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ECONOMY | 13-04-2023 18:09

‘Severe drought harming Argentina’s population,’ admits IMF chief

Brazil’s President Lula claims International Monetary Fund is choking Argentina’s economy as it struggles to comply with its US$44-billion programme.

The International Monetary Fund has acknowledged the dramatic impact of drought on Argentina’s economy and its outlook, conceding that it has “significantly harmed the country’s population.”

"Argentina has been affected by a severe drought, which has undermined the performance of the economy and significantly harmed the country's population. This has complicated the job of policymakers,” IMF Managing Director Kristalina Georgieva said at a press conference in Washington DC on Thursday. 

The remark comes just days after a new IMF report trimmed its 2023 growth forecast for Argentina from two percent to just 0.2 percent.

"We have studied the repercussions of this shock, and we have partially taken this into account in the modification of the international reserves target,” Georgieva explained. 

The IMF has eased Argentina’s net reserves accumulation target for the year from US$9.8 billion to US$8 billion, a positive shift for the country’s high-risk US$44.5-billion debt deal signed last March. 

Net reserves, or the stockpile of cash at the Central Bank, are seen as crucial to preventing a major currency devaluation.

Many analysts are sceptical, however, that the country will meet the revised goal.

“We recognise that there is a commitment on the part of the government to continue adjusting policies in light of the conditions they face, and we will follow their actions closely to see if they are successful. Implementation will continue to be crucial to the success of the programme, even in these challenging circumstances,” Georgie declared. 

In an interview with El País the preceding day, Gita Gopinath, the Fund’s deputy managing director, said the agricultural dry spell was “a fundamental change” to Argentina’s outlook and “a huge shock to the system.” 

“At the same time, there have been policy setbacks,” she explained, in reference to the reduced international reserve target. 

“All of this requires confidence that there will be sufficient reserves and that fiscal policy will remain consistent with reducing inflation, which requires strong measures on the spending side to contain fiscal spending. It also requires that spending be well targeted,” Gopinath continued, citing energy subsidies as a pertinent example. 

“Taking into account that the economic situation is very fragile in Argentina, the programme must serve as an anchor to be able to reduce inflation, even if it is at a slow pace,” Gopinath concluded.

 

Asphyxiation?

On Thursday, Brazil's President Luiz Inácio Lula da Silva voiced criticism of the IMF, accusing it of “choking” Argentina with its debt programme.

“A bank shouldn't choke national economies, like the International Monetary Fund is doing in Argentina,” Lula stated on Thursday at the swearing-in-ceremony of Dilma Rousseff as the president of the BRICS’ New Development Bank in Shanghai. 

President Alberto Fernández responded to Lula’s claims as he inaugurated a trade show at the Kirchner Cultural Center this Thursday.

“I told the Fund a thousand times. They are not going to suffocate us, we cannot let them suffocate us, especially when we are living what we are living today,” declared the Peronist leader. 

“We are going to do everything necessary to get through this very difficult year without taking from anyone what they have the right to have,” Fernández assured those gathered. 

Asked about Lula’s remarks at a press briefing in Washington DC, Nigel Chalk, the Fund’s acting director for the Western Hemisphere Department, claimed that the “Fund is always here to support the authorities in their effort.” 

 

Economic outlook

In its World Economic Outlook (WEO) report, published Tuesday, the IMF lowered its outlook for global GDP, while predicting that most countries will avoid a recession this year despite economic and geopolitical concerns. 

The Fund’s updated 0.2 percent growth estimate for Argentina – a significant drop from a two percent growth forecast issued last October – echoes pessimism from other international bodies.

Recognising the impact of the drought, the World Bank earlier this month predicted zero growth for the country in 2023. The institution expects Argentina’s economy to grow two percent in 2024, a figure with which the IMF concurs.

However, the latest Central Bank survey of market analysts and economists forecasts a contraction of 2.7 percent of GDP this year, with an inflation rate of 110 percent.

The IMF forecast Tuesday that Argentina’s inflation rate for 2023 will be 88 percent for the calendar year (December 2022 to December 2023) – a jump from its previous estimate of 60 percent. Consumer prices will increase 98.6 percent, said the Fund.

Only Venezuela (with a projected annual inflation of 250 percent) and Zimbabwe (with 181 percent) surpass Argentina in the IMF’s forecasted ranking.

Argentina’s economy grew 5.2 percent last year.

 

Asphyxiating? 

On Thursday, Brazil's President Luiz Inácio Lula da Silva voiced criticism of the IMF, accusing it of “choking” Argentina with its debt programme.

“A bank shouldn't choke national economies, like the International Monetary Fund is doing in Argentina,” Lula stated on Thursday at the swearing-in-ceremony of Dilma Rousseff as the president of the BRICS’ New Development Bank in Shanghai. 

President Alberto Fernández responded to Lula’s claims as he inaugurated a trade show at the Kirchner Cultural Center this Thursday.

“I told the Fund a thousand times. They are not going to suffocate us, we cannot let them suffocate us, especially when we are living what we are living today,” declared the Peronist leader. 

“We are going to do everything necessary to get through this very difficult year without taking from anyone what they have the right to have,” Fernández assured those gathered. 

Asked about Lula’s remarks at a press briefing in Washington DC, Nigel Chalk, the Fund’s acting director for the Western Hemisphere Department, claimed that the “Fund is always here to support the authorities in their effort.”

 

– TIMES/AFP/NA

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