The Government and the International Monetary Fund (IMF) ratified the harshest terms of the current agreement despite public pressure from the vice president, Cristina Fernández de Kirchner, for a comprehensive review of the ongoing Extended Facilities program.
The only concession made by the multilateral organization is the relaxation of the reserve accumulation goals due to the effects of the drought.
The IMF’s iron position was exposed when it also demanded that the Government find a way to compensate for the additional spending imposed by the sanction of the pension moratorium.
As of March 31, the Central Bank had to reach a minimum amount of reserves of US$ 5.5 billion, US$ 500 million more than those added at the end of 2022. By 2023 they had to obtain US$ 9.8 billion of free availability. But all the calculations were out of date due to the persistent absence of rain and due to the size of an unexpected event. the IMF accepted changes.
Although the new parameters have already been agreed, they will be known when the organization’s Board of Directors approves the document that the technical staff will raise. It is estimated that the reduction in the obligation for this year will be around US$ 2,000 million.
During the last weekend the vice president, Cristina Fernández de Kirchner, called for “political unity” for a complete review of the pact with the IMF.
However, barely 48 hours later, the agreed text that maintains the bases of the original program was known.
“I don’t think they’re going to claim anything from us because we worked for several weeks to get the reservation issue changed and the other points under discussion,” said sources close to the government. Economy Minister Sergio Massa.
The report made by the group led by Luis Cubeddu that will be submitted for consideration by the organization’s leadership includes the approval of the parameters as of December 31, 2022 and triggers a disbursement of US$ 5.3 billion.
That vote could be delayed between two and three weeks, with which Argentina will have to face the payments to the IMF that operate on March 21 and 22 for US$ 2,700 million with reserves. In any case, in the Palacio de Hacienda they do not rule out some legal alchemy to postpone the dates and that fit with the expected turn.
The statement issued by the staff ratified that Argentina must reduce its fiscal deficit to 1.9% of GDP and confirmed that the Central Bank’s assistance to the National Treasury (monetary issue) may not exceed 0.6% of GDP.
“The authorities are committed to reaching the primary fiscal deficit of 1.9 percent of GDP in 2023 through continuous spending controls,” the document said, adding that progress will be made in removing subsidies. This reduction plans to eliminate them for the sectors with the greatest resources from May and for the commercial sector towards the end of the year.
The IMF technical staff and the Argentine authorities 🇦🇷 reach an agreement at the technical staff level on the fourth review under the Expanded Fund Facility agreement. https://t.co/kXymItIxdA pic.twitter.com/ZjmPDcKDts
— FMI (@FMInoticias) March 13, 2023
The IMF also focused on the impact of the pension moratorium and demanded from the government “early and determined measures” for spending that it described as “unforeseen” since it was not contemplated in the text that was authorized in March 2022.
Regarding the fight against inflation, the Government promised to maintain a positive real interest rate, which acts as a brake on the level of activity.
Likewise, it was agreed that reserves may not be used to continue with the debt buyback program announced in January. Nor will they be able to issue foreign debt instruments to intervene in parallel exchange markets.
In this regard, the Treasury clarified that alternative sources of financing will be sought in order to continue with the bond redemption.
As additional data, in Economy they consider as positive that the IMF left the door open for the implementation of a new soybean dollar to strengthen reserves.
“In the future, it will be essential to maintain sound policies and adapt them as necessary to the evolution of external and internal conditions,” said the IMF, while maintaining that “temporary administrative exchange rate measures should not be a substitute for a macroeconomic policy solid”.
Although in Economy they were satisfied with the terms reached, the officials emphasize that the next 20 days will be key to define the rest of the year.
The amount of accumulated rainfall, but also its geographical distribution” will be essential to make a much more accurate diagnosis of the impact of the drought and its replica on the economy.
The next review will begin in the first days of May and will audit the numbers as of March 31 and will cover the projections for the second semester, a period conditioned by the electoral calendar.