The country met the goals for all of 2022 despite the challenging context derived from the war in Eastern Europe. The review of the goals for the first quarter of 2023 that were not met due to the profound macro impact of the drought is currently under discussion.
In this sense, the country suffers a estimated loss of US$20,000 million of exports due to the lower harvest and a tax loss of more than 1% of GDP, directly due to lower export duties and other taxes and indirectly due to the drop in associated economic activity.
In March of this year the IMF did an insufficient recalibration of the reserve target of only US$2,000 million and refused to relax the target of fiscal deficit and monetary associated with the financing of this greater deficit, caused by the natural disaster.
The increase in said deficit was caused by the drop in collection. Argentina made a deep effort to reduce real public spending of the order of 10.3% in the first half of 2023, which complements the 7.4% drop in real spending in 2022. No one can argue that this higher deficit is due to No spending spree, subsidies were lowered and only infrastructure spending needed for sustainable growth increased, which included a gas pipeline that will provide huge foreign exchange savings.
In a election year and with an exogenous context of lower global growthIn a world affected by the pandemic, war and post-pandemic contractionary policies, it is not reasonable to ask the country for a greater fiscal adjustment. Neither can greater reserves be required given the shock that occurred in the trade balance.
A devaluation In this context and given the high degree of dollarization in Argentina, it would not solve the external sector deficit either, because in the short term exports would not increase and it would feed an already high inflation, given the high “pass through”.
The discussion of modifications in the exchange rate policy, within the framework of a comprehensive economic plan to reduce inflation and resolve the external restriction, can only be carried out within the framework of a new government with renewed power legitimized at the polls and, if possible, with minimal consensus between the two majority forces, which in this context is a chimera. Nor is it sensible to ask for a devaluation and at the same time propose a drop in the inflation rate.
Reduction in inflation that must address its various multi-causal explanations. Let us remember that, with full monetary and fiscal orthodoxy, Argentina doubled from 25% to almost 50% the inflation rate from 2017 to 2019.
In addition to the exchange question, there is the question of the distributive bid. In Argentina, where so much emphasis is placed on the salary dimension, one factor of the explanation, in addition to macro imbalances, inflationary inertia and exchange expectations, are the higher margins of some business sectors, as recognized in the IMF paper prepared by three economists Hansen, Toscani and Zhou for the European case, where it is concluded that “the increase in corporate profits explain almost half of the increase in inflation in the last two years”. Something critical that cannot be resolved in a few months of an outgoing government either.
If the evaluation of the staff corresponded to another country, the review would already have finished and it would have been given waiver by the goals, by the occurrence of an exogenous phenomenon. The IMF must ensure that it finances imbalances in the external sector according to its Constitutive Agreement and we are facing a very clear case where the Agency must act by carrying out the compensatory financing imposed by its regulations.
Due to a “liquidity” problem, the country needs a financial bridge to cross 2023 ruined by drought and with the expected greater exchange rate pressure typical of the second semester of a year with presidential elections, as has occurred in recent decades with governments of different political persuasions.
In 2024 and beyond, the end of the drought and the construction of the NK pipeline In addition to other ongoing initiatives, they will make it possible to revert the energy trade deficit to a surplus from 2025, with a trade balance higher than US$25 billion by 2024, which reinforces the reasonableness of raising the exchange rate issue in another structural political and economic scenario.
If the IMF staff does not approve the review this week, in a process that takes no less than 2 weeks, the Board will not have time to approve the disbursements for the first quarter during July. Argentina, negotiating in good faith, paid the June maturities, using yuan in a proportion of the total, an important fact in a context of global economic hegemonic competition between the US and China. The timing and the way to pay the July maturities is a strategic decision that must be considered given the progress of the negotiations and the economic impacts of the different possible options. It should be noted that the Agency enters its summer vacation in August and this would delay the payment of disbursements to the month of September.
The reasonableness of the Argentine position was endorsed by the presidents of the region, it is shared by numerous countries of Europe and a group of emerging countries, in addition to China. The position of the United States as the main shareholder of the IMF will be key, which should be reasonably interested in taking care of permanent interests that include the stability of Argentina, other countries in the region, and private actors with strong economic, productive ties. and commercial, with our country, including other creditors. An irresponsible attitude would be the third case of malpractice after the shady attitude of the Fund in 2001 that deserved a lapidary report from the Independent Evaluation Office and the one in 2018 when it mega-financed a plan that its staff defined as highly unsustainable. It is to be expected that the IMF acts responsibly and promptly in a context that requires it from all the parties involved.
Surely the negotiation will come to fruition, as indicated by the imminent trip of the Argentine delegation. But in a negotiation you have to consider all the options and the Minister of Economy is characterized by understanding the contexts and knowing how to play his cards well with the STEP one month ahead.
Source: Ambito
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