2023-08-25 00:54:34
The International Monetary Fund (IMF) once again stressed to Argentina today the need to “contain spending on salaries and pensions”noting that a further rate increase will be required.
In addition, it endorsed the devaluation, after 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 sixth review of the Expanded Facility of the Fund (SAF) to 30 months of Argentina. The decision of the Board of Directors allows an immediate disbursement of around US$ 7,500 million«, Indian.
He recalled that “since the completion of the fourth review, the main objectives of the program were not achieved, as a consequence of the unprecedented drought and deviations of the policies”.
In a context of high inflation and increasing pressures on the balance of payments, A new package of measures was agreed focused on strengthening reserves and reinforcing fiscal order»he pointed.
He said that “the continuous and firm implementation of these measures will be essential in the coming period to safeguard stability and strengthen sustainability in the medium term.”
Total disbursements under the agreement amount to about US$36 billion, The next review is already scheduled for November 2023.
Why the key objectives were not achieved according to the IMF board
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 the unprecedented drought and policy deviations, requiring the approval of default waivers.
In addition, it approved default waivers associated with the introduction of temporary measures that led to the introduction or intensification of foreign exchange restrictions and multiple currency practices.
Also changes to the reserve accumulation target were approved, as well as the objectives of the primary fiscal balance and monetary financing of the deficit, along with a commitment to implement a new policy package to correct setbacks in economic policies, safeguard stability and achieve the objectives of the programme.
“The economic situation has become increasingly difficult since the conclusion of the fourth review, due to the unprecedented drought, as well as the deviation of policies, which is why key program targets scheduled for the end of June were missed.
“With high inflation and rising balance of payments pressures as a backdrop, The authorities are putting in place a new set of measures to ensure stability and shore up external viability in the medium term, focused on replenishing reserves and improving fiscal order.
“In order to achieve the agreed primary fiscal deficit of 1.9% of GDP this year, it remains essential to support economic and financial stability.
Strengthen spending controls with initial measures aimed at updating energy rates and containing public salaries and pensions.
The IMF request.
“Efforts are focused on reinforcing spending controls with initial measures aimed at updating energy rates and containing public salaries and pensions, while continuing to protect priority spending on social programs and infrastructure.
“These measures are being supplemented by temporary tax increases on the purchase of certain goods and services in foreign currency 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 while limiting the pass-through effect of the exchange rate on inflation.
“Onwards, the rate of adjustment of the exchange rate will be calibrated carefully to facilitate the fulfillment of the objectives of accumulation of reserves and reduction of inflation, 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, foreign exchange restrictions, and capital flow management measures will be phased out as conditions permit, as they are not a substitute for sound macroeconomic policy.
“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 remove monetary financing from the deficit, promote disinflation, and prop up the central bank’s balance sheet.
The first section of the Néstor Kirchner Gas Pipeline, “a positive event”
“The importance of promoting the export potential and the external position of Argentina has been recognized, and that the conclusion of the first section of the gas pipeline is a positive event. 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 required to achieve program objectives and safeguard stability.
“In the meantime, it remains crucial to have broad political support and ownership of the program in the short to medium term, as resolving the profound challenges facing Argentina will require the efforts of future governments. We commend the authorities’ strong commitment to keep up with their financial obligations to the IMF.”
Source: Argentine News
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