By Jorgelina do Rosario and Rodrigo Campos

LONDON/NEW YORK (Reuters) – Time is running out for Argentina to secure the next tranche of a $44 billion loan with the International Monetary Fund, which it could use to repay the fund older debt due in coming days.

With both sides saying an agreement on policy steps required to release $4 billion from the IMF loan was close, but not quite there yet, and no liquid currency reserves to tap, Buenos Aires may need to use a swap line with Beijing, again, to make a $3.4 billion payment.

THE REVIEW

Under the terms of the $44 billion program agreed in 2022, the funds are released in tranches based on regular reviews of steps Argentina takes to shore up its economy.

Argentina’s efforts to shore up its reserves and reduce fiscal deficit are the focus of the current fifth review. The IMF welcomed steps Buenos Aires announced on Monday, which included import taxes and a new set of trade-related and weaker exchange rates to build up reserves in what Goldman Sachs (NYSE:) called an “implicit devaluation.”

However, potential inflationary impact of such steps means Economy Minister Sergio Massa, who is the ruling coalition’s candidate for October presidential elections, will be in no rush to implement any painful measures.

“The government has no appetite to do anything comprehensive in terms of having a full stabilization and adjustment program before the election because obviously that’s politically very costly,” said Gordian Kemen, head of emerging markets sovereign strategy (West) at Standard Chartered (OTC:) Bank. “I think that’s the reality that the IMF understands,” said Kemen, who is overweight in Argentina’s sovereign bonds.

“Our base case has always been they want to get them through the election.”

CRUNCH TIME

To access the IMF funds, Argentina first needs to reach a staff level agreement with the Fund on the fifth review, which then has to get signed off by the IMF’s executive board.

That is where it gets extremely tight.

Repayment of $2.6 billion is due on July 31 and almost $800 million due on Aug. 1 on a loan from 2018. It is not clear whether the executive board will be able to convene before the summer recess during the first half of August.

The IMF did not respond to a request for comment on the likelihood of a board meeting soon to discuss the Argentina program.

Board members normally have about two weeks to read the documents linked to any staff level agreement before they vote on a review or a new loan.

EMPTY COFFERS

Timing is critical for Argentina, which is almost out of options, given its central bank reserves have been draining for years under strict foreign exchange controls from the government. The dollar shortage got even worse this year because Argentina, a major grains exporter, was hit by the worst drought in six decades.

Gross reserves stand at $25 billion, but the cash-strapped economy’s net reserves, discounting liabilities, are over $6 billion in the red.

Argentina made the last IMF payment due end-June partially with its holdings of IMF special-drawing rights (SDRs), but analysts calculated that this has wiped out the country’s $1.65 billion in IMF reserve assets.

THE CHINESE OPTION

That leaves a yuan swap line with Beijing, which Latin America’s third biggest economy could use to avoid going into arrears with the IMF.

Argentina used $1.1 billion in yuan from a recently extended and expanded swap line with China to complete the June payment to the IMF. According to Buenos Aires-based consultancy Empiria the country has so far used about $3.5 billion out of the nearly $10 billion of freely accessible swap, so will have more than enough to cover its upcoming payments.

FALLING INTO ARREARS

Missing payments would automatically put Argentina in default with the IMF because there is no grace period with the multilateral lender.

Any payment delays of up to 180 days are considered a short-term arrears, according to an IMF working paper. Those can be cleared by simply paying the amount due, but a delay could make financial markets nervous, putting Buenos Aires under more pressure.