2023-08-25 00:56:00
The International Monetary Fund (IMF) remarked this Thursday to Argentina the need to “contain spending on salaries and pensions”noting that a further rate increase will be required.
Besides, endorsed the devaluationafter the approval of the fifth and sixth revision of the Extended Facilities Agreement.
“The Executive Board of the IMF has concluded today the fifth and the sixth review of the Expanded Facility of the Fund (SAF) to 30 months of Argentina. The Board’s decision allows an immediate disbursement of around US$ 7,500 million“, he indicated.
He recalled that “since the completion of the fourth review, the main objectives of the program were not achievedas a consequence of the unprecedented drought and policy deviations”.
“In a context of high inflation and increasing pressure on the balance of payment, a new package of measures was agreed on, focused on strengthen reserves and strengthen fiscal order“, he pointed.
It was also indicated that “the continuous and firm implementation of these measures will be fundamental in the next period to safeguard stability and strengthen sustainability in the medium term”.
Total disbursements under the agreement amount to about US$36 billion, and the next review is scheduled for November 2023.
In completing the combined reviews, the Board of Executive Directors considered that key program objectives were not achieved until the end of June 2023 due to unprecedented drought and policy deviations, requiring the approval of non-compliance waivers.
In addition, it approved exemptions for non-compliance associated with the introduction of temporary measures that gave rise to the introduction or intensification of foreign exchange restrictions and multiple currency practices.
New modifications approved by the IMF
Also approved changes to the reserve accumulation targetas well as the objectives of the primary fiscal balance and monetary financing of the deficit, together with the commitment to implement a new package of policies to correct setbacks in economic policies, safeguard stability and achieve the objectives of the program.
At the end of the deliberations of the Executive Board, the Managing Director and President of the Board, Kristalina Georgievamade the following statement:
“The economic situation has become increasingly difficult since the conclusion of the fourth reviewdue to the unprecedented drought, as well as the deviation of policies, which is why key program goals scheduled for the end of June were missed.”
Sergio Massa said that Milei was “collaborative” with the IMF and that in JxC they asked “not to give anything” to Argentina
“With high inflation and rising balance of payments pressures as a backdrop, the authorities are launching a new set of measures to ensure stability and underpin external viability in the medium termand focused on replenishing reserves and improving fiscal order”.
“To reach the agreed primary fiscal deficit of 1.9% of GDP this year it remains essential to support economic and financial stability”.
“Efforts are focused on reinforcing spending controls with initial measures aimed at update energy rates and contain public salaries and pensionswhile continuing to protect priority spending on social programs and infrastructure.”
“These measures are being complemented with temporary tax increases on the purchase of certain goods and services in foreign currency in order to help offset the loss of export earnings due to the drought.”
“The recent exchange rate realignment, coupled with monetary policy tightening, should continue to help promote reserve accumulation and at the same time limit the pass-through effect of the exchange rate to inflation“.
“From now on, the exchange rate adjustment rate will be carefully calibrated to facilitate the compliance with reserve accumulation and inflation reduction targets, while real interest rates will remain at appropriately positive levels to continue supporting the demand for assets in pesos. Financial and futures market interventions will also be limited and temporary, and will focus on correcting disorderly conditions.”
“In the meantime, multiple exchange rate practices, exchange restrictions and capital flow management measures will be phased out as conditions permit, as they are not a replacement for a sound macroeconomic policy“.
Massa-Georgieva meeting: a malbec, more leniency with the BCRA reserves and a key disbursement from the IMF
“It was agreed that in subsequent years fiscal consolidation will have to be accelerated with high-quality measures focused on spending and revenue. This will help Eliminate monetary financing of the deficit, promote disinflation and prop up the balance sheet of the Central Bank“.
“The importance of promoting the export potential and the external position of Argentina has been recognized, and that the completion of the first section of the gas pipeline is a positive development. Continued attention will need to be paid to protecting the poor and promoting inclusive growth as imbalances are corrected.”
“Determined program execution, agile policymaking, and contingency planning remain imperative, and other measures may be necessary to achieve program objectives and safeguard stability.”
“In the meantime, it remains crucial to have broad political support and that the program is assumed as its own in the short and medium term, since solving the profound challenges facing Argentina will require the efforts of future governments. We commend the authorities’ strong commitment to keeping up with their financial obligations to the IMF.”
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