The International Monetary Fund (IMF) announced this Thursday, January 11, 2024, the approval of an agreement with Argentina that releases $ 4.7 billion to the country. The pact aims to restore its macroeconomic stability, convert the current primary deficit into a surplus and increase the country's liquidity reserves.
What is the aim of the Argentine agreement?
The agreement between the two actors was signed with the aim of putting Argentina's current program back on track due to the failure to achieve the main objectives previously established, something attributed to the previous government of Alberto Fernández. The $4.7 billion fund is intended to support the new Argentine government's policy efforts to “restore macroeconomic stability and help Argentina meet its balance of payments needs.”
Taking action to implement the agreement
To implement the agreement, Argentina committed to achieving a surplus of 2% of GDP (gross domestic product). To achieve this feat, the government of President Javier Milei stated that it would take specific measures to improve the relationship between income and expenditure, such as rationalizing expenditure and administrative costs, reducing energy and transport subsidies, reducing discretionary transfers to provinces and public enterprises, etc. reduced spending on lower priority infrastructure. Argentina aims to accumulate $10 billion in net reserves by the end of 2024, a figure that includes the $2.7 billion accumulated in December 2023.
A new exchange rate policy is imminent for Argentina
Regarding the exchange rate policy, the Argentine government assured that it has abandoned the system of administrative import controls and is working to resolve importers' debts by offering exchange options that allow for an adequate recording of trade debts. The monetary policy stance will evolve to support monetary pursuit and inflation control, while the framework and functioning of monetary policy will be adjusted to strengthen its anchoring role.
Argentina has committed to ending central bank lending to the government and further reducing its overweight. In line with the fiscal program, the country will not seek forms of liquid financing on the market. As part of structural policy, Argentina is committed to removing the obstacles that have long hampered growth and exports, increasing the country's enormous energy and mining potential, as well as rebuilding relations with international capital markets.
We recall that Argentina's debt to the IMF is the result of a $44 billion loan taken by former President Mauricio Macri in 2018. In order to defuse the economic situation, in 2022, thenPresident Alberto Fernández concluded a new agreement with the institution that allowed the extension of the debt then taken on by the country. With the new conditions, Argentina is not expected to begin repaying its debt until 2026.