The Executive Committee of the International Monetary Fund made the booking goal more flexible, but this Saturday he warned the government that ‘a stronger policy package is needed to safeguard stability’ and said it is “essential” to maintain the 1.9% fiscal deficit target this year.
It did so after approving the fourth program review with Argentina on Friday and issuing a $5.4 billion disbursement.
The Fund released a statement on Saturday, with an unusual delay as the meeting concluded the day before. One version indicates that they waited until word spread about the loan they agreed on Friday for war-torn Ukraine. It could also have been because Minister Sergio Massa was on a return flight to Buenos Aires and from the plane – without Wi-Fi – he was unable to verify the final version of the statement.
The Fund said the goals through December 2022 were met. But “however, the economic situation has become more difficult since the beginning of this year in light of the increasingly severe drought and political setbacks. Given the scale of the climate shock, some downward adjustments to reserve accumulation targets 2 are warranted, although a stronger policy package is now needed to safeguard stability and maintain the programme’s anchoring role.”
“Achieving the primary fiscal deficit target of 1.9% of GDP by 2023 remains essential to support disinflation and reserve accumulation, ease funding pressures and strengthen debt sustainability,” they added.
“Timely implementation of high-quality measures, especially better targeting of energy subsidies and social assistance, will help offset lower export taxes due to drought, protect priority infrastructure and social spending, and ensure fiscal targets .
“In particular, it will be crucial to ensure that energy tariffs for high-income residential and commercial users are fully cost-aligned, also to reduce system regressivity.”
“Meanwhile, the tax burden of the new pension moratorium needs to be mitigated through strong regulation to target entry only to those most in need.”
“Real interest rates should remain positive enough to cope with high inflation and support demand for peso assets.” And that “Interventions in the parallel foreign exchange market using reserves or short-term external debt instruments should be avoided.” ”.
As conditions permit and imbalances are addressed, capital flow management measures, multiple currency practices and exchange rate restrictions should also not be harmed, as they are no substitute for sound macroeconomic policy.”
“On the domestic financing front, prudent efforts will be needed to mitigate short-term refinancing risks and mobilize net financing, while limiting the build-up of vulnerabilities and protecting debt sustainability. Meanwhile, central bank interventions in secondary bond markets should be limited address risks to financial stability.
“Mobilizing support from multilateral and bilateral partners, including concluding technical arrangements with the remaining creditors of the Paris Club, is essential to ensure compliance with financing commitments and strengthen reserve coverage.”
According to the original program signed last year, the government should have about 7.8 billion dollars in the Central coffers by the end of March, 11,000 million in June and about 12,125 by the end of 2023, which now seems impossible to meet because it is estimated that losses due to drought will be between 15,000 and 20,000 million dollars or more.
Until now, the economy used gadgets such as the “soy dollar”, but this is no longer enough. With a more comfortable reserve target, the government will be better able to deal with the drought and its aftermath without specifying “waivers” and will be able to avoid major exchange rate shocks in an election year.
This Saturday’s board of directors also “approved default waivers associated with the introduction of policy measures that have given rise to new exchange restrictions and multi-currency practices.”
In their meeting at the White House on Wednesday, President Alberto Fernández asked Joe Biden for the United States to support Argentina before international organizations. But beyond that guarantee, it was necessary to show the more reluctant board members that there is a way to build up reserves in the future.
In principle, in Economics now they point to three ways to accumulate dollars in the Central: first, to speed up the scheme of energy subsidies for families with higher incomes (it could save about 4,000 million dollars); secondly, the expansion of exports with the “agricultural dollar”, which would temporarily extend beyond soybeans to other regional products and, finally, Minister Massa also aims to obtain 3 billion dollars from international organizations.
Another of the initiatives intended to please the Fund is the announcement that they will simplify the various exchange rates so as not to have as many varieties of dollars as Qatar, Coldplay, Malbec and others.
The idea of multiple exchanges is something that goes against the dogma of the agency, but until now it has tolerated it with “waivers” or thanks because – like the soy dollar – it is a “creative” resource that has served to support reserves in red.
Even with these measures, the Economy calculates that there will still be about 3,000 million dollars left to go through the election year without problems.
Source: Clarin
