the reason for the liquidity problem was political: More specifically, financial markets’ fear, in the view of the government, that the opposition party would win the next presidential elections. In that view, lending to address the liquidity problem was equivalent to lending to bolster the chances of the incumbent government(Mauricio Macri’s administration) of winning the presidential election – essentially, a political loan, which is not consistent with the IMF rules.(That is, the loan would only have made sense if the actual probability of the opposition was negligible; for at any higher probability, the debt would not have been sustainable“at a high probability”.) To justify that Argentina would be able to repay the IMF according to the loan amortization schedule, the IMF staff deemed that Argentina’s treasury already had credit market access during the implementation of the program, because it managed to both roll-over a small fraction of the Argentine law USD-denominated debt with short maturity(one year) held by local investors and had access to financing in Argentine pesos through notes with very short maturities. In its first review of the Stand-by Arrangement, from October 2018, the IMF Staff judged that“ despite the recent tightening of financial conditions, Argentina continues to maintain access to domestic financial markets, where residents and non-resident investors have continued to participate in recent peso- and USD-denominated bond placements”(IMF, 2018). Series: Debt Sustainability Assessments& Their Role in the International Financial Architecture 10