JAKARTA (TheInsiderStories) – International Monetary Fund (IMF) called that Argentina’ public debt was sustainable, but not with high probability, given substantial downside risks. The assessment made it after the team led by Julie Kozack and Luis Cubeddu visited Buenos Aires from since last week until Feb. 19.
According the officials in the meeting with economy minister, Martin Guzmán, the Argentine authorities are moving to address the difficult economic and social situation facing the country. The country also have implemented a set of policies to address the rise in poverty and taking steps to stabilize the economy.
Argentina has implemented the higher taxes to increased social spending and supported by capital controls, a trade surplus, international reserves and stabilizing the Peso. Inflation and the expectations have come down in recent months, but efforts are needed to reduce them further from current high levels, said the team. The authorities are also taking steps to secure a sustainable and orderly resolution of Argentina’ debt situation.
According to an official data, since July 2019, the Peso has depreciated by over 40 percent, sovereign spreads have increased by about 1,100 basis points, international reserves have declined by about U$20 billion, and real GDP has contracted more than previously projected.
As a result, gross public debt rose to nearly 90 percent of GDP at end-2019, 13 percentage points higher than the projection at the time of the Fourth Review. In addition, with the realization of the identified financing risks, since August 2019 the authorities have introduced capital flow management measures, imposed maturity extensions on certain debts, and resorted to central bank financing of the fiscal deficit.
“IMF now assesses Argentina’s debt to be unsustainable. The primary surplus that would be needed to reduce public debt and gross financing needs to levels consistent with manageable rollover risk and satisfactory potential growth is not economically nor politically feasible,” said the IMF.
Accordingly, a definitive debt operation—yielding a meaningful contribution from private creditors—is required to help restore debt sustainability with high probability. IMF emphasized the importance of continuing a collaborative process of engagement with private creditors to maximize their participation in the debt operation.
“In the context of the upcoming G20 Finance Ministers meeting, IMF Managing Director Kristalina Georgieva will meet with Mr. Guzmán to discuss the next steps in the IMF’ engagement with Argentina,” the statement said.
Yesterday, Argentina‘ central bank has lowered the benchmark interest rate to 40 percent from 44 percent, the seventh cut since the country’ new Alberto Fernández’ government took over in December. The bank said the cut was based on a slowdown in inflation and that the move was aimed at helping revive economic growth and to avoid defaulting on its debts.
In March 2019 IMF and Argentina have reached an agreement on the third review of economic programs supported by Stand-by Arrangements around US$10.87 billion. In August 2018, the Argentine government has also borrowed funds from the IMF of $50 billion amid its financial crisis.
According IMF, high fiscal deficits and external costs, which have occurred since the 2018 financial crisis have struck the heart of Argentina’ balance sheet in recent years. These two imbalances are in the midst of a significant correction.
Therefore, the IMF welcomed the decision of the authorities to extend zero base money growth until November 2019 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,” it said.
Such efforts, the IMF stated, 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.
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’ economic landscape.
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