Economy Minister Silvina Batakis said Monday that Argentina will honour the fiscal deficit goals and other commitments made under a deal struck with the International Monetary Fund to refinance the country’s US$44.5-billion debt.
Under the agreement negotiated by Batakis' predecessor Martín Guzmán – who dramatically resigned suddenly nine days ago – Argentina committed to reducing its fiscal deficit from 3.0 percent of GDP last year to 2.5 percent in 2022, 1.9 percent in 2023 and 0.9 percent in 2024.
"The goals agreed with the IMF are maintained," Batakis said at a press conference in Buenos Aires, her first since taking office a week ago. "It is an agreement we signed as a state and we must comply."
The minister vowed to balance fiscal accounts, promote positive real interest rates and move to reduce energy subsidies in the coming months in order to comply with the IMF deal. She also said the government would implement a hiring freeze on government jobs, introduce new instruments to stabilise the exchange rate and continue to regulate the prices of products listed on the Precios Cuidados price-controls scheme.
Argentina will also set up a committee to monitor local debt and has restarted talks with the Paris Club group of wealthy nations, the minister said.
In 2018, under the government of former president Mauricio Macri, the International Monetary Fund granted its biggest-ever loan of US$57 billion to Argentina. The country received US$44.5 billion of that amount and Macri's successor Alberto Fernández refused to accept the rest. As the country struggled to repay its debt, a refinancing agreement was reached this year after protracted negotiations.
Guzmán resigned suddenly on July 2 amid a power struggle between Fernández and his vice-president, former president Cristina Fernández de Kirchner, sparking fresh uncertainty for Argentina's troubled economy.
The peso fell sharply last Monday against the US dollar in parallel exchange markets after Batakis' appointment.
On Monday, the 53-year-old said there was a need to "give order and balance to the public finances" and vowed that "we will not spend more than we have."
Among her proposals: continuing with Guzmán’s plan to reduce energy subsidies, which in 2021 amounted to US$11 billion or 2.3 percent of GDP, by applying a sliding scale to prices for gas and electricity based on income.
In 2020, the economy contracted 9.9 percent before rebounding the following year by 10.3 percent. For this year, the IMF predicts growth of four percent.
At the time the refinancing agreement was reached, Argentina’s inflation was projected to surpass 50 percent in 2022 – already one of the highest in the world. Since then, the war in Ukraine has sent prices soaring worldwide, and Argentina has recorded year-on-year inflation of 60 percent in May.
The most recent Central Bank survey of market projections for 2022 inflation put the rate at some 76 percent.
Batakis declined to give a forecast for year-end inflation and said the country is affected by the general instability of the global economy.
"The agreement was signed before the rise in global inflation," said Batakis, adding a new estimate for 2022 was being compiled. "It is a methodological issue we are evaluating, not a shifting of the goal.”
"We are working with businessmen and traders on inflation expectations. We are in a totally different situation now to when inflation projections were made," said Batakis on Monday.
Key quotes
‘Fiscal balance’ – "We are going to guarantee fiscal balance," was Batakis’ first definition. "I believe in the solvency of the state as a promoter of economic activity. We need a certain order and balance in finances. The measures have to do with guaranteeing fiscal balance. We have to return to the path of balance," she said. The minister also explained that the monthly budget quotas granted by public administration to allocate its spending will be "in accordance" with real cash projection. "We are not going to spend more than we have," she declared.
IMF – Batakis guaranteed that the targets outlined in the IMF deal agreed by Guzmán would be maintained. "We understand that it is an agreement that we signed as a state and we have to comply with it," he said.
Austerity – The minister announced greater fiscal austerity in all public sector bodies, which from now on will have to take into account efficient budget management. To this end, Article 8 of the Financial Administration Act will be amended: "All agencies must be aligned with good financial practices.”
Public-sector jobs – "The implementation of the freeze on the hiring of personnel that we have in force today will be extended to all state bodies," she announced.
Interest rates – The minister confirmed that there will be a tendency to have "positive real interest rates," so that savers in pesos do not lose out to inflation. "We are going to move towards positive rates and we are also going to offer other types of instruments, so that [citizens] can invest in the State, safeguarding exchange rate movements," she declared.
Real-estate – As Batakis did during her spell as economy minister for the Buenos Aires Province government, the official intends to move the tax body in charge of real-estate valuations to within the Economy Minsitry, in order to improve revenue collection without increasing tax rates.
Subsidies – Batakis announced that applications related to the resegmentation of public utility subsidies would be available from this Friday. Each user will have to register in order not to lose existing subsidies for gas and electricity tariffs, provided they qualify. With this move, Batakis ratified Guzmán;s model and refuted criticism from energy officials who answer to Vice-President Cristina Fermández de Kirchner.
Debt – Batakis announced the creation of an advisory committee "to evaluate and make proposals on sovereign debt in pesos."
– TIMES/AFP/NA
Comments