Argentina to change IMF net reserve target for third time

Argentine officials intend to lower a key target in the country’s US$44-billion agreement with the International Monetary Fund as a severe drought weakens the economic outlook, according to a government official.

Both sides are discussing a smaller figure for net reserve accumulation in 2023, a cornerstone of the deal seen as the only major anchor providing some stability to the economy. Negotiators have met in Buenos Aires and Washington in recent weeks for the fourth review of the programme.

A staff-level agreement may be announced as soon as February 27, according to the official, who asked not to be identified as talks are ongoing. The official expects the IMF executive board to vote on the fourth review of the programme around March 22, which would disburse approximately US$5.4 billion to the government to repay previous debts owed to the IMF.

Argentina’s fiscal and monetary targets under the programme are expected to remain unchanged, according to the official.

In a statement Saturday, Economy Minister Sergio Massa didn’t mention any specific changes, but stressed the need to be “realistic,” adding that the war in Ukraine and a drought are affecting the programme. Argentina expects its worst soy crop since 2009 due to the drought, impacting the country’s essential commodity exports that provide much-needed dollars.

“The objective is to be realistic and predictable so that the programme is a true orienter and not a piece of paper that’s never complied with,” Massa said. “The war and the drought play a key role in our economy and it’s better confronting this with achievable objectives so that we’re not running behind every quarter.”

An IMF spokeswoman said Argentine authorities and IMF staff were discussing the fourth programme review, and would make the outcome of the discussions known in due course. Massa met with IMF Managing Director Kristalina Georgieva in India at the G20 summit.

Reuters first reported that Argentina would lower its net reserve targets under the IMF programme.

Net reserves, or the liquid cash held by the Central Bank, are an essential part of the agreement to help prevent an abrupt devaluation of the peso and gradually cool inflation. Net reserves stand at about US$4.2 billion, according to Buenos Aires-based consulting firm FMyA. By the end of March, the government would need to add another US$3.3 billion to reach the current quarterly target.

In total, the government has to accumulate US$4.8 billion of reserves this year to comply with the current targets. Argentina met the previous target of US$5 billion, after it was revised down from the US$5.8 billion set in March and US$5.4 billion in the first review.