Argentina and the International Monetary Fund announced on Sunday that they have agreed “on the key objectives and parameters” for reviewing a new payment plan over the next six months. The preliminary technical agreement must be ratified this week and completed before the next due date, Monday 31 July. Negotiations are tricky: With three weeks to go before the primary and less than three months to go before the general election, the prevailing Peronism must prevent the sharp rise in the dollar price from continuing to price ruthlessly, while inflation hits 115.6% y/y. The IMF has its hand on the faucet and the government has decided to propose further sectoral devaluation of the Argentine peso to restrict access to foreign currency, increase central bank reserves and reach an agreement.
Argentina’s international reserves have fallen sharply in recent months, the drought has impacted expected earnings for this year and the country ended up paying the final maturity of its debt to the fund in yuan. Now Argentina needs the agency’s permission to agree on its next payments and ensure the payouts are made by the end of the year while the country elects its next president.
The signing of the agreement is in the final stages. The body and the government announced that “the core aspects of the technical work of the next review have been completed”. The deal “aims to consolidate fiscal order and strengthen reserves, while recognizing the severe impact of the drought, the damage to exports and the country’s tax revenues,” a statement said. Twitter thread posted on Sunday on behalf of the IMF.
Argentina has a dozen exchange rates that have become more expensive since this Monday. The official value of the dollar is 280 pesos, a reference price that the government makes more expensive through taxes, depending on the industry that demands it. The “solidarity dollar,” the price that governs the $200 a month Argentines can buy each month as “savings,” has cost about 490 pesos as of Monday, up 30 from last week. According to the government, about 900,000 people buy an average of $150 each month. The price they access now will be the same as those who shop abroad pay.
The government’s measures also include a 25 percent tax on imports of services, from which healthcare and education services are exempt. an additional 7.5% tax on all imported goods, excluding medicines, fuel or supplies for the basic food basket; and an increase in the exchange rate for primary importers in the agricultural sector, which will rise from 300 pesos to 340.
While Argentines tear their hair out of their heads trying to figure out how each of these devaluations will affect their wallets, the government hopes these measures will help it bring in $2,000 million for its international reserves and an additional tax revenue of 1.3 trillion pesos, or 0.8% of gross domestic product.
As such, Argentina hopes to reach an agreement to repay the three IMF debts due by the end of the month, totaling $2.6 billion, and receive the disbursements for the next half-year to continue paying off the $44,000 million debt taken on by Mauricio Macri’s government in 2018.
Last month, the government scratched the bottom of the pot and paid the international organization 1,000 million yuan from the foreign exchange deal signed with China. That could happen again before this weekend, adding to the negative balance, but the government is confident in the pre-arrangement. As Economy Minister and Peronist presidential candidate Sergio Massa announced on Sunday, the IMF will make two disbursements between August and November that “will largely cover commitments.” The details would be announced later in the week, he assured.
The Argentine government has been negotiating with the IMF for weeks over changes to the fiscal and reserve accumulation targets agreed in 2022. In June, the fund was supposed to have paid out $4 billion, but it didn’t because Argentina failed to meet two of the three targets agreed for the first quarter of the year: reserve accumulation and the budget deficit target of below 2%. Massa is now confident that his actions will remove the IMF, that “uncomfortable neighbor” as he calls it, from the political agenda at least for the remainder of the campaign.
This Monday saw the first reaction to the new exchange rate measures on the street: the parallel dollar, which broke the 500 peso mark in the last two weeks, is being sold on the street for 550. Markets were more optimistic: Argentine dollar-denominated government bonds were up as much as 2.6% this Monday, and New York Stock Exchange-listed Argentine stocks – such as state oil company YPF – were up as much as 3%.
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