The announcement on Friday by President Alberto Fernández that Argentina had reached an agreement with the International Monetary Fund to avoid default said a lot and a little at the same time, and there is still a lot to be defined, as he -even admitted the Peronist leader.
Here are the keys to understanding what has been negotiated and what is yet to come.
1. Agreement or understanding?
While Fernández and Economy Minister Martín Guzmán spoke of an “agreement” with the IMF, the Fund’s subsequent statement spoke of an “agreement on key policies.”
“IMF staff and the Argentinean authorities will continue their work in the coming weeks with a view to reaching an agreement at the staff level. As is always the case, the final agreement on a program agreement would be subject to the IMF Executive Board approval,” the multilateral lender said. said in his statement, hinting that the “fine print” has yet to be written.
Economist Luis Secco warned that the first difference between the positions of the two parties is that “there is no agreement at the level of technical personnel”.
“There is an agreement” and “there is no austerity, no devaluation, no cuts in budget spending. So how will there be a different outcome than what we already have?” He asked.
Secco, in conversation with Perfil, pointed out that the initial two-and-a-half-year program involves “10 quarters of IMF reviews, and if what has been agreed is achieved, then we have to start paying what is actually owed,” i.e. the US$44 billion.
“It’s a problem for the next government. For now [Argentina] managed to get out of default,” he concluded.
2. Accumulate Reserves
Guzmán announced that the agreement provides that “there will be no exchange rate jumps” and that it will also promote “the accumulation of international reserves” at the Central Bank.
However, during Friday’s press conference, when asked why the government had been unable to accumulate reserves in 2021 when it had an additional $6 billion from the campo and $4 Another $4 billion from the IMF, he only managed to say that “over $5 billion was used to pay down the debt,” without explaining what happened to the rest.
Guzmán denied that there will be an increase in utility prices. However, the Fund said that “we agreed that a strategy to reduce energy subsidies in a phased manner will be essential to improve the composition of public spending.
The question is: how will subsidies be reduced without increasing prices? By the way: how is the call for public hearings on the issue scheduled for February 17 going – precisely to raise them throughout the country, but especially in the federal capital and Greater Buenos Aires, which have only known one 9% increase from September 2019 to present – does it fit into this pattern?
4. The budget deficit
How to reduce the public deficit if spending is maintained? The “understanding” implies, among other things, that Argentina’s budget deficit will drop from the 3.3% of GDP projected for this year to 2.5%. When Guzmán was asked how this reduction would be achieved without reducing subsidies or spending, the minister simply stated that “there will be more tax revenue”.
There are doubts here, especially because the government’s so-called “wealth tax” on large fortunes generated 0.5 of GDP. In addition, consultants’ estimates warn that the trade surplus, which left $14.5 billion last year, will be reduced this year to $8 billion due to drought, lower commodity prices and increased exports.
Furthermore, the proposal calls for a budget deficit of 1.9% of GDP by 2023, and only 0.9% in 2024, when whatever new government takes office.
Senator Luis Juez (Frente Cívico-Juntos por el Cambio) pointed out that the Minister of Economy “is talking about a reduction in the budget deficit of 0.5% per year while they govern, but of 1% the first year of the following. are doing is what they have always done: leaving behind a ticking time bomb for the future government.
In statements to the press, the Córdoba senator said “it’s a big unknown, a big lie.”
“Ask pensioners if there has been no austerity. They don’t say it, they don’t need to put it in a newspaper, they get it from inflation,” he added.
For his part, the former Deputy Minister of Economy Emanuel Álvarez Agis pointed out that “it is the first time that the IMF refinances a debt without requiring an adjustment in return. It is somewhat unusual by the standards of the IMF”.
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