The executive board of the International Monetary Fund (IMF) on Friday cleared the release of US$10.87 billion in funds to Argentina, the latest disbursement of its US$56-billion loan agreed with the Mauricio Macri administration.
IMF staff had already given their go-ahead last month, but the executive board’s approval was still necessary. The funds, the third tranche of the stand-by agreement finalised in mid-2018, brings the total amount approved from the IMF since June 2018 to US$39 billion.
The government’s financing deal with the institution, the IMF’s largest-ever rescue package, was struck last year when the country’s peso lost half its value against the US dollar. Economic turmoil has followed in its wake, with inflation soaring to 47 percent last year and the economy contracting 2.5 percent in 2018.
In a statement, the IMF’s Managing Director Christine Lagarde said the programme is generating results and there are signs of a gradual recovery, saying the recession has bottomed out.
“The authorities’ policies that underly the Fund-supported arrangement are bearing fruit,” she said. “The high fiscal and current account deficits – two major vulnerabilities that led to the financial crisis last year – are falling.”
Amid a steep economic downturn, lawmakers in November approved an austerity budget for 2019 that aims to cut the primary deficit before debt payments to zero, down from 2.6 percent of GDP in 2018.
In her statement, Lagarde called on the Argentine authorities to exercise “continued prudence in the execution of spending plans and further steps to strengthen revenues” in order to reach the goal of bringing the fiscal position to a primary balance this year.
“Economic activity contracted in 2018 but there are signs that the recession has bottomed out, and a gradual recovery is expected to take hold in the coming quarters. Inflation however remains high” she added.
IMPROVED FORECAST
The IMF’s third review, released later in the day, indicated that the Fund now believes Argentina’s economy will contract by 1.2 percent this year, an improvement from January’s prediction of 1.7 percent. Its experts also said inflation would rise to 30.5 percent.
The Fund has regularly indicated its support for the Mauricio Macri administration and the review document declared that October’s election – in which the president will seek re-election, most likely against a raft of competitors who will include former president Cristina Fernández de Kirchner – was the “most visible near-term risk” which could spark anxiety in the markets.
In an acknowledgement of the economic difficulties facing Argentina, Lagarde also said more work is needed to address remaining gaps in the social safety net “to make social programmes more effective in reducing poverty.”
Data released last month by the INDEC national statistics bureau indicated that poverty in the second half of 2018 rose to 32 percent, with all sectors of society losing purchasingpower as runaway inflation outstrips wage increases.
“Protecting the most vulnerable from the impact of the recession and from high inflation remains a key priority. The authorities have taken a series of actions to improve the coverage of the social safety net and to provide greater resources to the poor. Continued work will be needed to address the remaining gaps in coverage,” said Lagarde.
WAIVER REQUEST
Earlier this week, the government requested a waiver from the IMF ahead of its next scheduled review, saying some data would not be available in time.
The matter was “simply a question of availability of certain data” that needs to be submitted for the review, sources from the Treasury Ministry said.
“Such information cannot be released in time for the board meeting because the March fiscal data will be published in mid-April,” they added.
An IMF spokeswoman said the waiver request was because some data for March was not available, and that a similar issue had occurred with the first review.
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