The International Monetary Fund closely followed the announcement of the buyback of dollar bonds, made surprisingly public on Wednesday by Minister Sergio Massa, and check that the measure complies with the program objectives. The operation is uncomfortable for some principles of the Fund, but they would allow them for the sake of economic stability general, as delivered to clarion Alexander Wernerformer official of the organization who worked with Argentina.
Massa announced in a televised message that they will begin a process of repurchase of Argentina’s external debt, a scheme through which the government will buy bonds worth 1,000 million dollars.
how it will look affected the level of reservesone of the most sensitive program goals with the Fund, the agency was aware of this measure.
“The team is discussing this issue with the authorities, including how consistency with program objectives is maintained”they said to clarion IMF sources.
The initiative announced by Massa will be implemented mainly with global bonds maturing in 2029 and 2030, two instruments issued in 2020 under New York law. They are most used for the financial transaction that allows the purchase of the dollar MEP or “cash with liquidation”, which seeks to stop the exchange rate gap at a time when the dollar was running away.
The decision opened a question Among the experts, especially for the fragile reserves of the Central Bank (estimated at around 6 billion dollars) to finance this operation.
The level of reserves is one of the key program objectives with the Fund. In recent reviews, it has been satisfied by maneuvers such as the soy dollar and other special dollars, although the agency believes these measures should not be permanent. According to the plan, 2022 should close with $5.8 billion in coffers and $9.8 billion in 2023.
The Fund views this type of intervention with suspicion. to get dollars and on the exchange gap, that he would prefer the market to be kept free. But, according to expert estimates, the institution grants Massa a certain amount licenses ensure the progress of the program and the general economic policy.
Interviewed by Clarín, Alejandro Werner, former Western Hemisphere director of the IMF, who negotiated the loan with Argentina during the government of Mauricio Macri, stressed that the measure was unexpected. “She surprised me, as she surprised a lot of people,” and she said she was pushed “at a time when she clearly uncertainty in Argentina will increase” by this year’s election and pressure on the program will mount.
“In this context, very judicious and careful use of international currencies is essential“, he said. “The effectiveness of these intervention policies when obviously the core of the economic problem is elsewhere, it is very small. I intervene in a market that is one step away from the distortion that they want to attack even more. The rationale that providing some liquidity to the sovereign debt market can generate a certain supply of dollars reaching the country and that this somehow mitigates the gap is valid, but It’s loose action off a much more energetic agenda.”
Werner, who now heads the Georgetown Americas Institute, added: “I think it is ineffectiveit is not the place where the social value of scarce money has its maximum impact and in this sense it is a questionable action as many question it here in the markets”.
– Why do you think the Fund supports this measure?
– It is surprising that the Fund does not make noise with this measurebut it is very small and if the agency is working constructively with the minister, what the IMF assesses is the overall report and the overall package of Minister Massa’s policies. It’s a measure they might disagree with, but if it’s relatively small in magnitude they might be willing to look the other way, that’s my interpretation.
– Does it affect the achievement of the reserve target?
– Of course yes. It is a relatively small measure, but it can affect net international reserves. Looking at it from the outside, Massa is a minister who knows how to manage relationships well, he should have discussed it with the Fund, he will have presented his case, they will have made some numbers. The Fund most likely disagrees and that’s the discussion they need to have with the minister. You’ve probably been told, “If your numbers roll, go for it, in case it has any effect. But commit to providing the numbers you assured us. I would say that was the dynamic.
– The IMF is generally against foreign exchange intervention measures. Does this go against that philosophy?
Conceptually, the conversion of the gap should be due to the coherence of the program and the movement of the official, and the parallel should gradually close it. But the programs are implemented in countries with a very high level of uncertainty, with little liquidity on the markets and with high volatility. In this sense, the rationale for well-targeted small interventions supported by policy actions always exists and is theoretically feasible. The IMF, as a general philosophy, does not believe that intervention is a key tool in a program to achieve the credibility of these policies that ultimately lead to gap reduction, but it can be a supportive policy for the rest of the policies, as long as be small, focused. This action satisfies those conditions. However, the more permanent effect it may have on the spread is small and in that sense I don’t think it is the best use of international reserves.
Source: Clarin
