Argentina’s financial problems will not end with the signing of the agreement with the International Monetary Fund. The fact is that, despite the resumption of the program will allow the release of an outlay of 3.3 billion dollarsit is unlikely that there will be new funds and it is not even clear whether there will be an advance of dollars (“frontloading”), like what Martín Guzmán and Sergio Massa obtained at the time.
That way, without enough foreign exchange to pay for imports and debt maturities, the shortage of reserves and the pressure on the dollar will continue to represent a delicate point for the IMF. As, the objective of accumulating reserves will be fundamental that the Minister of Economy, Luis Caputo, agrees this Wednesday with the mission of the organization which has been in Argentina since Friday.
“Everything is kept within the same program, the objectives can change, but there will be no new funds” said a source of fluid dialogue with the government. Caputo proposed a 5-point tax adjustment reach the surplus in 2024, a target higher than the 0.9% primary deficit agreed with the IMF. The unknown is how it will close with positive reserves and keep the dollar under control.
This year, $7.7 billion will have to be paid and pending disbursements cover only $6.6 billion. In the immediate future, the minister is looking for a “bridge” of dollars until the harvest arrives in April. To avoid default, he paid off the Fund in December with a loan from CAF, signed commitments to the organization for $1,950 million at the end of January and took out debt with the Central Bank.
In 2023, the Monetary Authority closed with negative net reserves of $9,000 million, below the committed target, which expected an increase of $1,300 million compared to December 2021. In the first month of Javier Milei’s management, the BCRA has accumulated around 3.5 billion, but since January the pace of purchases has begun to slow down, without overcoming the fragile situation.
In this context, the government canceled this Monday the payment of 1.6 billion dollars to bondholders for the debt restructured in 2020, which had an impact on reserves. It did so with foreign exchange from exports after the December devaluation and postponement of import payments, a spigot that will begin to open next week with access to 25% of approved official dollars.
“Last year you had an external deficit, this year there will be a surplus, The level will depend on the harvest and the recession, the available flow will be able to settle the debt with importers, pay dividends, accumulate reserves, pay off foreign debt, they will have to find a solution balance because the harvest is not enough to resurrect all the dead,” he said Daniele Artana, chief economist of FIEL.
Caputo is also trying to buy time by issuing dollar bonds (Bopreal) to cancel debts to importers for 60 billion dollars. The BCRA gives them future access to official dollars and pays interest, without squandering reserves now. While the first few auctions have been lean, the key will be the next ones, before January 31, when the PAIS tax exemption expires.
Another issue is the exchange rate strategy: with an official dollar running at 2% a month, well below inflation which would be 20% in January, the government is trying to use the exchange rate as still inflationary, but expectations of another devaluation are growing due to the erosion of the real exchange rate and the wider exchange rate gap, which removes incentives to liquidate currencies.
“If the government wants to maintain a real exchange rate between 15% and 20% above the time of the agreement with the IMF, must implement a second jump in the exchange rate“, warned the consultancy firm Suramericano. The risk of this alternative is a greater acceleration of inflation, which will already be put under pressure by the increase in public service tariffs expected in February.
Negotiations with the IMF were delayed due to doubts from the United States, the organization’s largest shareholder, regarding political support for the adjustment plan and economic reforms. The labor chapter of the DNU continues to be blocked by judicial protection and this Wednesday the CGT ratified the strike announced for January 24th by rejecting the decree, while Congress has just begun to discuss the omnibus law.
In this context, Caputo seeks to resume the seventh review of the program, left incomplete in November due to the failure to achieve all the objectives signed by Alberto Fernández’s leadership in 2022. The Fund, however, could extend the duration of the agreement, which expires in September 2024. This would allow it to continue to closely monitor its largest debtor.
Source: Clarin
