After disembarking in Washington, the Argentine mission began Sunday afternoon at technical negotiations with the International Monetary Fund (IMF) with the aim of closing an agreement as soon as possible to refinance the debt of US$ 43.294 millones for the Stand By loan requested in 2018.
In this framework, they discuss four key goals for the next few years:
One of the main goals is to strengthen reserves. Despite a trade surplus of more than US $ 12 billion, andl Central Bank was only able to add US $ 2 billion of net foreign exchange, that is to say, without counting bank reserve requirements and the swap with China. This was due to debt payments from the private sector, international organizations and the intervention on the financial dollar.
“Net Reserves (under the IMF methodology) would have closed November at around US $ 4,637 million, while maturities in foreign currency until March 22, 2022 (inclusive) total US $ 6,761 million, showing that there would be a considerable gap between the stock of International Net Reserves and the payment flows“noted an ACM report.
The scenario will be even worse if the maturity of US $ 2 billion with the Paris Club falls by March 31. This means an already low net reserve floor to meet the levels stipulated by the Fund. The measure used is the number of months of imports that allow covering, which for Argentina equates to 0.8 months of imports in 2022.
Sending a mission to the US caused a rise in bonds of more than 7% on average, which was reflected in the drop in country risk from almost 1,900 points at the beginning of the week to 1758. However, the exchange rate gap in most parallel quotes remained above 100% and the BCRA sold US $ 400 million last week.
In that context, the IMF is likely to ask for an adjustment of the exchange rate scheme that allows not only to stabilize the economy but also to meet the reserve and exchange gap targets.
Can there be a devaluation? In this sense, analysts expect an acceleration of the exchange rate (crawling peg), a gradual easing of exchange controls and a reduction of the exchange rate gap, with some goal as occurred in the case of Angola.
“There is not a problem with the exchange rate, in any case it is the exchange gap and you discuss capital control measures and eventually, when the situation is normalized in a long time, how to loosen it up, “he said last month to Clarion the Argentine representative to the IMF, Sergio Chodos, one of the officials who is in Washington.
In the pre-mission, the Government sent signals of commitment, such as a higher rate of depreciation of the peso, the decision to stop intervening on financial dollars and restrictions on foreign tourism.
Going forward, the Fund could reiterate some of the criteria used in the last 6 years with Argentina. According to, a review of these documents by the consulting firm PxQ shows that “the IMF considers that capital controls are necessary in the short term to avoid capital outflows, but have to be phased out“.
As part of the negotiations, the Government commits to take “preliminary actions” before the Fund’s board of directors signs the new agreement. Within these measures, they appear on the official site of the agency the removal of price controls, a path that deepened with the freezing since October of 1,432 basic basket products.
The Ministry of Economy ratified the weekend the strengthening of the price agreements in 2022 as “one more anchor” to reduce inflation and the inclusion of the issue in the discussions that take place with the IMF staff in the negotiations. And previously, departure was formalized from number two of the Ministry of Internal Trade, Debora Giorgi.
In October and September inflation accelerated significantly (3.5% versus 2.5% in August). In the interannual measurement shore 52%, above the 45% estimated in the Budget. While in 2022, the Government foresees a 33% rise in prices, below the 52.1% projected by the consulting firms surveyed by the BCRA.
The IMF demands a decreasing path of the red in the public accounts. The Government expects to approach zero deficit in 2026, but the agency would seek to achieve a primary surplus of 1.8% of GDP for that year, which implies an annual scheme of greater fiscal discipline in the environment of 1.16 percentage point of GDP per calendar year, according to ACM.
In Ecuador, the most recent case, a tax cut was stipulated through a reduction in expenses as well as an increase in income. The Government maintains, instead, that will be reached “no adjustment” and with higher income from the growth of activity and foreign disbursements of US $ 15,000 million, a figure that would imply new debt with the IMF.
Economics anticipated, however, that there will be less spending on energy subsidies through tariff segmentation, among other measures, and nor does it rule out a decrease in pandemic expenditures, as happened in 2021. The discussion of the deficit also has other implications, such as its impact on activity.
“How this result is reached will be a political decision of which the IMF is not a part. In this sense, achieving that fiscal adjustment will mean taking measures that are likely to have recessive effects about the economy, “LCG said.