The International Monetary Fund (IMF) announced Monday that it had reached a staff-level agreement with Argentina’s government over the fourth review of the country’s multi-billion-dollar aid package and indicated that the deal’s economic targets will be adjusted.
The decision, which is subject to approval by the multilateral lender’s executive board, paves the way for a crucial disbursement of around US$5.3 billion, most likely in the coming week.
In a statement confirming the news, the IMF indicated that targets outlined in the US$44.5-billion aid programme agreed last March 25 would likely be altered in response to the economic challenges facing Argentina.It warned, however, that "temporary administrative measures should not be a substitute for sound economic policy.”
The review, the fourth since the revised deal was signed last year, focused on assessing progress and reaching “understandings on a strong policy package to durably address macroeconomic imbalances while limiting future vulnerabilities” of Argentina’s economy, said the IMF.
"Prudent macroeconomic management in the second half of 2022 supported stability and helped secure programme targets through end-2022 with some margin," said the Fund.
The agreement "is subject to approval by the IMF's executive board, which is expected to meet in the coming weeks" and "once the review is completed, Argentina will have access to about US$5.3 billion," it added.
In a joint statement quoted in the communiqué, Luis Cubeddu, the department's deputy director for the Americas, and Ashvin Ahuja, mission chief for Argentina, confirmed that “all quantitative performance criteria through end-December 2022 were met with some margin.”
President Alberto Fernández’s government has committed to increasing its international reserves and reducing the fiscal deficit from three percent of GDP in 2021 to 2.5 percent in 2022, 1.9 percent in 2023 and 0.9 percent in 2024.
In 2022, Argentina’s deficit was 2.3 percent of GDP and net international reserves increased by US$5.4 billion, above the target agreed with the IMF of US$5 billion.
But the Fund’s officials warn that "against the challenges of an increasingly severe drought, a stronger policy package is necessary to safeguard macroeconomic stability” and “address rising inflation,” which reached 95 percent last year.
Highlighting “recent policy setbacks,” the IMF warned that policies “firmly and consistently implemented” to ensure “underlying programme objectives” are met.
“While stronger macroeconomic policies and efforts to mobilise financing are expected to enhance reserve coverage and reverse recent reserve losses, a modification of the 2023 net international reserve accumulation target is being requested," confirmed the Fund.
"This will partially accommodate the impact of the increasingly severe drought, while also taking into account the offsetting effects from lower energy import prices and the agreed policy measures."
The IMF said that the "bulk" of the "accommodation" is requested to take place in early 2023, consistent with the front-loaded impact of the drought."
Agreements with Argentina
Detailing some of the talks undertaken as part of the quarterly review, the multilateral lender went on to confirm that agreements had been reached with Economy Ministry officials on “fiscal, monetary,” exchange rate and financing policies.
For the former, Fernández’s government committed to “continued expenditure controls, “improved targeting of energy subsidies and social assistance” and to “protecting priority social and infrastructure spending.”
As such, Argentina will continue implementing a new segmentation scheme to eliminate energy subsidies for the well-off from May onwards and for commercial users by the end of 2023.
“Early and resolute actions will be taken to sustainably address the fiscal costs of the unforeseen approval of the pension moratorium to secure fiscal targets for this year and beyond,” the Fund added.
In addition, the government made a commitment on the “timely rationalisation of FX policy” and “not to use international reserves or issue short-term external debt instruments to intervene in the parallel FX markets.”
On financing, Cubeddu and Ahuja praised the government’s “proactive market-based domestic debt management strategy,” which is said is being “cautiously implemented and well communicated.”
Kind words were also reserved for the effort to mobilise “official financing from multilateral and bilateral sources,” notably via new bilateral debt restructuring agreements reached with the Paris Club group of wealthy creditors.
“We thank the Argentinean authorities for their ongoing open and constructive discussions and welcome their continued commitment to tackle macroeconomic imbalances, and safeguard stability,” the Fund concluded.