The President, andn his brief message he spoke of the Argentine government’s “agreement” with the International Monetary Fund (IMF), giving a political framework for said decision and few clues about the path to take. Later, it was the turn of the Minister of Economy, who gave some clarifications, but referred to “understanding”. A linguistic subtlety?
What Alberto Fernández described as an “agreement” is actually a pre-agreement reached in order to reach a formal agreement later and before the payment of US$ 2,800 million of the original debt of US$ 44,000 million contracted in 2018 and of which services were being paid when there was extra income is triggered, DEGs and tailwind. But that is over and the Central Bank’s freely available net reserves are on track to run out by March.
In the presidential message, reference was made to the fact that the content of the program that arose from this decision will be sent to Congress for its treatment and approval, as had been anticipated. The only concrete reference, in addition to denying that an adjustment has been committed, is that there would not be a structural or labor reform either, that the requirement of a zero deficit was postponed and that pension spending, public works would not be an adjustment variable.
Martín Guzmán went into the details that were expected and the first thing he alluded to was the fiscal path with which they had committed. Of the 3.5% primary fiscal deficit of GDP with which last year ended, the agreed goal for this year will be 2.5%; 1.9% for next year and finish at 0.9% for 2024 before reaching the desired balance in 2025. When the tension around these numbers began, the Government wanted to reach 0% only in 2027 and the Fund ran it by 2023. It seems like an intermediate solution. For that, he already warned that he would strengthen fiscal monitoring and above all the tax administration
Another issue that he referred to in connection with this was that of the financing by monetary issue of that descending fiscal red. He alluded that it had reached 7.3% in the fateful 2020, which then fell to 3.7% in 2021 and the commitment for this year will be 1% of GDP; 0.6% for next year and nothing for 2024.
Another promise is that there would not be a devaluation jump or an inflationary blow to liquidate debts or public spending, a great challenge to be able to grow in foreign exchange competitiveness without pushing inflation. But he also anticipated that a goal of increasing reserves of the order of US$ 5,000 million for this year, will be partially supported by fresh contributions from the IMF.. How, when and under what conditions, is something that he did not explain and will surely take shape when the agreement is formalized.
What follows after the green light that the IMF board gave minutes later to this understanding, is the discussion in Congress and the formalization of the extended facilities agreement. There will surely be revealed the small print of the document that Minister Guzmán failed to refer to and how promises and realities will be reconciled. For example, the pruning of energy and transportation subsidies that would be made starting this year, another permanent source of fiscal imbalance that is the delay in rates from the last two years, could pass another 1° of GDP if there is no correction.
