This week the Ministry of Economy will send its entourage of officials to washington to close with the IMF, before the end of February, the technical review of the goals for the end of 2022, but also with the mission of shaping a more urgent and critical: the concrete impact that the drought in the Argentine economy and its possible effect on the program of goalssomething that for months has been at the top of the agency’s list of concerns.
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For the entity, macroeconomic policies must continue in a contractive position, where the purpose of permanently reducing inflation and external imbalances is prioritized.
After a first face-to-face contact with second lines of Monetary Fund officials at the beginning of February in Buenos Aires with a first round of meetings in different offices of the Palacio de Hacienda and the Central Bank, the economic team is now preparing its own delegation to the North American capital, which will give this technical round trip a definitive form, an agreement on the result of the review of quarterly objectives last December, and the paved way for weeks later to arrive a first disbursement of $5.4 billion with the approval of the board of directors.
The Minister of Economy Sergio Massa instructed his vice minister and secretary of Economic Programming gabriel rubinstein and the head of advisors and one of the sticklers in the relationship with the Monetary Fund, Leonardo Madcur, to travel this Friday to the United States to complete that step. The bulk of the meetings will take place the following week and will end with a statement from the agency’s staff with general guidelines.
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As is the case every quarter, they will point out if they were fulfilled or not and to what extent the quarterly goals, if there was any need to waiver (dispensed) for some element that escapes the manuals of the organism -one of them will be the soybean dollarthat because it is a differential exchange rate practice, is not accepted by the Fund’s bylaws- and some forward-looking consideration regarding how the overall implementation of the program.
It is at this point where a backbone element of the discussion in recent months with the Monetary Fund technicians appears: that of being able to measure in the most precise way possible what cconcrete consequences will have in the public accounts -mainly in the accumulation of reserves in the Central Bank- the severe drought that affects agricultural production in a large territory of the entire country. The Government, for now, does not risk a final projection on how many fewer tons of production, fewer exports, and therefore fewer dollars will be liquidated.
The BCRA sold dollars in the market in the last 15 rounds for a total of USD 800 million
The entity ended its intervention for the day with a negative balance of USD 35 million and extended the sales streak that began on January 25
as far as he could tell infobae, the issue of drought was already part of the concerns of the IMF technical staff since the end of 2022, when a serious climate impact was expected. Something in this sense even came to express the agency’s team in its latest report approved by the board. “The intensification of the ongoing drought could reduce the agricultural exports and foreign currency inflows, stoking inflation and endangering the objectives of the program. The risks of implementing the program remain high given the very complex internal economic, social and political situation”, he mentioned.
The central consequence that the drought would have would be to reduce the inflow of reserves, which would trigger, according to the Fund’s hypothesis, different consequences in the macro. “Contingency planning and agile policy adjustment, including increased policy tightening if risks materialize, they will be essential to safeguard macroeconomic stability. Efforts will be essential to maintain broad political support for the program and its financing strategy”, pointed out the Fund’s technical team.
The IMF had also already given signs that a third episode of the soybean dollar was not advisable. “Measure Dependency ad hoc and distortionary, including foreign exchange restrictions and multi-currency practices (among which consider the soybean dollar), should be avoided in the future, since they are not an adequate way to address macroeconomic imbalances, “warned the IMF. The Fund’s warning is that this type of measure lose effectiveness to the extent that they are repeated.
Minister Massa anticipated in an interview this weekend that the drought will be part of the discussion. “The Fund proposes that let’s discuss honestly what is the impact of the drought. We see with the intelligence of the staff to see what that impact is, ”she said in statements to Cnn in Spanish and assured that the agreement with the Monetary Fund “is achievable.”
The risk is that, with a much lower inflow of dollars from agricultural exports, the first quarterly reserve goal for this year, of USD 500 million above the level of last December, will not be met. So far this year, the BCRA has lost some $1.1 billion.
The December 2022 goals, in this context, is a less thorny issue. The economic team assumes for sure that the three central objectives, which are the accumulation of reserves, the limit to the deficit and the monetary issue, will be approved by the staff and the board of directors. As a consequence, the first disbursement of the year, scheduled for the middle or end of March, would be $5.4 billion. They will be used, in their entirety, to pay maturities to the Fund itself in the coming months.
Regarding this year, the Government must cut the primary fiscal deficit from 2.4% of GDP with which it would have ended 2022 until 1.9% of GDPwith a monetary emission ceiling to assist the Treasury of 0.6% of GDP. On this last point, the first three months of the year will have as ceiling to finance the deficit $139,000 millionabout a sixth of the full-year nominal top, which is $883,000 million.
According to the agency’s estimates, the main tools for meeting the objective of 1.9% deficit will be the reduction of social spendingwhich would represent 0.8 points percentages and an additional pruning to the energy subsidiesfor an amount that is equivalent to other 0.6 points percentage.
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