Argentina’s Economy Minister Sergio Massa (center left) meets with Gita Gopinath, number two at the IMF, in Washington March 29, 2023.MINISTERIO DE ECONOMIA DE ARGENTINA (MINISTERIO DE ECONOMÍA DE ARGENT)
The Board of Directors of the International Monetary Fund (IMF) this Friday approved the fourth revision of the agreement signed with Argentina in January 2022. The decision automatically authorizes a transfer of $5,400 million that Casa Rosada will use in part to settle arrears it has with the same entity. The decision also presupposes the easing of the goal of international reserve accumulation, to which Argentina committed a year and a half ago and which an unprecedented drought has rendered unattainable.
“The IMF Executive Board has completed the fourth review of the Enhanced Agreement under the IMF Enhanced Facility (SAP) for Argentina. The board’s decision allows for an immediate disbursement of $5.4 billion, bringing total disbursements under the agreement to approximately $28.9 billion,” the fund said in a statement signed in Washington. The money is unlikely to swell central bank coffers because more than half will immediately flow back to the IMF to meet maturities, as stipulated in the $44,000 million debt refinancing agreement adopted by Argentina in 2018.
Last week, the Argentine government managed to persuade the IMF to reduce the reserve building target of $12,000 million assumed for December 2023. The Casa Rosada argument, which the fund accepted, was that the drought, the worst in 60 years, would result in losses of up to $20,000 million in agro-industrial export revenues. Far from adding funds, Argentina’s central bank had its worst first quarter in 20 years, with a negative balance of $3,000 million. The currency unit is losing its dollars day by day in an attempt to contain the price of the currency on the black market and meet the demand of importers. On Wednesday, Economy Minister Sergio Massa announced a new “agricultural dollar” with a higher exchange rate in pesos than the official one, to encourage exporters in the sector to settle the proceeds of their sales with the central bank.
The government’s ultimate goal is to preserve the peso’s value and avoid a catastrophic devaluation, at least until the end of Peronist Alberto Fernández’s term in office next December. The Casa Rosada will undergo a fifth before the August primary and another before the October 2023 general election. The flexibility to accumulate reserves and the prognosis that it can meet the new commitments give some oxygen in an electoral scenario particularly complicated for Peronism.
The new deal is just a temporary respite. The IMF said the commitment to reduce this year’s fiscal red to 1.9% of GDP “through continued spending controls, better targeting of energy subsidies and social assistance, and better prioritization of capital spending” remains in place. To do this, the government must further adjust public spending and drastically reduce the existing energy subsidies. In this way, the state will be able to ease the pressure on accounts, but in exchange for interest rates going up and inflation, which already exceeds 100%, being put under even more pressure.
Containing the CPI is the main concern of Minister Massa and his team, a battle to be lost. Inflation shot up to over 6% in February and the forecast for March is even worse. The rise in prices impacted poverty in the second half of last year, which rose nearly three points compared to the previous six months. The crisis has political consequences: as social unrest increases, the options available to Peronism decrease.
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