The International Monetary Fund (IMF) said today in a statement that Argentina needs “a package of stronger policies to safeguard the stability” and considered it “essential” that the government of Alberto Fernández abide by the fiscal deficit goal for this year, of 1.9% of GDP.
The statement was released following the fourth revision of the “Extended Facilities Agreement” agreed in March of last year, for 30 months, and of the approval of a disbursement of 4,000 million Special Drawing Rights (SDRs, the Fund’s currency), equivalent to just under USD 5,400 million.
With this disbursement, the agency has transferred to Argentines close to USD 28.9 billion in the last twelve months, which the government allocates substantially to, in turn, pay maturities with the agency itself and partly increase the reserves of the Central Bank.
The Board of Executive Directors considered that “meeted all quantitative performance criteria through the end of December 2022 with some margin” (…) It also approved modifications to the reserve accumulation target to partially accommodate the impact of the severe drought, together with stronger policies to safeguard stability, address setbacks and ensure program objectives, while maintaining time the anchor function of the program.
At the conclusion of the Executive Board discussion, Gita Gopinath, First Deputy Managing Director, was less concessive and made a series of calls for attention to Sergio Massa’s economic team: “The economic situation has become more challenging since earlier this year in light of the increasingly severe drought and policy setbacks. Given the magnitude of the climate shock, some downward adjustments in reserve accumulation targets are warranted, although a stronger policy package will be necessary to safeguard stability and maintain the anchor role of the program.
“Achieving the primary fiscal deficit target of 1.9% of GDP by 2023 remains essential to support disinflation and reserve buildupease financial pressures and strengthen debt sustainability,” Gopinath said.
In this sense, he pointed out that it will be key “the timely implementation of high-quality measures, particularly improving the targeting of energy subsidies and social assistance, will help offset lower export taxes due to drought, protect infrastructure priority and social spending, and ensure fiscal targets.
The First Deputy Managing Director indicated that «specifically, It will be critical to ensure that energy rates for high-income residential and commercial users move forward to fully align with costs.s, including to reduce system regressivity. Meanwhile, the fiscal cost of the new pension moratorium it must be mitigated through strict regulations to target entry only to those with the greatest need.”
“Real interest rates should remain positive enough to cope with high inflation and support demand for peso assets,” Gopinath said.
Finally, he warned that “given that downside risks (of the Central Bank’s reserves) have increased further, including in the context of a very severe drought, agile policy formulation remains essential to support the success of the program.” , as additional macroeconomic policy tightening and exchange rate policy changes may be required to safeguard macroeconomic stability. Political support for program policies remains essential in the coming period. “
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