Argentina has approved this Wednesday the first of the quarterly reviews to which it must submit to the International Monetary Fund (IMF). The agency’s technical teams considered the commitments assumed by the South American country last January to obtain the refinancing of its debt of 44,000 million dollars fulfilled. According to the IMF reported in a lengthy statement, the report should now pass the directory filter. Once approved, Argentina will receive a disbursement of 4,030 million dollars, which it will use in part to pay maturities with the Fund and in part to reinforce the reserves of the Central Bank.
“The staff The IMF and the Argentine authorities reached an agreement on the updated macroeconomic framework, and the necessary related policies to complete the first review of the 30-month Extended Facilities Agreement,” said Julie Kozack, the director of the Fund’s Western Hemisphere department. The audit was carried out on the fiscal and monetary accounts and the accumulation capacity of international reserves during the first quarter. Argentina met all the agreed quantitative goals.
The Argentine team, led by its Economy Minister, Martín Guzmán, overcame the first obstacle, but failed to review the goals of the agreement. The Casa Rosada expected a revision of the goals to reduce the fiscal deficit -it should reach 0.4% of GDP in 2024- and inflation, as a result of the negative impact that the war in Ukraine had on the international prices of hydrocarbons and food . The IMF dedicated a paragraph of its report to the war, but warned that the objectives assumed by Argentina “will remain unchanged.”
“The review focused on evaluating the performance of the program since the approval of the agreement, analyzing the effects of the impact of the war in Ukraine on the economy of Argentina and identifying policies to address such effects,” the statement said. And the possibility of modifying “the interannual quarterly goals of the primary fiscal deficit and the accumulation of reserves, barely slips, keeping the annual objectives of the program unchanged.” In other words, Argentina may show negative numbers in some of the reviews, but at the end of the road it will have to accommodate what was signed six months ago in Washington.
According to the IMF, “the external shock associated with the war in Ukraine” exists, but it will have “a limited impact on Argentina’s growth and balance of payments this year”. “Argentina’s fiscal position is also being affected by the shock in commodity prices due to an increase in energy subsidies and an adequate expansion of social support aimed at low-income households,” says the Fund, but without changing the goals.
The agreement meant, in practice, a new credit of 44,000 million dollars, like the one granted to Macri in 2018, but whose installments will be disbursed only if Argentina successfully passes ten quarterly exams for two and a half years. The plan to reduce the fiscal deficit involves lowering it to 2.5% of GDP this year, (from 3% with which it closed in 2021), to 1.9% in 2023 and 0.9% in 2024. The path of reducing the agreed deficit also implies limiting the monetary issue. Central bank assistance is expected to drop to less than a third this year from last year: from 3.5% to 1%. This cut will force the Argentine Executive to look for alternative ways of financing.
Another of the IMF’s demands to balance the accounts will be to reduce energy subsidies, which in 2021 meant that the State disbursed more than 11,000 million dollars, equivalent to 2.3% of GDP. Eliminating subsidies supposes a rise in the bills that reach households, with the consequent impact on inflation. This will be the most controversial point. Argentina committed to a rise in the CPI below 50% and forecasts for December are already around 70%.
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