The data that Minister Martín Guzmán confirmed before the Commission of Deputies this Monday is that, after the signing of the agreement, the IMF would immediately disburse almost 10,000 million dollars, a figure that would give respite to the Central Bank’s reserves at a time when private calculations currently estimate net assets to be negative at about $500 million.
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Generous
Among economists, the idea tends to prevail that with this agreement Argentina managed to avoid the “brutal adjustments” measures that the Fund used to demand.
It is a “generous” agreement, according to a Cohen report for his clients, adding that it “exceeded our expectations, given the laxity of the established goals and the lack of commitment to structural reforms.”
Another important aspect is that, although a reduction in inflation is expected, the agreement does not include targets in this matter. “Before, the IMF was more demanding with inflation,” recalls a former Argentine debt negotiator.
The organism had a menu of three possibilities – exchange rate control, monetary aggregates or inflation targets – to anchor the rise in prices, but, he explains, “In recent years the Fund has become more flexible, it gave countries more freedom to set their policies and for this reason it accepted that Argentina present an inflation range of 38 to 48% for this year.”
This data is not minor. Specialists point out that given the indexation that covers a large part of public spending – particularly pension expenditures – a sharp slowdown in inflation would lead to an unsustainable expansion of these expenses.
Doubts
However, one of the aspects that economists question is the possibility of achieving a reduction in the deficit based on the tariff adjustment announced by the government.
It should be remembered that the Memorandum of Understanding contemplates maintaining a social spending floor and considers that capital spending will be a pillar of the program, forecasting growth from 1.4% of GDP in 2021 to 2% in 2022..
The only item of primary spending for which it is expected a reduction in 2022 are energy subsidies, which should fall by the equivalent of 0.6% of GDP in the year (from 2.3% in 2021 to 1.7% in the current year).
For this purpose, the government announced a segmentation and a new rate updating formula. The segmentation contemplates that the 10% of consumers with the greatest ability to pay stop receiving subsidies for gas and electricity.
Regarding the update formula, for residential users the rate will be updated based on the evolution of the private salary. For the beneficiaries of the social tariff, it would increase 40% of the increase in the coefficient of salary variation and for the rest of the users, the percentage of increase would be equivalent to 80% of said variation.
This It would mean an increase of 200% for the 10% with the greatest ability to pay, 21% for users who receive a social rate and 42% for the rest of the users.according to the calculations of pxq.
A number
Precisely in the debate in Congress, the PRO deputy, Martin Tetaz He maintained an interdict with the Minister of Economy because he did not give an example of how much the electricity bill would increase for users who did not have subsidies.
Bigtits: “Give me a number. Can’t you tell me a number?
Guzman: “It depends on the cost of energy… I don’t know how much LNG will be in June”… The lack of response from the minister unleashed a shout from legislators asking for “an example, today how much would pay your bill to those who eliminate subsidies” while Charles Heller I was trying to put order.
Minister Guzmán also denied that the increase in rates will mean “a price increase” as the deputy accused. Nicholas del Cano. “This is not a price hike, because the rates will be lower in real terms compared to the salary increase.”
The consulting firm run by the economist Emanuel Alvarez Agis warns that the calculation of the base scenario of the memorandum is based on the fact that the wholesale cost of energy would remain constant in real terms during 2022“which seemed difficult given the international price scenario prior to the conflict between Russia and Ukraine and became practically impossible in the current context.”
For this reason, he explains that, if this 0.6% savings is not achieved due to an increase in the cost of energy, other sources will have to be found to meet the reduction of the primary deficit.
No conditionalities
An important issue to bear in mind is that, although the program contemplates a path to reduce the primary fiscal deficit, there is no conditionality within the quantitative goals based on how to navigate this path.
In consecuense, In the IMF reviews, it will only be decisive that the primary deficit objective is met -2.5% of GDP for the current year, which represents a reduction of half a point-, regardless of how it is reached for the approval of disbursements. to that result. For this reason, the deal does not have a “goal” for how much, for example, utility rates should go up.
According to pxq’s view, given that the Government set a goal for spending to grow in real terms (once COVID19 spending is excluded), it can be thought that the real growth of the economy can help lower the deficit in real terms. of GDP.
If spending on social benefits plus transfers to the provinces and universities (along with other transfers) grew by 1% in real terms with GDP growing by 4% (consensus of economists expects a little less, 3%) there would be savings of 0, 4% in product terms. “If, in turn, some increase in income is achieved, it could reach 0.6% to meet the IMF’s objective in the event that savings are not achieved on the side of subsidies,” he maintains.
Compliant
In the opinion of this consultant the agreement with the IMF is “enforceable”. In this regard, he points out that, in terms of international reserves, almost the entire increase scheduled for 2022 will be provided by the IMF. In this way, the goal does not require a certain dynamics of the foreign exchange market, but little more than the first disbursement of the IMF is made and exchange control does the rest.
And with regard to the fiscal deficit goal, he estimates that “Capital spending will be responsible for making the adjustment that subsidies do not”that is, sacrificing public works.
However, other analyzes warn that some goals will be difficult to meet. “Lhe reduction in monetary assistance is consistent with greater fiscal consolidation, but it implies a greater accumulation of debt at a rate that should be positive in real terms, generating concern especially in terms of the maturity structure it generates for the medium term” warns a report from Ecolatina.
It should be remembered that the financing of the Central Bank to the Treasury reached almost 4 points of GDP and this year it should be reduced to 1%, from where it would lead to other sources of financing contributing 2.5 points.
In short, the agreement with the IMF does not satisfy either vast sectors of the ruling coalition or the opposition.
It has the cost of a quarterly control, but without a program that attacks the structural problems of the Argentine macroeconomy, critics point out.
The Minister of Economy repeats that it is the “best possible agreement” and, in reality, regarding the level of demands that IMF programs usually have, the organization and the United States in particular took into account geopolitical reasons to reach an understanding.
Source: Ambito
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