massa next to the number 2 of the monetary fund, gita Gopinath/economy
After approving a new relaxation of the economic program, the International Monetary Fund (IMF) insisted that “a package of more solid policies” is necessary to safeguard the precarious stability of the economy and sustain the anchor role that the program fulfills, and He remarked that it is “essential” to achieve the goal of the primary fiscal deficit of 1.9% of GDP scheduled for this year.
The Fund’s deputy managing director, Gita Gopinath, said in a statement released in Washington that “the economic situation has become more challenging” due to the drought and “policy setbacks”, and stressed the importance of lowering the fiscal deficit to contain inflation, encourage the accumulation of reserves, alleviate financial pressures – a veiled reference to the dollar – and strengthen debt sustainability. In addition, Gopinath got fully involved with a very sensitive political issue by pointing out, on time, that the fiscal cost of the new pension moratorium should be “mitigated” by allowing entry “only to those with the greatest need.”
Gopinath said that, given the impact of the drought on the economy, adjusting this year’s reserve accumulation target is warranted, “although a stronger policy package will be needed to safeguard stability and maintain the program’s anchor role. ”, he completed, according to La Nación.
The number two of the Fund warned at the end of her message that, since the risks have increased, an “additional tightening” of economic policy may be required.
On Friday, the IMF approved yesterday the review of the goals for the fourth quarter of 2022 and authorized a disbursement of US$5.4 billion for Argentina. With this disbursement, the agency has transferred to Argentines close to US$28,900 million in the last twelve months, which the government substantially allocates to, in turn, pay maturities with the agency itself and partly increase the reserves of the Central bank.
In yesterday’s statement, the IMF considered it “essential” that the government stick to this year’s fiscal deficit target of 1.9% of GDP.
The statement comes after the fourth revision of the “Extended Facilities Agreement” agreed in March last year, for 30 months.
All quantitative performance criteria up to the end of December 2022 were met with some margin, supported by a firmer implementation of macroeconomic policy in the second half of 2022,” a passage from the statement reads.
But he immediately warns that “in the context of an increasingly severe drought, rising inflation, and weak reserve coverage, a stronger policy package is necessary to safeguard stability, address setbacks, and secure program objectives. Along with this decision, a modification of the reserves goal was also approved”.
Regarding this last aspect, which took two months of negotiations between the Economy and the staff of the organization, which agreed to the Argentine demand for a reduction in the accumulation objective, the Fund warned that the reduction of reserves – whose amount was not specified, but which according to Economy sources would be US$3,500 million less for the first quarter and US$2,000 million less for the year- it will serve “to partially accommodate the impact of the severe drought, along with firmer policies to safeguard stability, address setbacks and secure program goals while maintaining the anchor role of the program.”
“Additional macroeconomic policy tightening and exchange rate policy modifications may be required to safeguard macroeconomic stability”
Gopinath met with Economy Minister Sergio Massa in Washington. Massa also met in Washington with the Secretary of the Treasury, Janet Yellen, in a meeting in which the US ambassador to Argentina, Marc Stanley, also participated, according to Infobae.
Gopinath praised the “more prudent economic policies” carried out “in the second half of 2022” which, he said, “supported a moderation of inflation and improvements in the fiscal and external balances, which helped to ensure the goals of the program for end of 2022″. But, in the best monetary fund style, he later warned that the economic situation “has become more challenging since the beginning of this year in light of the increasingly severe drought and policy setbacks,” so “given the magnitude of the shock climate change, some downward adjustments to reserve accumulation targets are warranted, although a stronger policy package will be needed to safeguard stability and maintain the program’s anchor role.
“Achieving the primary fiscal deficit target of 1.9% of GDP by 2023 remains essential to support disinflation and reserve accumulation, ease financial pressures, and strengthen debt sustainability. Timely implementation of high-quality measures, particularly improving the targeting of energy subsidies and social assistance, will help offset lower export taxes due to drought, protect priority infrastructure and social spending, and ensure fiscal targets,” Gopinath stressed.
In addition, to achieve this goal, the Fund continued to hammer away at the reduction of subsidies for the consumption of services implicit in the increase in tariffs, especially those for energy and for the wealthiest sectors.
“Specifically, it will be critical to ensure that energy rates for high-income residential and commercial users move forward to fully align with costs, including to reduce system regressivity,” Gopinath said.
