The understanding with the International Monetary Fund (IMF) that President Alberto Fernández announced yesterday included a series of commitments by Argentina that, at first sight, according to analysts consulted by THE NATION, they are possible to comply with, although not without some effort and taking into account that there is the fine print that is not yet known and that can make the requirements of the credit agency more severe.
In principle, what appears in the understanding, as specified by the Minister of Economy, Martín Guzmán, is a reduction of the fiscal deficit (to 2.5% of GDP this year, 1.9% in 2023 and 0.9% in 2024); a lower monetary issue (going from 3.7% of GDP last year to 1% this year, to 0.6% in 2023 and approaching 0 in 2024); set interest rates above inflation; increase the Central Bank’s reserves by US$5 billion this year; lower inflation, and comply with the new payment schedule.
Mario Blejer, former president of the Central Bank, gave his general opinion and then turned to the particular. “What was agreed upon is feasible and is positive, although it does not solve all of Argentina’s problems,” He said. And he added: “You still have to see the fine print of the understanding, but my impression is that it is something good, because in reality the credit is being renewed.”
Likewise, Blejer believed that the conditions are more favorable for the country and more possible to meet than were the demands that were there at the beginning and that had blocked the negotiation. “In any case, it will be necessary to see how it is going to be done to reach the stipulated deficit, because it is not possible to have a lower deficit than the current one if nothing is changed in spending as it is today”, he pointed.
Regarding the commitment to seek the necessary measures to lower inflation, the former president of the Central Bank said that the only way is to do it through monetary policy and balanced accounts. “It is not a variable that is controlled directly. There was talk of continuing with price controls, but it seems strange to me that the Fund accepts that, since it is not in its DNA. Surely, he is going to ask that they be given a deadline or that they be explained well, ”he estimated.
Miguel Kiguel, economist and director of Econviews, said that the goal set in the fiscal plan is feasible to achieve. “Lowering the deficit to 2.5% this year and following a gradual decline in the next two is possible. A more demanding figure than that would make it difficult, but this is achievable”, narrowed down
Also important, according to Kiguel, is the decision to have positive real rates; although in this plane he warned that there are some doubts. “In principle, this decision is healthy, because it is recognized that the interest rate is an ideal instrument to stop inflation. Guzmán said it, but the issue is what is meant by a positive real rate, what inflation is used (if it is the real one or the one estimated in the budget)”, analyzed.
As said, the doubts are not few. For example, many see the promise of accumulating US$5 billion in reserves as possible, but they wonder if that would include a swap with China or IMF disbursements, something that will only be known when the final document of the agreement between both parties is read.
In addition, according to the analysts consulted, it is also unclear what is going to be done in terms of exchange rate policy and how it will be done to cut energy subsidies. “It was not said how the exchange gap is going to be lowered, given that the Fund said that it wanted its normalization. As for the recomposition of tariffs, the IMF document speaks that there is going to be something of that, but Guzmán did not give details on the matter”, affirmed Kiguel.
For his part, the economist Héctor Torres, former executive director for Argentina at the IMF, emphasized that what was announced on Friday was an understanding, which did not reach an agreement. “We don’t know the details. We do know the fiscal path that Guzmán detailed, which is possible to achieve. But that implies that the rates are going to increase, but the way in which it will be done is not so clear “, he expressed.
Regarding exchange policy, Torres stressed that the IMF is not asking for a devaluation jump, but he added that it is not imaginable to think that one can live with an exchange rate gap as large as the current one. “We have to favor exports and that gap is an attack against them,” he pointed out.
Can the commitment to lower inflation be fulfilled?, the former representative of the country before the IMF was asked. “It depends on how the deficit continues to be financed. It is very important in this sense that the goal of reducing this financing through monetary issuance is met,” he replied.
To conclude, Torres stressed that what was announced on Friday basically implies buying time to avoid a default.. “And one wants to buy time for two reasons: one, you have the solution, but you need time to carry it out; or two, you don’t have the solution, so you choose to postpone the problem. It is not clear to me yet which of the two cases is happening now,” he added.
Meanwhile, in the Capital Foundation, of which the former president of the Central Bank Martín Redrado is chief economist, the magnifying glass was put on the uncertainty that exists about how the fiscal deficit will be reduced. “Although it was highlighted that there would be no reduction in spending in real terms, it was not made explicit what the composition of revenues and expenditures would be with respect to GDP. At this point the greatest doubts arise, where the IMF statement clarified the importance of the reduction of energy subsidies”, was expressed in a report.
In terms of foreign exchange, according to Fundación Capital, the greatest challenges are presented, where the authorities indicated only the goal of accumulating US$5 billion in reserves for this year and the continuity of regulations in the financial account. “The bet for that seems to go through the non-intervention in the gap, the lower payments and the net dollars that would come from the IMF and other multilateral organizations. For this to happen, it is essential to meet all the quarterly goals that Argentina agrees with the IMF. A possible objective, although by no means certain”, they indicated.
Daniel Marx, an economist, former director of the Central Bank and former Secretary of Finance, agreed with the rest of the analysts consulted that there is still a lack of agreement in its entirety. “There are guidelines, but important details remain. Both the IMF and the Minister of Economy mentioned certain points of understanding, but warned that several things in the program still need to be discussed.insisted the also director of Quantum Finance.
Regarding the accumulation of reserves for US$5 billion, Marx pointed out that it remains to be seen what definition of “reserves” is applied, because there is not only one. “That definition, whatever it is, will have its quarterly goals and that should be observed. What the IMF statement says is that we must wait for what is necessary to be done to reach that goal. This is an issue that has to do with the setting up of the foreign exchange market”, stated the former official.
Marx also expressed his doubts regarding the commitment to reduce the deficit. “Guzmán presented it as a percentage of GDP, but the IMF does not use that definition in the goals, but has traditionally put it in nominal terms (so many pesos, at that moment). In any case, the cut will have to be made, and the Fund’s statement speaks of reducing subsidies, so it will be necessary to see what the Government does in terms of adjusting rates “, he concluded.