In the midst of this week’s race and pressed by the lack of reserves to deal with exchange rate tensions, the Government has adopted orthodox measures in line with the requests that the Monetary Fund formulated in writing in its last information report (April). In particular, it accelerated the rise of the official dollar, raised interest rates and will implement a new round of utility rate hikes.
The numbers speak for themselves.
– Official dollar. It closed at $229 on Friday and recorded the highest daily monthly depreciation rate on Wednesday at 9.6%. Thus, April closed with the highest rate of devaluation of the year and in the last week recorded 8.2% per month, above inflation. It should be noted that in the months of January and February the monthly daily change in the exchange rate was approximately 5.5%.
– Interest rate. On Thursday, the Central Bank announced a ten percentage point increase in the monetary policy rate, to a rate of 7.6% in monthly effective terms, very similar to March’s inflation, and 141.3% in annualized effective terms. Additionally, the Monetary Authority raised its retail fixed term rates (up to $30 million) to the same level as Leliq’s (133.7% annual effective rate).
– Rates. In May there will be a rise for gas between 20% and 37%, according to the regulator (Enargas) on Friday. As for electricity, Energía has announced a reduction in cost subsidies. The increase could be 60%, although there are different estimates.
The April IMF staff report mentions the convenience of each of these three moves. It does so in the “Policy Discussions” section of the work posted on the IMF website.
at point 20 Talk about what “Proper alignment of the devaluation rate is needed to enhance external competitiveness, while parallel dollar interventions should be halted given scarce reserves.”
in the 19th What “The central bank must be ready to raise rates if an inflationary shock materializes.”
And in point 11 calls for a reduction in energy subsidies in general and electricity in particular: “A new resolution will be published in April with the aim that tariffs for higher income residential users pay the cost of the restoration (85-90% increase) and 31% for commercial users”.
The market believes that none of the three government-implemented corrections fully satisfies the IMF’s claims. And which in any case are “gestures” that Minister Massa will put at the top of the negotiation with the agency in these days.
This is because the size of the imbalances is greater than the corrections mentioned, they are not yet sufficient to compensate for the distortions accumulated in recent years.
For example, for the agency, the price of the dollar is between 10% and 25% behind in real terms.
According to a study by the consulting firm Delphos, “if inflation remains above 7.6%, the real rate would continue to be negative”.
And according to Alejandro Eintoss, an economist and expert on energy issues at the Alem Foundation, “The announcement of the new electricity tariff, a structural commitment of the last revision with the IMF, has not yet been published and seems to be at the center of the discussion on the renegotiation underway with the institution”.
‘Financial uncertainty has not cleared up’says the consultancy firm Eco Go. “There are tools to prevent the crisis from worsening, but they are becoming more and more expensive,” says economist Fernando Marull.
Argentina fell short of two of the three key first-quarter targets (fiscal and reserves) of the Expanded Facilities Agreement it signed in 2022. give up OR make goals more flexible. The Government is working on the latter hypothesis, arguing that the impact of the drought has resulted in less revenue of 20,000 million dollars and has therefore led the country to disregard the commitments undertaken. Massa would also ask for an upfront disbursement: $10.8 billion remains so far this year and $3.258 billion in 2024.
The IMF has reservations about joining Argentina’s request. There are economic and political reasons.
In the first place it will be necessary to see if the Government can and wants to support these corrections. The elections are coming. The IMF will not argue in favor of a devaluation, while understanding that an economy hit by a shock such as drought, should let the exchange rate adjust by a certain amount. It is understood that in Argentina this point is controversial.
There is also uncertainty as to the acceleration of inflation it could allow more families to fill out the form to claim benefits and the government has incentives to delay increases.
Finally, during the April council meeting, critical voices were heard against Argentina and why it should receive differential treatment. For example with tariffs. So, Massa intends to prove to the staff that he is a good student.
Source: Clarin
