Argentine Economy Minister Sergio Massa and IMF Executive Director Kristalina Georgieva in September 2022. Ministry of Economy (EFE)
Argentina received an oxygen ball this Monday. The International Monetary Fund said it was easing targets to which Alberto Fernández’s administration committed in January 2022 when it agreed to refinance a $44,000 million debt. The economic slowdown, skyrocketing inflation set to surpass 100% this month, and one of the worst droughts in history have forced a recalculation.
The accent has been put on the accumulation of reserves at the central bank, a goal that will be impossible to achieve. In return, the government pledged to speed up the phasing out of energy subsidies, which is key to lowering the tax burden. The IMF also said that Argentina met its fiscal, monetary and accumulation commitments for the third quarter of 2022, releasing $5.3 billion in funds. That money will be used to pay for the bailout that former President Mauricio Macri received in 2018.
Economy Minister Sergio Massa said he would ask the IMF to recalibrate reserve accumulation targets because of the impact of the drought. Argentina had promised to end 2023 with $12,125 million in its central bank, but far from adding up, it has lost $1,400 million since January on efforts to preserve the value of its currency. The drought was the coup de grace for the minister’s attempts. The Rosario Aires Stock Exchange has calculated that the blow to foreign grain trade will be around $14,000 million. The climatic effects of La Niña have caused three consecutive years of drought, and for the first time in the history of Argentina’s countryside, up to 50% of the year’s two crops were lost in the core zone, the most fertile in the country. The arid region is as large as the combined areas of Peru, Ecuador, and Paraguay.
According to the IMF statement, “in the face of the challenges posed by an increasingly severe drought, a stronger policy package is needed to maintain macroeconomic stability, address rising inflation and recent policy setbacks, and achieve the underlying objectives of the (…) In this context, revisions of reserve targets for 2023 required ″. The text was signed by Luis Cubeddu, Deputy Director of the Fund’s Western Hemisphere Division, and Ashvin Ahuja, the new Head of Mission to Argentina. “In this context, revisions of the reserve targets for 2023 are called for,” they added.
The agreement was negotiated in parallel with the fourth review of targets for the final quarter of 2022. The technicians saw them as fulfilled, and the board must now approve the $5.2 billion payout, which Argentina will use to cancel maturities with the agency. The government will undergo a fifth review before the August primary elections and another before the October 2023 general election. Flexibility in building reserves and forecasting that it can meet the new commitments will allow Casa Rosada to keep the economy afloat at least until the end of Alberto Fernández’s tenure.
The negotiations did not change the budget deficit targets that Massa promised to achieve as agreed in the original plan for 2022, including energy subsidies and social assistance, and better prioritization of capital spending.”
The government has already cut subsidies for 30% of families, starting with the higher classes. He is now confident that ramping up production of crude oil and gas in the unconventional Vaca Muerta field – which, for example, has enabled state-owned YPF to start exporting crude oil to Chile again from July after 16 years – will end the fiscal disaster of the drought partially compensate the country.
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