The International Monetary Fund published on Thursday the technical report (information report) on the seventh review of the program which the organization’s executive board approved on Wednesday, with a detailed description of the economic commitments undertaken by Javier Milei’s government and also on the risks faced by the adjustment plan.
In the document, the International Monetary Fund provides a general description of the Argentine situation and predicts that the government’s adjustment plan and initial devaluation will weigh heavily on demand and that the economy will contract into a recession that could reach -2.8 points of GDP. . Meanwhile, he points out that inflation will accelerate in the short term due to relative price imbalances, although inflation is then expected to decline towards the end of the year.
They ensure that the current account balance will register a surplus (more than 4 percentage points of GDP this year), supported by a recovery in exports
The Fund also lists the key points of the program on which the Government is committed.
• Fiscal policy. It is noted that this year the authorities intend to achieve a primary surplus of 2% of GDP. It will be achieved, they note, mainly through a combination of temporary (trade-related) taxes and measures to reduce administrative costs, subsidies for energy and transport, discretionary transfers to provinces and state-owned enterprises, and infrastructure spending. “The program supports authorities’ efforts to safeguard the global balance over time by improving the efficiency of tax and spending systems, some of which will require support from Congress,” the report said.
• Social protection. Authorities, the report says, have significantly strengthened social assistance through family allowance and food stamp programs, moving away from social programs distributed through intermediaries and seeking to preserve the real value of pensions through discretionary bonuses, the report said, adding that “assistance may need to be further expanded as conditions evolve.”
• Dollar and reserves. After the initial devaluation in mid-December, the government is committed to keeping the exchange rate policy compatible with reserve accumulation objectives and a market-based regime, the briefing reads. They say “a simpler, rules-based system of access to imports has been created, along with a system to deal with the large excess of trade debt, with a limited number of tools to allow importers to correctly register their debts commercial. “The new authorities are committed to eliminating all exchange restrictions” in the short term. Together, these policies should lead to a significant accumulation of reserves until the end of 2024 ($10 billion) and create the conditions for a return to reserve adequacy in the medium term.
Monetary policy. In a context of strict capital controls, the Central Bank has relaxed policy and rationalized the operational framework. “Monetary policy is expected to evolve to support monetary demand and disinflation, including by establishing a nominal anchor.”
• Financing strategy. “The authorities will not seek any type of net financing for the Government,” they underline. They state that “internally, a strategy is being implemented to extend maturities while reducing dependence on foreign exchange-indexed instruments. The program is fully funded for the remainder of its duration and is expected to pave the way for Argentina’s return to international markets in a timeframe commensurate with debt refinancing needs.
• Structural policy. Authorities are determined to address long-standing obstacles to growth, jobs and exports, while boosting the potential of Argentina’s vast energy and mining industries. “Recent regulatory and legislative initiatives represent a step in this direction, although the program will ensure that these are appropriately sequenced and prioritized,” the report states.
However, the Fund highlights that, despite the Government’s commitment, there are dangers in the implementation of the program: “The risks of the program remain high, reflected in the legacy received, as well as in a complex political and social context, with a Congress fragmentation, real wages and high poverty,” they underline.
They also warn that “there is a risk that the policy package will not immediately achieve its objectives, requiring agile policy formulation, contingency planning and the need to further expand social assistance. That said, even if the authorities were not able to fully achieve their ambitious policy goals, important steps would still have been taken to correct the serious situation of macroeconomic imbalances. In this context, business risks remain significant, although the possibility that the program could experience large defaults in the short term has significantly decreased.”
Source: Clarin
