Although the organization’s technical staff had demanded last week to deepen the adjustment by some US$2,000 million, or 0.5 points of GDP, the original commitment finally prevailed and the IMF put aside the demand for a deepening of pressure on public spending.
The hard position that Argentina showed as a reply to the last resort claims of the International Monetary Fund, they had a certain effect on a key chapter of the goals that the country had to meet within the Extended Facilities program suspended since April. The fiscal deficit for the entire financial year 2023 would be between 1.9% and 2.1% of GDP, maintaining the projection established in the original agreement signed in March of last year.
Although the organization’s technical staff had demanded last week to deepen the adjustment by some US$2,000 million, or 0.5 points of GDP, the original commitment finally prevailed and the IMF dropped the demand for a deepening of the pressure on public spending.
The Argentine negotiators told the Fund that this claim was, directly, a utopia in the midst of a political process like the one the country is going through. But it was also shown on the negotiating table that, in the first half of 2023, Argentina achieved a reduction of expenses by a real 10%; while a similar contraction was projected for the second semester, due to the fall in part of the subsidies to the rates of public services for the higher income sectors.
Economy also showed before the technicians of the Fund that the curve of fall of the tax collection against the inflation, It is a process that is being reduced by force of an increase in foreign trade income, after having suffered the fiscally devastating effects of the drought in the first months of the year. This was one of the key points of the negotiation: the men from Washington did not take into account the consequences in the fiscal accounts of the loss of income as a result of the fall in the collection of withholdings and profits of the primary exporting companies; and they concentrated all the crisis generated by the drought in the fall of the reserves in the Central Bank.
Finally, there was fumata in this chapter, The IMF recognized the consequences of the drop in exports on collection, and the fiscal deficit target was recalculated, but, curiously, in favor of the country; since the level of primary imbalance between income and expenses could extend to 2% or 2.1% of GDP.
Where there was no agreement is in the crawling peg strategy defense by the Government, as a mechanism to contain the devaluation of the peso against the official dollar. Argentina had been proposing since April an idea of gradual devaluation of the official exchange rate above inflation, under the promise to the IMF that the gap with alternative dollars would gradually reduce from the general 120% in which it was located since the bullfight April exchange rate
Although it was possible to pierce the 100% barrier and place the exchange rate distance close to 95% today, for the IMF it was too little to be able to take it as a projection for the whole year. Hence the claim from Washington for a larger devaluation that will bring the official exchange rate above $310. A level of between 317 or 320 was even mentioned immediately in the negotiations, something unacceptable for an economic team that obeys Sergio Massa, the ruling party’s candidate to succeed Alberto Fernández. Hence, those envoys to Washington accept the alternative of a punctual and covert devaluation, concentrated in some imports, a measure combined with a new gradual version of the agricultural dollar.
Today will be a hectic day of discussions, crosses and eventual agreements. Vice Minister Gabriel Rubinstein, Head of Advisors Leonardo Madcur, Secretary of Finance Raul Rigo and Vice President of the Central Bank Lisandro Cleri will once again meet face to face with the Managing Director for the Western Hemisphere Rodrigo Valdés and the head of the Argentine case Luis Cubeddu . If things progress in the direction that the parties expect, it is likely that at some point this afternoon, the number two of the IMF, Gita Gopinath, will join the conclave; something that from Buenos Aires is interpreted as good news.
Source: Ambito
