The national government agreed this Monday with the International Monetary Fund (IMF) a reduction of almost US$ 2,000 million in the goal of accumulation of international reserves for 2023 due to the effect of the drought on exports, while keeping the goal unchanged. of 1.9% of the GDP of fiscal deficit for this year.
After various negotiations over the weekend finalizing details, the Argentine authorities and IMF staff reached a staff-to-staff agreement on the fourth review under Argentina’s 30-month SAF (EFF).
The deal is subject to approval by the IMF’s Executive Board, which is expected to meet in the coming weeks. Once the review is complete, Argentina will have access to around US$5.3 billion (SDR 4 billion).
Among the points to be highlighted in the statement, it is highlighted that prudent macroeconomic management in the second half of 2022 supported stability and helped with a certain margin to ensure the objectives of the program until the end of 2022.
The main items:
– The disbursement of 4,000 million degs is established, which represents 5,300 million dollars.
– The communiqué distinguishes the work of the economic team in the second semester compared to the first semester in terms of political decision.
– Mark drought as the main reason for reviewing program goals
– Details the 2022 over-compliance, in fiscal matters, 2.3 and in terms of reserves, 5.4 trillion, above the planned goals. And the idea of over-compliance stands out.
– Supports the objective of fiscal 1.9, but marks 4 issues:
a) Continue to control spending in search of order.
b) Prioritize investment in infrastructure and social spending.
c) Accelerate segmentation to end the regressiveness of subsidies. (the poor pay the rich).
d) Regarding the retirement moratorium, he points out the importance of it being fair, aimed at the most vulnerable and without overflowing spending.
– Continues with the promotion of positive interest rates.
– Enables mechanisms to increase external competitiveness (export promotion) to strengthen reserve coverage as temporary exchange rate policy measures, as well as the expansion of system instruments.
– It proposes the non-use of reserves in interventions.
– Praises the debt exchange in pesos, 16 billion dollars exchanged, and enables the generation of intra-State exchanges to improve maturity profiles, also promotes the greater use of multilaterals for financing.
– It maintains the target for transitory advances from the central bank at 0.6 of GDP, despite the fact that to date the treasury has not used it. This frees access to financing pesos via the Central Bank
– Establishes a new reserve accumulation floor for March, June, September and December, reducing by more than 3 billion to accumulate in March and almost 2 billion in 2023.
– It raises the flexibility of the program for the year due to the impact of the drought, especially in the first quarter.
– Enables temporary exchange measures.
What is the IMF asking for?
In a statement from the international organization, they stated that “all quantitative performance criteria through the end of December 2022 were met with some margin.”
“The 2022 primary fiscal deficit reached 2.3% of GDP (against a target of 2.5%), in particular due to the continued strong control of spending and actions to improve the targeting of subsidies and social assistance At the same time, net international reserves increased by US$5.4 billion (above the US$5 billion target), due to improvements in the trade balance and significant official support Real GDP expanded by 5.4 % in 2022 and annual inflation reached 94.8% at the end of the period,” they reported.
Although the IMF celebrated the fulfillment of the established goals, it did emphasis on some aspects that should be addressed in the future. Thus, it was indicated that, “in the context of a more complex economic environment, the review focused on evaluating the progress of the implementation of the program, updating the macroeconomic framework and reaching agreements on a solid package of policies to address macroeconomic imbalances in a lasting way and limit future vulnerabilities”.
“Faced with the challenges of an increasingly severe drought, a stronger policy package is needed to safeguard macroeconomic stability, address rising inflation and recent policy setbacks, as well as ensure achievement of the underlying objectives of the program. Such policies must be firmly and consistently implemented,” the IMF staff stressed.
2023 Reserves Target Revisions
In fiscal policy, the national authorities committed themselves to achieving he primary fiscal deficit of 1.9 percent of GDP in 2023. According to the IMF, for this, there will have to be continuous cost controlsa better targeting of energy subsidies and social assistance, and better prioritization of capital spending. Also, the government should protect social and infrastructure spending.”
“To meet the deficit reduction goals and strengthen the progressivity of energy subsidies, the authorities plan to continue to implement the agreed segmentation scheme, eliminating subsidies for higher-income residential users starting in May and for commercial users by the end of 2023,” the IMF said.
“Early and decisive action will be taken to sustainably address the fiscal costs of the unexpected approval of the pension moratorium to ensure the fiscal objectives for this year and the next ones,” they indicated.
Monetary and exchange policy
Refering to monetary and exchange rate policy, from the international organization detailed that the Argentine authorities intend keep official interest rates positive in real terms to counter inflationary pressure. In addition, efforts will continue to ensure external competitiveness and strengthen reserve coverage. According to the document, the ruling party plans to complement these measures through the timely rationalization of the exchange rate policy. “They also agree not to use international reserves or issue short-term external debt instruments to intervene in parallel exchange markets“, highlighted.
Lastly, the IMF recognized that “a proactive debt management strategy in the local market. This is helping to face debt maturities, especially in the second and third quarters, mobilize internal financing and improve the functioning of the bond and foreign exchange markets, avoiding adding vulnerabilities in the future,” they said.
For the entity led by Kristalina Georgieva, efforts to mobilize official financing from multilateral and bilateral sources will help maintain the direct monetary financing of the fiscal deficit to a maximum of 0.6 percent of GDP in 2023in line with the objectives of the program.
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