The IMF praises Milei but asks to remove the stocks from the dollar, lower subsidies and a pension and tax reform

The Managing Director of the International Monetary Fund (IMF), Kristalina Georgieva, highlighted the changes in Argentina’s economic policy and praised the results obtained in the first year of President Javier Milei’s administration.who with his reforms and his conviction to make a fiscal adjustment equivalent to 5 points of the Gross Domestic Product (GDP) to end inflation made his program “one of the most impressive cases in recent history“.

The Bulgarian’s statements were made in front of journalists at the organization’s headquarters in Washington, United States. “The most impressive case in recent history is Argentina, where the effects have been profound, with the implementation of a solid stabilization and growth program“Georgieva stressed.

The Argentine authorities have been negotiating for months a new agreement with the IMF so that the institution grants between 11,000 and 13,000 million new dollars – “fresh” – and that the country can refinance the US$ 44,000 million of loan maturities taken in 2018 under the government of Mauricio Macri and renegotiated in 2022 by Alberto Fernández.

Regarding this last program, the Fund’s technicians (the “Staff“) issued an ex-post evaluation document on Friday night in which there was a criticism of former President Fernández, former Vice President Cristina Kirchner and former Minister of Economy Sergio Massa due to the little commitment (“appropriation”) with what was signed and the constant deviations from the goals, which led to a rising inflation.

In that same report, the agency’s technicians made suggestions to strengthen the Argentine economy. There they insisted that the Government must put an end to the dollar trap: release exchange restrictions and unify the exchange rate – which would possibly lead to a devaluation of the peso – so that it is easier for the Central Bank (BCRA) to accumulate foreign currency in its international reserves.

Only in this way will the debt be more sustainable in the long term and Argentina will be able in the coming years to comply with the million-dollar commitments it accumulated with the IMF itself and with private creditors, mainly between 2016 and 2019.

Greater “exchange flexibility” would allow a greater amount of exports, a lower volume of imports (therefore a greater trade surplus, which allows the BCRA to buy dollars), more foreign exchange earnings from tourism and other services and less spending by Argentines abroad. .

Furthermore, the organization’s technicians consider that the Argentine authorities must guarantee that the Interest rates must be positive in real terms (beat inflation) to make investments in pesos more attractive and strengthen monetary demand.

And they indicate that an “improvement in the progressivity” of the income tax that is charged to the workers, the reduction of energy and transport subsidiesimprove the “sustainability of the pension system” (a retirement reform), and the mass of public salaries, “reduce the distorting nature and complexity of the tax system” (a tax reform) and “improve flexibility in fiscal relations with the provinces.”

Within the review of the program that Fernández and the former Minister of Economy Martín Guzmán signed and that was continued by his successor Massa, the IMF Staff stated that “Argentina did not establish an adjustment in line with the scale of the country’s fiscal crisis and the problems of balance of payments”.

“The combination of a gradualist reform strategy in a country with severely limited access to financial markets, large shocks “adverse events and progressively weaker policy implementation” resulted in the country not achieving the program’s goals.

The Argentine authorities, in response, broadly agreed with the technical review but assured that their program decisively saved the country from the hyperinflation to which it was heading with the policies of Kirchnerism, and that it was not only due to a fiscal adjustment strategy with financial surplus as a result, but also due to the combination of monetary adjustment (with zero emission) and using the dollar as an anchor against prices, with a 2% monthly devaluation of the peso that was far behind inflation.