IMF tells Argentina not to risk 'scarce' reserves after bond buyback

(Adds additional comments by IMF official, Fitch comment, graphic)

By Rodrigo Campos

NEW YORK, Feb 1 (Reuters) - The International Monetary Fund on Wednesday sent a thinly veiled warning to Argentina that it must not undermine targets to rebuild its "scarce" foreign currency reserves following a $1 billion bond buyback by the indebted nation.

The comments, made by IMF official Nigel Chalk to Reuters, are the first public response by the global lender to Argentina's bond buyback and the closest it has come to criticizing the move. Argentina is the IMF's largest borrower by far, with a $44 billion program.

The South American country, a major grains producer, shocked markets last month with the debt buyback despite depleted hard currency reserves, which are being hit more by a drought that has hurt exports of its main cash crops soy, corn and wheat.

"Reserves are scarce, and we would prefer not to have actions that undermine the reserve accumulation that we're assuming in the program," Chalk, the IMF's Western Hemisphere department deputy director, said in an interview when asked about the buyback.

Argentina has targets to rebuild reserves agreed with the IMF including adding $4 billion in net reserves this year, according to the original program goals.

Argentina's government, which declined to comment after Chalk's remarks, has said the debt repurchase was aimed at improving its debt profile.

Argentina's Extended Fund Facility deal with the IMF replaced a failed 2018 agreement, with most of the new disbursements going towards repaying the earlier debt. About $24 billion has already been disbursed.

Argentina's government has so far spent some $404 million buying bonds with a nominal value of more than $1.1 billion, but which currently trade at heavy discounts, according to Portfolio Personal Inversiones (PPI), a local brokerage.

Moody's has said the move constituted a default while S&P Global Ratings called it "opportunistic" and equivalent to a debt restructuring. Fitch said on Wednesday Argentina avoided a default but policy weaknesses "undermine repayment capacity."

Chalk said the IMF had been consulted on the buyback and that the upcoming Argentina program review - a regular assessment that determines if the next round of cash will be disbursed - would judge whether reserves targets are being met.

"The team has been working with the Argentine authorities on this plan with the debt buyback ... first on the scale of it, how it's being operated, and then how it fits in with the program," Chalk added.

"But obviously, that review has a forward-looking element to it, and we want to have some comfort that reserves will also be met on a forward basis as well," Chalk said.

Argentina's gross FX reserves total some $42.3 billion, according to its central bank as of Jan. 27, while calculations by Moody's and PPI see net reserves closer to $6 billion.

"According to our estimates, the net reserve stock closes January at $6.1 billion, receding almost $2 billion in the month mainly due to coupon payments for $1.05 billion," the brokerage told Reuters.

(Reporting by Rodrigo Campos in New York; Additional reporting by Jorgelina do Rosario in London and Walter Bianchi in Buenos Aires; Editing by Adam Jourdan, Will Dunham and Paul Simao)