“The Argentine Republic understands that the program failed because it failed to meet any of the following four objectives outlined in the agreement: restore market confidence; protect the most vulnerable in society; strengthen the framework to reduce inflation; and progressively , reduce tensions in the balance of payments “, the text begins.
In this sense, they pointed out that the country’s external fragility was neglected, minimizing the risks of capital account liberalization; there was a wrong vision on the phenomenon of inflation and monetary policy; emphasis was placed on fiscal contraction in a recessive context; He was optimistic in believing that the program would help regain the confidence of the markets, but this did not happen; The effects of structural reforms were overstated and their risks were minimized.
Meanwhile, they considered that “The reforms must be aimed at achieving job creation through inclusive and sustainable economic growth.”
They also evaluated that the Stand-By Agreement “It was built on a paradigm that fundamentally hindered the achievement of its main objectives, based on a set of premises and assumptions that did not apply to the case of Argentina.”
For the national government, one of the main reasons for failure was the neglect of external fragility. “The design of the SBA2018 minimized and ruled out the risks of capital account liberalization and the justification for imposing regulations on capital flows. Capital account liberalization favored the massive inflow of short-term speculative capital in 2016- 2017, leaving the economy extremely vulnerable to the event of a sudden brake, which effectively materialized in 2018, “they indicated.
In addition, they criticized the narrow view on inflation and monetary policy. The Stand-By Agreement “was based on the conception that inflation is a purely monetary phenomenon and that it should be stopped only with monetary instruments, without taking into account the country’s price dynamics and the fact that inflation in Argentina it has a marked inertial component. “
They also held the inattention to the pro-cyclical effects of fiscal consolidation. “The assumptions of the SBA2018 put an unjustified emphasis on fiscal contraction in a recessive context. The fiscal and monetary contraction was supposed to restore confidence, but instead reduced aggregate demand and forced many indebted companies into bankruptcy, undermining social conditions and increasing uncertainty, while these effects were aggravated by the contractionary effects of depreciation and the acceleration of inflation, “they explained.
Meanwhile, they evaluated that the excess of optimism and the limits of the “catalytic vision” did not allow “to regain the confidence of the financial markets. The conviction that the ‘catalytic approach’ was reliable when facing a capital account crisis like the one Argentina was facing did not take into account, on the one hand, the circumstances particular that the country faced (with a debt of doubtful sustainability and a high exchange risk), and on the other, the endogenous effect that the agreement itself could generate on the confidence of the investors “.
“While it is true that some structural reforms They could have certain positive effects, the general benefits of the structural reforms that our country undertook in the past were oversized and their risks minimized. According to our vision, the reforms should be aimed at achieving job creation through inclusive and sustainable economic growth, “they continued.
To close, they highlighted the few progress in governance and gender equity, “Flags that were raised with the political objective of generating consensus, while in practice they did not achieve concrete progress.”
Given this analysis, the Government concluded that the IMF must investigate whether it breached its own statutes. “An exhaustive evaluation of the policy recommendations of the SBA2018 and the non-conflict with the IMF mandates is necessary to ensure the proper functioning of the institution,” they analyzed.
In addition, they demanded the no political use of IMF programs. “Both defenders and detractors of the SBA2018 have suggested that, ultimately, it was pursuing political motives, the main objective being to avoid a much-needed debt restructuring operation and the reintroduction of capital controls at all costs,” they sentenced.
Finally, they asked to give a adequate definition to the concept of “ownership”. “Attention must focus on defending a more demanding notion of ownership, which includes support for the program of Congress, civil society, unions, political parties, and society in general,” they explained.
“Looking ahead, the Government considers that the basis for moving towards long-term sustainable growth in Argentina must include gradual fiscal consolidation, based on the growth of economic activity, which will be more robust if it has the support of the international community. It will also be necessary meet the inflation challenge, understanding it as a multi-causal problem that cannot be addressed solely by monetary policy. To achieve all this, it is necessary to carry out policies that improve the performance of Argentina’s tradable sector and strengthen the capital market in domestic currency “they concluded.
Source From: Ambito
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