The agreement reached on Wednesday by the government of Javier Milei and the International Monetary Fund, who relaunched the program that had gone off the rails in the previous management, it was well received on Wall Street for his pragmatism, however caution persists. According to the experts consulted by Clarín, the announcement was necessary, but it does nothing more than “buy time” until the close of the harvest in April, the new objectives appear difficult to achieve and leave doubts about the difficulties of their implementation.
This was stated by Sebastián Vargas, head of strategy for Latin America at Barclays “The continuity of the program with the IMF is not a surprise market. The government is proposing an aggressive fiscal adjustment to the IMF that would bring the primary surplus to 2% of GDP. This does it the numbers close very well on the cards. However, it was not enough to obtain the large dollar outlays so necessary. The market proceeds with the same caution and he thinks there is a 40% chance we will default before the end of the year.”
For Vargas, “what we are witnessing in the last month take time. The Government awaits the life saver upon arrival of crop clearance. He also hopes to see what remains of the DNU and the Omnibus Law. But no one knows that the key to success will be how quickly inflation declines and the dynamics are extremely complicated.”
This was stated by Alberto Bernal, head of global strategy at XP Securities “The conclusion of the agreement with the Fund is excellent news because it was in record time and that shows Caputo’s temperance or vision or Wall Street way of looking at life, basically focused on quickly solving this problem: he sat down and talked and invented the numbers. An agreement has been reached and this pragmatism fits very well with Wall Street’s vision.”
Martin Castellano, head of research for Latin America at the Institute of International Finance (IIF), noted that “the agreement is positive as it avoids the cessation of payments in the short term e gives a strong signal of harmony regarding the measures necessary to stabilize the economy and generate conditions for sustainable growth. However, the agreement will be well received by the market “The big doubts continue to be the ability to implement.”
The agreement establishes new objectives that the government will have to reach by the end of the year: 2% of GDP in fiscal surplus and 10,000 million dollars in reserves. “The goals seem challenging given the uncertaintyespecially regarding political support for passing laws, but they are achievable,” Castellano said.
“Moreover, the objectives are completely in line with the objectives that the government has set itself in terms of economic policy, mainly to eliminate the fiscal imbalance, which is a big difference compared to the lack of conviction of the previous administration,” he added .
He added that “achieving fiscal and reserve accumulation targets will require an adjustment in imports and a sharp contraction in economic activity this year. This was, in any case, inevitable, regardless of the agreement with the IMF.”
In this regard, Vargas warned that the new objectives will be achieved “very hardworking and far from assured”. He stressed that “the harvest places a higher ceiling on tax collections than in 2023. But I think we need to distinguish structural adjustments from cyclical adjustments: much of the fiscal adjustment we are experiencing is the product of real devaluation with withholdings and erosion of spending resulting from the inflationary shock, which represent temporary fiscal savings. But for the tax savings to be maintained over time, agreements are needed because otherwise they quickly disappear.”
For Bernal the reserve objectives are “vital in the scenario in which progress in the normalization of the foreign exchange market continues and Argentina is lucky in agricultural exports in 2024”.
“As regards the fiscal part, it will obviously be very difficult to reach these numbers, but I think the government has all the will to do it. This will be achieved if Congress supports the austerity reforms that the government must implement. The good news for Argentina in this sense is that, in a certain sense, the very high inflation that the country is experiencing should help make fiscal adjustment much more feasible,” adds the expert.
¿A new program with the Fund may be necessary in the future. or is the current one still useful?
Vargas noted: “I like to think of it as we are in a transition phase. where the IMF is making its contribution by supporting the incoming government in its first months. One of the things the government needed to get the harvest was these dollars from the Fund. The key is how to get to April, because that’s when the game begins.”
Castellanos believes that “this agreement allows the government to get by, but it is possible that a new one will then be sought that improves the maturity profile and better adapts to the economic policy of the current administration”.
Bernal believes this program still works. “I think there is no reason to say that a different agreement should have been made. Argentina has no real debt size problem. It has a problem of brutal economic imbalance due to the extremely wrong policies of the previous government. We hope that the population will accompany the government in the need for adjustment and see if it has the patience so that Milei can have a sufficient period of time to try to right the economy so that Argentina can grow again.”
SN
Source: Clarin
