Deficit, inflation and reserves: the Massa plan in difficulty because three fundamental variables are missing

In the last ten days, data has been released that seems to complicate the macroeconomic goals and objectives of the Ministry of Economy and the Extended Facilities program between Argentina and the IMF.

On the subject of prices, the difficulty was clarified last week: it will not be realized that April’s inflation “starts with 3” as admitted by the deputy minister of the economy, Gabriel Rubinstein. The goal is now exceeded by the end of the year.

For its part, on the fiscal and monetary front, with January’s primary deficit and trade balance data released this week, the targets for the first quarter of this year that Argentina and the IMF have agreed to look complicated. At stake is nothing more and nothing less than an estimated $4.024 million that would come in before PASO (June).

The deterioration of each of these three variables (prices, fiscal and monetary), whether for reasons that the government administers (tariff increases) or for reasons it does not manage (drought and war in Ukraine), affects the government agenda differently. economy and its line of work with the IMF for these hours.

While the inflation rate is not a target in the Fund’s arrangement and therefore not controlled when the agency disburses the money, its performance has an impact on other key program variables such as Treasury funding. For example, the increase in the inflation rate makes the cost with which the Treasury finances itself on the local market more expensive to cover the redundancy while access to external credit remains closed (country risk remains at 2,000 basis points) as verified yesterday in the Call for Finance. Or the cooling of the economy (also not verified by the IMF) plays against the collection and closure of the red.

On the other hand, on the fiscal front the deficit was 203,938 million dollars in January while the target for the first quarter is 415,000 million dollars. Sergio Massa has $209 billion to spend between February and March.

“More than 1,000 million dollars would need to be repurchased in March to meet the IMF reserve target”

Sebastian Menescaldi
Eco Go Economist

Meeting the fiscal target is now more difficult for economists. “It has become complicated,” said economist Fernando Marull, of the consultancy FMyA. However, Massa still has room for maneuver according to the consultancy firm Eco Go.

“Compliance is still viable because what the government did in January was pay for increased expenditures that matched December” and that did not make them effective to meet the 2.4% annual primary deficit target of GDP. “The government has gained some leeway.”

Yes, there is more agreement among economists on the obstacle to reaching the goal of net reserves by the end of March with the IMF. The deal calls for it to be about US$7.7 billion (accumulation of US$5.5 billion).

“Impossible,” says Marull.

Currently, per Eco Go, the crunchy dollars that the BCRA has is about $4,618 million under the IMF’s measurement and more than $3,000 million would remain according to their calculations to comply with the signed pact. Even if part of it would be achieved with the new disbursement from the IMF (it will arrive in March given that Argentina achieved its objectives last December, it would be around 5,366 million dollars), “the amount is still insufficient”. The reason? Just as $5.366 million will come through one window, the economy will have to turn around and pay $2.702 million the other way.

“More than $1 billion would need to be repurchased in March to achieve this goal,” says Eco Go’s Sebastián Menescaldi. That’s almost the amount that represents the loss recorded by the Central Bank in February.

For the Government there are two alternatives. One, obtain a pardon from the IMF for not meeting the target and ask the Board to approve the disbursement. The other is that new dollars are coming.

As for the first option, Massa got something similar last October when reserves fell short of their Q2 2022 target and the IMF agreed to roll the money under the condition that the yearly target remained the same ( Axis approval would be required).

The other plan is what Economy has been communicating in recent weeks: Wall Street dollars (a repurchase transaction in exchange for the delivery of dollar bonds issued under international law), a Soybean 3 program or that the IMF provide extra aid due to the impact of the drought as Massa told US Treasury Department Undersecretary for International Affairs Jay Shambaugh.