JAKARTA (TheInsiderStories) – International Monetary Fund (IMF) and Argentina have reached an agreement on the third review of economic programs supported by Stand-by Arrangements (SBA), said the official statement on Monday (03/18). With that, in the coming weeks, Argentina will have access to around US$10.87 billion (equivalent to SDR7.8 billion).
In August 2018, the Argentine government has also borrowed funds from the IMF of $50 billion amid its financial crisis. According to Chief in the IMF’ Western Hemisphere Department Roberto Cardarelli, high fiscal deficits and external costs, which have occurred since the 2018 financial crisis have struck the heart of Argentina’s balance sheet in recent years. These two imbalances are in the midst of a significant correction.
“We commend the efforts of government policies and a strong determination to overcome macro-economic imbalances and advance their economic stabilization plans,” he said in a written statement.
However, Cardarelli revealed, there would be good prospects for a gradual economic recovery.
“Monthly inflation remains high and breaking inflation inertia will be a long process that will require perseverance and consistency in the central bank’ careful approach to targeting the monetary base,” he said.
Therefore, according to him, the IMF welcomed the decision of the authorities to extend zero base money growth until November and to reduce the rate of increasing the edge of the non-intervention zone. This tightening of the monetary framework will contribute to reducing inflation and re-anchoring inflation expectations.
“Authorities have met their 2018 primary deficit target, showing their determination to eliminate vulnerabilities associated with Argentina’s fiscal imbalances. Reaching zero primary deficits by 2019 will require further control of government spending,” he said.
Cardarelli added, such efforts would put Argentina’ debt-to-GDP reduction pathway. In addition, it is also important that high-impact social expenditure programs are maintained during this year and beyond.
“We strongly support the efforts of the authorities to reduce the social impact of stabilization policies needed, including through the recent increase in social spending (which will be accommodated with the program through increasing adjustments to social assistance spending from 0.2 to 0.3 percent from GDP),” said Cardarelli.
In addition, the IMF also supports the government’ plan to conduct a daily, transparent foreign exchange (FX) auction that was previously announced ($60 million per day starting mid-April) to meet the federal government’s fiscal expenditure requirements of $9.6 billion.
“As far as currencies are more valued than the central bank’s non-intervention zone, sales will be made directly to the central bank in amounts consistent with the FX sterilization policies that have not been sterilized. The authorities’ strategy will allow the IMF’s budget support to be used smoothly,” he added.
Cardarelli stressed that the continuous implementation of the Argentine‘ government stabilization plan remains important to strengthen Argentina’s return to macroeconomic stability, to reduce inflation, and to lay the foundation for strong, fair and sustainable growth.
“A new push for supply-side reform will also be needed to consolidate the profits made by the government and to ensure a sustainable increase in living standards for all Argentine citizens,” Cardalli explained.
As we know, Argentina’ economy experienced a number of economic and financial crises over the years, including the 2001 crisis, which was due to its severity compared to the United States Great Depression.
IMF began its mission to assist local authorities in September 2016 for the first economic assessment since 2006 (known as Article IV consultation). From the discussion, the IMF found its authority involved in an ambitious transition towards a more stable and sustainable economy, which could minimize future risks of extreme fluctuations in the country’s economic landscape.
In his mission to Argentina during Feb. 11-22, Cardarelli has spoken with all government authorities, central banks, the private sector and the civil society on the Third Review of IMF-supported Argentina programs under SBA. The discussion continues in Washington DC after the mission ends.
US$1 = SDR0.717402
Written by Daniel Deha, Email: firstname.lastname@example.org