2023-07-28 19:44:35
The Argentine government announced through the Minister of Economy, Sergio Massa, that it reached an agreement for US$7.5 billion to arrive from the IMF. The information was confirmed by the international organization, which detailed in a statement the status of the negotiations and why this situation was reached.
«Los key objectives of the program until the end of June were not met due to the greater than expected impact of the drought, as well as the deviations and delays in policies, “says the IMF.
It then indicates that “a policy package has been agreed with a sequential set of measures to rebuild reserves and improve fiscal sustainability, while protecting critical infrastructure and social spending. These steps are intended to strengthen the program.”
In this sense, the Fund warns that “this agreement is subject to the continued implementation of the agreed policy measures and the approval of the Executive Board of the IMF, which is expected to meet in the second half of August. Completion of the combined reviews will give Argentina access to around $7.5 billion.”
Below are the details of the agreement with Argentina from the perspective of the IMF:
Agreement with the IMF: monetary and exchange policy
– The strengthening and harmonization of the exchange rate regime continue to be fundamental to lastingly improving reserve coverage and external stability, and measures have been taken to encourage the liquidation of exports and contain imports in the short term. The crawl rate will continue to be used to preserve competitiveness and support reserve accumulation objectives.
-To sustain the demand for pesos and face high inflation, the authorities will continue to ensure that monetary policy rates remain sufficiently positive in real terms. In addition, monetary policy will continue to be a key instrument to contain market pressures, with interventions in the shadow markets and currency futures focused on addressing disorderly conditions.
Agreement with the IMF: Fiscal Policy
The primary fiscal deficit target for 2023 remains unchanged at 1.9 percent of GDP. Meeting the target requires further tightening of fiscal policy in the second half of this year, supported by a series of agreed revenue and spending measures, protecting priority social and infrastructure programs.
– On the income side, new taxes on access to foreign exchange for imported goods and services, and new measures to mobilize liquidation of exports will help offset lower export duties resulting from the drought.
– On the spending side, Efforts are still needed to contain the growth of the wage bill, update energy rates to better reflect changes in production costs, while improving the progressivity of the system; and strengthen spending controls through better targeted social assistance and greater rationalization of current transfers to provinces and state companies.
financing strategy
The agreed fiscal path does not imply an additional dependence on direct monetary financing of the fiscal deficit. Recent successful voluntary debt swaps have significantly reduced refinancing risks and are expected to support the mobilization of additional net domestic financing during the remainder of the year. Interventions in secondary bond markets will focus on ensuring the normal functioning of the market, while protecting the central bank’s balance sheet.
What will happen to the reserves of the Central Bank
The agreed policy package seeks to increase bookings for the remainder of this year, in line with a cumulative net international reserve accumulation target of around US$1 billion by the end of 2023 (compared to a target of US$8 billion at the time of the fourth review). This accumulation is also expected to be supported by improvements in the energy balance (resulting from the completion of the first phase of the pipeline) and by the expected recovery from the drought that begins in the latter part of this year.
“Given the economic challenges, the authorities agreed to firmly implement the policy package in the coming weeks and months, and adapt proactively to the evolution of external and internal conditions. They also once once more underlined their continued commitment to keep up with their financial obligations to the Fund, in line with their external sustainability goals.
“We thank the Argentine authorities for the ongoing open and constructive discussions. We also welcome your commitment to strengthening the program and take the necessary measures to ensure Argentina’s macroeconomic stability during this challenging period, marked by unprecedented drought as a central factor.
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