The agreement that Argentina's government hopes to sign with the International Monetary Fund imminently forecasts economic growth of up to 4.5 percent this year, with inflation projected at 48 percent in 2022, according to the bill that the Casa Rosada sent to Congress on Friday.
The programme proposes a downward path for the country's primary fiscal deficit too, which is seen at 2.5 percent of GDP for this year and which would close 2024 at 0.9 percent. In addition, before December, the country would receive disbursements from the multilateral lender totalling an expected US$24 billion this year to safeguard its Central Bank reserves.
The fine print of the agreement that the government sent to Congress envisages a Extended Facilities Fund programme, expected to last two years, that will refinance remaining debt from the record US$57-billion Stand-By deal agreed by the Mauricio Macri administration in 2018.
The programme will have 10 quarterly reviews, with a first disbursement of US$ 9.8 billion due after its approval by the IMF's Executive Board.
Under the new deal, Argentina has a four-year grace period before having to begin debt payments, with the first payment set to cover the maturities due to be paid to the agency in the next three months.
After the first quarterly review, if targets are met, the government could then expect another US$4.155 million. Later, in September a new transfer is expected, while after the fourth review, due in December, another disbursement worth a further US$6.23 billion would be released.
During the remainder of the year, the Treasury would receive US$24.62 billion in total, around US$7 billion higher than Argentina needs to fork out this year.
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Debt payments then start start in 2026 and continue until 2034, with the largest maturities falling in 2027.
According to the bill's text, the Economy Ministry says a deal with reached with the Fund "without policies of austerity and with an increase in real spending in all years of the programme, allowing for a path that is passable for our country with greater predictability, certainty and vision for the future."
"As part of our balanced approach to fiscal policy, we are committed to maintaining positive real growth in spending and to improving the efficiency and progressivity of spending, in particular with regard to social assistance, science and technology and public investment," it said in a message to Congress.
Under the new deal, Argentina has committed to a primary deficit target of 2.5 percent of GDP in 2022, to be reduced to 1.9 percent of GDP in 2023, and to 0.9 percent in 2024, with a two-percent of GDP investment in public infrastructure works over the length of the agreement.
As already announced by the government, the agreement does not foresee any pension or labour reform and states that "spending on pensions and retirement will be guided by the new updating mechanism adopted at the end of 2020." The agreement also promised to finance the reduction of the fiscal deficit with public debt in pesos and loans from international lending agencies.
The programme sets economic growth targets that foresee GDP growing between 3.5 and 4.5 percent in 2022. "Growth-enhancing reforms will be critical to begin to address long-standing bottlenecks and lay the foundations for more sustainable and inclusive growth," says the bill.
Proposed policies to support economic growth will seek to stimulate "the expansion and diversification of the tradable goods sector, investment sector, investment and productivity, local and regional economic development, formal employment and labour inclusion," it adds. The government will also promote "improvements in the efficiency and sustainability of the energy sector, climate adaptation and mitigation policies, and the broader development of capital markets."
In agreement with the IMF, Argentina's government recognises that inflation "is multi-causal" and not just a purely monetary phenomenon as the previous government and the multilateral lender claimed. It notes that to reduce price increases will require "a comprehensive programme of economic policies" and a monetary policy that is "prudent and proactive."
In order to contain prices, the government argues that voluntary agreements such as the 'Precios cuidados' price control scheme will be continued "so that price increases do not exceed
price increases do not exceed two percent per month in 1,300 products representative of the mass consumption basket."
The memorandum of understanding sets inflation estimates of between 38 and 48 percent for this year, between 34 and 42 percent next year and between 29 and 37 percent by 2024. The agreement establishes "positive real interest rates, so as to strengthen the demand for assets in our currency and contribute to exchange rate and financial stability."
Argentina's Central Bank "will seek to maintain a positive effective monetary policy rate in real terms, consistent with a sustainable path for BCRA securities," the text of the agreement adds.
To determine the real interest rates, "it will take into account coincident and forward-looking inflation indicators that will be updated monthly, in communication with the IMF staff, while also taking into account other factors, such as the evolution of reserves".
It adds that this mechanism "will help ensure that, going forward, interest rates on term bank deposits remain positive in real terms, in order to support the demand for peso deposits and the development of a domestic market for government securities."