The International Monetary Fund called on Argentina to make stronger efforts to address foreign reserve losses, galloping inflation and other “policy setbacks” amid a severe drought that’s hitting the country’s crucial commodities sector.
(Bloomberg) — The International Monetary Fund called on Argentina to make stronger efforts to address foreign reserve losses, galloping inflation and other “policy setbacks” amid a severe drought that’s hitting the country’s crucial commodities sector.
Argentina and the IMF staff agreed on Monday on the review of the country’s $44 billion program, a key step for the Washington-based lender to disburse about $5.3 billion to the government, pending approval by its executive board.
In order to reach agreement, the IMF said a change to a key target in the program, known as net reserve accumulation, “is being requested” after “recent reserve losses.” The current target is $4.8 billion and the Fund did not say in the statement what the new figure would be. Net reserves, or the stockpile of cash at the central bank, is seen as crucial to preventing a major currency devaluation.
“Against the challenges of an increasingly severe drought, a stronger policy package is necessary to safeguard macroeconomic stability, address rising inflation and recent policy setbacks,” Luis Cubeddu, the IMF’s mission chief to Argentina, said in the statement.
The next $5.3 billion disbursement, if approved by the the Fund’s executive board, will be used to repay Argentina’s debts owed to the IMF from a previous program that failed to stabilize the South American economy. The country owes about $2.7 billion to the IMF, taking into account two payments on March 21-22.
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Changing the reserve target for the third time would mark another setback for a year-old program that’s facing growing obstacles as a historic drought dwindles crop exports needed to bolster economic growth and tax revenue. Economic activity has declined for four straight months through December and annual inflation is charging toward 100%.
Argentina’s economy is expected to contract 3% this year, according to estimates earlier this month from Buenos Aires-based consulting firm EconViews. That contrasts with the government’s projection for 2% growth in its annual budget.
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The program does maintain the primary fiscal deficit target, another key anchor. The IMF said Monday Argentina planned to meet the target — a gap of 1.9% of gross domestic product — with “improved targeting of energy subsidies” to households and businesses, eliminating subsidies for high-income Argentines and businesses by the end of 2023.
Still, lost tax revenue stemming from the commodity harvest threatens the government’s fiscal efffort. Extra spending cuts to make up for lost revenue would prove politically costly in an election year.
Argentina’s latest IMF agreement is entering its second year after government officials dragged out negotiations for more than two years following the record bailout with the previous administration in 2018. The current agreement is already on its third Argentine economy minister after the first two left the job last July amid an ongoing political crisis.
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