Fiscal deficit, dollar and inflation, the keys to the meeting between Massa and IMF

Sergio Massa will face a decisive test in Washington. Like in Tetrisyou have to “fit the pieces” of your plan within the schedule agreed with the IMF and explain some measures that have not been planned. According to an expert negotiator, this will be the focus of the discussion that will lead the Minister of Economy when this Monday he will meet separately the number two of the Treasury, David Lipton, and the head of the body, Kristalina Georgieva.

The deficit, inflation and the dollar, along with reserves, should be some of the thorniest issues in the deal, which will be divided into two chapters. On the one hand, the revision of the objectives for the second quarter, on whose approval the outlay of US $ 4,000 million In the next weeks. And, on the other hand, planning to achieve the goals of the third and fourth quarters.

1. The deficit, in the crosshairs

“The deficit is good”, underline the Argentine mission in the US. They trust that the $ 128 trillion spending cut and the removal of subsidies are a clear sign of a commitment to meet the primary deficit of 2.5% of GDP. Two weeks before his resignation, Martín Guzmán negotiated to revise the quarterly targets. This change would allow Massa to complete the second quarter, but would reduce the room for maneuver for the second half of the year.

Another complication could be added to Guzmán’s “legacy”: inflation. Thus it happens that the fiscal target 2022 has been drawn in nominal terms (1.8 trillion dollars) and percentages (2.5%) in the hypothesis of an inflation of 57% by 2022, almost 40 points below. 95% predicted by analysts. At higher inflation, the face value of red in the accounts also increases. And if the Fund were guided by that criterion alone, the tax cut would have to be larger than expected.

2. The dilemma of inflation

With monthly inflation averaging 7%, the government faces a problem: the same acceleration that undermines revenue allows it to liquidate spending. For next year, the Economy expects a price increase of 50%, according to the advance of the Budget 2023 which is to be sent to Congress this Thursday. But if inflation were to drop to that level, it would be difficult for him to reduce the primary deficit to 1.9% in 2023.

“You have 40 spending points linked to past inflation and you have to contain the pressures with compensatory measures, but in the meantime the acceleration of prices forward helps you to liquefy spending. Inflation is the main ally, but if it were to decrease that l ‘adjustment would not be possible, which is why the mobility formula was suspended at that time “, said Santiago Manoukian, economist at Ecolatina.

3. Insufficient reserves

The latest measures have eased the central bank’s reserves slightly. The camp paid $ 2,000 million in the “soybean dollar” and Massa accepted an additional $ 2,000 million in the year from international organizations. Despite this, the net reserves accumulated over the year reflect a negative balance, according to private calculations, which makes it difficult to reach the September ($ 4.1 billion) and December ($ 5.8 billion) targets.

“It is very difficult to achieve this if you don’t want to cool the business too much,” said Ricardo Delgado, president of Analytica.

4. More measures on the dollar

A devaluation was foreseen in the leaked document attributed to Gabriel Rubinstein. Finally, the government has chosen to grant a $ 200 dollar to cereal companies, a measure that in the private sphere has been read as a “selective and transitory devaluation”. The question is what will happen after September when the 25-day window closes. The government must explain whether it will advance on the tourism deficit or on another item.

“The main thing in tomorrow’s trading is the reserves, it’s the hardest thing. Even if you come close with the soybean dollar, it’s an advance, it’s not permanent, it’s a matter of adjusting you to get more dollars later. This is going to involve something in the exchange part, it will unfold or deepen the headlines at the same time. That’s what we don’t know: what will happen on October 1st, “said Sebastián Menescaldi, Deputy Director of EcoGo.

Between December and March of the following year there will be no more dollars withheld from agriculture and it is then that the demand for dollars exceeds supply. Moody’s rating agency does not rule out a disorderly write-down. Meanwhile, the BCRA has accelerated the official exchange rate, but that would be insufficient. “Looking at the multilateral real exchange rate, we can see a delay of 22 percentage points from last year’s average,” said Agustín Berasategui of ACM.