There is no doubt that the Government managed to achieve the goals agreed with the International Monetary Fund (IMF) for 2022, although, perhaps, with certain traps that cast doubt on whether it is useful for the economy to comply in this way. The mission of officials that was in Buenos Aires recently returned to Washington and in just over a couple of weeks a delegation of Argentine officials will be in the US capital.
According to officials from the agency, in these meetings technical review will be completed of the numbers of Argentina of the fourth quarter of last year to prepare the staff report that will be submitted to the agency’s Board, which ultimately approves the goals and orders a new disbursement. Are some US$5.4 billion that Sergio Massa and the president of the Central Bank, Miguel Pesce, look forward to.
Last year, Massa managed to right a car that seemed to be going straight off a cliff. The Government went from having spending that grew at a real annual 12% in the first semester to an average drop of 15% in the second. With this, it was possible to close with a deficit of 2.4% of GDP, 0.1 point better than what was agreed (2.5%). It also gradually eliminated BCRA monetary assistance to the Treasury and achieved the goal of 0.6% of GDP.
The reservation problem
The serious problem of the economic team is the accumulation of international reserves. After the net accumulation target was adjusted last year due to the effect of the war in Ukraine on the gas price, Argentina was able to show that it reached December 31 having added US$5 billion.
But to achieve that goal, the economic team had to step on import payments and anticipate the collection of dollars through the soybean dollar program. In the case of payments abroad, until now only 25% of the operations registered through the Import System of the Argentine Republic (SIRA) have been released.
The next step, that of the first quarter of 2023, is US$7.7 billion. Private estimates indicate that the government would be US$3 billion from the reserve goal that it should have by next March 31, and moving away. In just over a month, Pesce has to reverse the outflow of dollars that he has been experiencing since the beginning of the year.
Reserves on alert: will the BCRA be able to add US$3,000 million until the end of March?
Lack of dollars and a program at risk of collapse
According to reports, when the Argentine officials are going to close the staff report, they are going to discuss the situation of the reserves for 2023. The IMF has two options to prevent the program from collapsing: give it a waiver (sorry for a minor deviation to be able to continue with the program) to Argentina in case of not being able to reach the accumulation goal of the first quarter. The other is that the goals be agreed again. Private analysts already see this potential scenario.
Since the beginning of the year, the Central Bank has lost US$4 billion of its gross reserves. It started with US$44,000 million and is already in US$40,000 million. During that period, he paid some US$2 billion in maturities with the agency. In order for Argentina not to fall into default, the staff would have to close the report at the beginning of March and that the agency’s board of directors treat it quickly so that the disbursement is triggered and a photo can be taken again with all the elements in place.
A leading consultant in the market commented to iProfesional that potential waiver cannot be ruled out. “With this level of gap it is impossible to add reserves,” he explained. In fact, the BCRA continues to lose dollars. Likewise, Analysts consider that the Fund is not going to let Argentina fall.
What can the Government do to avoid a default?
The Argentine economic team plans to put a new variable on the table. In this year’s budget, the projections are based on a growth of 2% of the GDP. But strictly speaking, this year it would be 3%. That one point difference Massa wants to assert. There are going to be a few pesos left over just in an election year.
Eugenio Mari, Chief Economist of the Libertad y Progreso Foundation, states that “there are low probability that the goal will be met current accumulation of reserves for the end of March”. “There are several paths open here. The first is to readjust the goal to reflect reality, something that was already done in 2022. The second is to bet on one or several short-term impact mechanisms to accumulate reserves,” says Mari. The economist maintains that there is a third way that “is, simply, asking a waiver“.
“The exchange dynamics had a turnaround in recent weeks; the BCRA accumulates a selling balance due to interventions in the MULC of more than US$1,000 million so far this year. The drought affected the supply of foreign currency. While the excess weight maintains the gap comfortably at 90%,” says Mari.
Demanding program with the IMF: the Government could find it necessary to request a waiver.
In this sense, he said that “they are not rules that allow reserves to be accumulated in a sustainable manner” although “this does not prevent the Government from using some transitory trick like the ones we saw in 2022.”
“Debt has been the preferred tool; here are the credit negotiations for US$1,000 million from international banks. We have also seen the present change for the future; it would not be unusual for an attempt to advance the liquidation of oilseeds with one dollar soybeans 3 And it would not be unusual for the government to take advantage of the discretion that the current exchange rate allows to stop import payments in March and thus artificially inflate the number of reserves,” he explained.
