It should be remembered that on May 13, through a statement signed by the deputy director of the Department of the Western Hemisphere, Luis Cubeddu; and the head of the Mission for Argentina, Ashvin Ahuja of the Monetary Fund’s technical team pointed out that: “despite the inherited economic and social situation, the firm implementation of the stabilization plan by the Argentine Government allowed the program to be firmly reestablished.” Likewise, he highlighted that it was possible to achievethe first quarterly fiscal surplus in 16 years, the rapid fall in inflation, the change in the trend of international reserves and a strong reduction in sovereign risk.”
The organization expressedthat the results were “better than expected – all performance criteria – were over met.”
This Thursday it was surprising that the organization’s spokesperson, Julie Kozackdid not give precision regarding when the Board meeting would take place, “we hope that the Board of Directors meeting will take place soon. And as usual, after the board meeting we will publish a press release and also the staff report”, despite the fact that it has been almost a month since the eighth technical review was completed.
After highlighting the authorities’ commitment to the program and pointing out that the goals “They were met with wide margins.” However, unlike the previous press conference, when his statements had a more positive tone, this time Kozack warned: “However, the path ahead for Argentina remains challenging, and building on these early achievements means that policies will have to evolve in areas we have already discussed.
I am going to detail the topics by numbering them:
- “The first, Just to reiterate, there is a need to improve the quality of fiscal consolidation to ensure its durability and equity, while protecting the most vulnerable.”
- “The second “is that monetary and exchange rate policy will need to evolve to anchor inflation and safeguard further improvements in reserve accumulation and coverage, while containing any market pressure.”
- “Third is that it will be necessary to give greater priority to micro-level reforms that can unlock entry barriers, promote formal employment in the country and attract private investment. Furthermore, and as we have said many times in the past, it remains essential to work to expand political support for macroeconomic stabilization and reform.
The spokesperson emphasized that “as we have said many times in the past” it remains “It is essential to work to expand political support for macroeconomic stabilization and reform”. Which made it stand out with “satisfaction with the approval in the Lower House of the (Bases Law)” and also rescue“We welcome the upcoming consideration in the Senate following approval by the relevant Senate committees last week.”
But the positive assessment was short-lived since immediately afterwards he again insisted that the Fund continues “monitoring Argentina’s delicate social situation and have been emphasizing the need to increase social assistance to support the poor, ensuring that the burden of adjustment does not fall disproportionately on working families,” although without making any reference to the problems raised in the Ministry of Human Capital.
If I stand out “the efforts of the authorities to boost assistance within the framework of the child allowance program (AUH), as well as to improve the governance and targeting of social programs” and then request the government to be “an additional calibration is necessary based on the evolution of social and poverty indicators”. It is worth remembering that poverty recently increased to 55.5% of the population in the first quarter of 2024 and indigence reached 17.5%, according to the Social Debt Observatory of the Argentine Catholic University (UCA).
Ámbito asked how the IMF evaluated Congress’ approval regarding the improvement of retirement benefits and Kozack indicated: “it is important to protect the real value of pensions” and acknowledged that actions were taken in this regard. But, he warned that ““It is equally important that any new initiative to strengthen the sustainability of the pension system also preserves the fiscal objectives of the program.”
Finally, regarding the negotiations on a new agreement there was no concrete data, although, as usual, the fluid dialogue with the authorities stood out.
Background
The Government is coming fulfilling – in spades – the goals committed to the IMF. On May 13, the organization reported that its technical staff and the Argentine authorities reached an agreement on the eighth review within the framework of the current program. This understanding is subject to approval by the Fund’s executive board, which has not yet met. It is assumed that there will be approval and, subsequently, the country will receive a disbursement of US$800 million..
The Fund recognizes that the results achieved by the Ministry of Economy are “better than expected”. In particular, he highlighted the surplus in the Treasury accounts and the reduction in inflation.
However, the organization also understands “it is necessary that efforts continue to be made to “improve the quality and equity of fiscal consolidation, refine monetary and exchange rate policy frameworks, as well as address bottlenecks for growth.”.
In fiscal matters, the government has reiterated that it will strictly maintain its policy and, in this sense, it has already announced that the May numbers were good and that, In the first half of the year, the Treasury will achieve a surplus both primary and financial, that is, after paying the interest on the debt.
Regarding exchange rate policy, the understanding with the Fund contemplates that the priority continues to be strengthening the disinflation process and strengthening international reserves and the balance sheet of the Central Bank.
In the Fund’s latest statement on Argentina, it is noted that “in the transition to a new monetary regime (which involves currency competition), monetary policy will evolve to continue anchoring inflation expectations and exchange rate policy will become more flexible. while exchange restrictions and controls will continue to be reduced as conditions allow.”
Last Wednesday, in a speech at the Latam Economic ForumPresident Javier Milei He referred to the improvements that are being achieved in monetary matters. He specified that the ratio of remunerated liabilities on a monetary basis is currently 1.2 times, “almost one third of the problem we inherited”, thereby closing a monetary emission channel that creates inflationary problems.
The head of state maintained that, against a monetary base of 15 billion pesos, the paid liabilities reach 18 billion, but of this figure 12 billion are in the hands of the public sector, “with which only 6 billion remain to be cleaned.” billions. I mean, We are there, to end the problem of paid liabilities.”
Milei announced that once this problem is over “we are going to go after the puts problem, which we have on track.” These are instruments granted by the Central Bank to banks that subscribe to Treasury papers in the debt tenders carried out by the Executive with the purpose of providing insurance to those who purchase public debt.
For Milei “The puts are a mess, which the previous Government did, with the endorsement of the International Monetary Fund to finance the deficit in a covert way and that did not violate the goals. And the banks, instead of financing them to the Treasury, preferred to put it within the Central Bank.” After reiterating that work is being done to solve the issue, he announced that “When we solve that problem… bye stocks” exchange.
In this way, the Government reiterates its commitment to clean up the Central Bank’s balance sheet and move towards greater exchange rate flexibility, although both the president and the Minister of Economy, Luis Caputo, They indicated that they will take the necessary time to not take risks in dismantling the restrictions.
Source: Ambito
