The International Monetary Fund published this Thursday the technical report (staff report) on the seventh review of the program that the organization's executive board approved on Wednesday, with a
detailed description of the economic commitments made by Javier Milei's government
and also the risks. facing the adjustment plan.
In the document, the IMF gives a general description of the Argentine situation and says that it expects that the adjustment plan and the initial devaluation of the Government will weigh heavily on demand and the economy will contract until a recession that could reach -2.8 GDP points.
Meanwhile, he points out that inflation will accelerate in the short term due to relative price imbalances, although it is expected that there will then be a drop in inflation towards the end of the year.
They assure that the current account balance will have a surplus (more than 4 percentage points of GDP this year), supported by a rebound in exports
The Fund also lists the key program points to which the Government is committed.
• Fiscal policy.
It notes that authorities intend to achieve a primary surplus of 2 percent of GDP this year.
It will be achieved, they note, primarily through a combination of temporary (trade-related) taxes and measures to reduce administrative costs, energy and transportation subsidies, discretionary transfers to provinces and state-owned enterprises, and infrastructure spending.
“The program supports authorities' efforts to safeguard global balance over time, improvements in the efficiency of tax and spending systems, some of which will require support from Congress,” the report states.
• Social protection.
Authorities, the report says, have significantly strengthened social assistance through child benefits and food stamp programs, while moving away from social programs distributed through intermediaries and seeking to preserve the real value of retirements through of discretionary bonuses, the report says, adding that “assistance may need to be expanded further as conditions evolve.”
• Dollar and reserves.
After the initial devaluation in mid-December, the Government is committed to maintaining the exchange rate policy compatible with the objectives of reserve accumulation and a market-based regime, the staff report states.
They claim that “a simpler system of access to imports” was created, based on rules, along with a to deal with the large commercial debt overhang, with a limited number of instruments for importers to properly record their commercial debts.
“The new authorities are committed to eliminating all exchange restrictions” in the short term.
Together, these policies are expected to lead to significant reserve accumulation through the end of 2024 ($10 billion), and create the conditions for a return to reserve sufficiency in the medium term.
Monetary politics.
Against the backdrop of strict capital controls, the Central Bank relaxed the policy and rationalized the operational framework.
“Monetary policy is expected to evolve to support monetary demand and disinflation, including by establishing a nominal anchor.”
• Financing strategy.
“The authorities will not seek any type of net financing for the Government,” they point out.
They state that “internally, a strategy is being executed to extend maturities, while reducing dependence on instruments indexed to the foreign exchange market.
The program is fully funded for the remainder of its term and is expected to pave the way for Argentina to return to international markets in a time frame commensurate with debt refinancing needs.
• Structural policy.
Authorities are determined to tackle long-standing obstacles to growth, jobs and exports, while boosting the potential of Argentina's vast energy and mining industry.
“Recent regulatory and legislative initiatives represent a step in this direction, although the program will ensure that these are appropriately sequenced and prioritized,” the report states.
However, the Fund highlights that, despite the Government's commitment, there are dangers in the implementation of the program: “The risks of the program remain high, reflected in the inheritance received, as well as a complex political and social context, with a Congress fragmented, real wages, and high poverty,” they point out.
They also warn that “there is a risk that the policy package may not immediately meet its objectives, requiring agile policy formulation, contingency planning and the need to further expand social assistance.
That said, even if the authorities are not able to fully meet their ambitious policy goals, important steps would still have been taken to correct the serious situation of macroeconomic imbalances.
In this context, business risks remain significant, although the potential for the program to incur large defaults in the short term has decreased considerably.”