The agency’s spokesman, Gerry Rice, revealed that “talks continue” with the country for a new medium-term program.
The spokesman for the International Monetary Fund (IMF), Gerry Rice, confirmed that “conversations continue” with Argentina on the negotiation of a new medium-term program that will allow the country to reschedule maturities for 44,000 million dollars and, eventually, request new funds for economic recovery.
“Our conversations with the Argentine authorities continue. These discussions between the Argentine government and the IMF team will continue in this period “Rice said during the first news conference of the year on Thursday.
Design of the economic plan
The spokesperson said that “there was a brief break in the dialogue during the vacation period (for the Holidays), but we hope that the pace of the meetings, all virtual, will increase in the coming weeks.”
According to the IMF official, “the country’s authorities continue to work on the design of your economic plan in the medium term and discussing specific measures for its implementation and working to underpin it with broad political and social support. ”
In this regard, Rice added: “We share the opinion of the authorities that addressing Argentina’s challenges will require a carefully balanced set of policies that foster stability, restore confidence, protect Argentina’s most vulnerable and lay the foundations for sustainable and inclusive growth“.
Then the leader added that “Argentina, like almost all other countries, faces the challenge of the pandemic and the health and humanitarian problems that this entails.”
In addition, he indicated that there will be a new update of the world economic outlook in a couple of weeks, through the updates of the traditional WEO report.
In August 2020, Argentina requested a new program with the IMF to replace the current stand-by, through which the country owes 44,000 million dollars, with maturities concentrated in the next two years.
Dialogue and negotiations immediately began, and Two face-to-face missions of the Fund were carried out, through which they held meetings with government officials, businessmen, politicians and civil society, as well as technical meetings with members of the Ministry of the Economy and the Central Bank, among others.
The agreement between the parties was advance in the development of a new program of Extended Facilities, which extends Argentina’s maturities to 10 years and would allow the country to begin repaying the debt only four years from now.
Likewise, the Executive Power works so that the new program is approved by Congress, an unprecedented initiative in Argentina. The bill already has half approval in Congress and is one of the first pending for the year that begins.
In the Ministry of Economy they are reluctant to open a value judgment, but the reality is what it is: the negotiation with the Monetary Fund, which is still alive through virtual meetings between officials from both teams, He found a fence that – sooner rather than later – will have to be circumvented in order to reach an agreement that will govern for the next few years.
The obstacle did not surprise Martín Guzmán, but the minister wants it to be diluted as soon as possible in order to move towards the final stage of the negotiation.
This time, the pressure comes directly from the IMF staff. The agency’s technicians have already let part of the directory know that the accounts sent by Guzmán and his team do not close.
The jerk is not new; in fact, it was Alberto Fernández himself who publicly announced that the IMF is seeking an adjustment to public accounts that his administration is not willing to endorse.
Luis Cubbedu, the head of the mission in Argentina, conveyed the harshness of the negotiations in dialogues with financiers and also with Wall Street funds. The 4.5% fiscal red proposed by Guzmán “not enough“, emphasizes the Venezuelan economist every time he engages in a” zoom “to exchange views on Argentina.
“On the tax issue there is no point of contact“, defines in dialogue with iProfessional one of Cubbedu’s interlocutors.
The “internal” in the IMF is key: while the majority of the “board” of directors is willing to do whatever flexible it takes to reach an agreement with Argentina, the technical staff has objections.
The 4.5% fiscal red proposed by Guzmán “is not enough,” economists warn
Dollar and agreement with the IMF: what does it depend on
The big question being asked in the corridors of the Palacio de Hacienda is how much these technical objections will influence the IMF’s political decision. In other words: how flexible the IMF will be throughout the negotiation.
What is known is that both parties – the Government and the organization – need an agreement to avoid a deepening of the economic crisis, which has been weighing on the country since April 2018.
Another known fact from the recent history of the negotiations refers to the fact that political positions prevailed over technical issues. Donald Trump was instrumental in helping the Macri administration during 2018-2019, which opened the doors to a record transfer of money by the Fund to a country.
How will that decision play out in the current negotiation? Will the IMF be more flexible in its recognized iron position in the fiscal chapter, in the middle of the worst pandemic of the last century?
These are key answers because it depends on them that there is an agreement before the autumn begins in Argentina.
Cubbedu’s interlocutors believe that the Monetary Fund wants to be more flexible that if the negotiation did not have those two condiments: the political one (which would expose the body to criticism in the international arena for not correcting its own past mistakes) and the technical one, which will inevitably take into account the exceptionality of the world economy in full coronavirus.
That does not mean that the agreement will be easy. And this is what is exposed with the objections of the Fund staff, who demand a greater fiscal adjustment. And a narrowing of the exchange gap, responsible for the trade surplus has been dramatically reduced in recent months.
Rather than a jump in exchange rates as an attempt to reduce the exchange gap, the IMF wants Guzmán to ensure a narrower fiscal red than the 4.5% of GDP reflected in the Budget.
The minister already warned that in Argentina, which has been in recession for three years and is going through the pandemic no scope for additional trimming of public spending. In any case, the negotiating pledge will be the promise that this smaller hole in the public accounts will be made thanks to the recovery of economic activity and the higher tax collection.
Guzmán, it is known, is forced to move through an extremely narrow corridor. Any wrong move puts stress on the dollar. But it is not the only risk.
The focus is on economic activity. If Guzmán exceeds his fiscal toughness, that strategy is likely to end up filing a future economic recovery.
That is the main defense (argument) of the minister against the fondomonetaristas claims. Guzmán wants the IMF to be flexible enough to avoid a drowning in economic activity, which has already begun to show an interesting recovery in both industry and construction. A reactivation that today has ellipsis due to the re-emergence of coronavirus infections.
To advance the talks, Guzmán agreed to the lifting of the so-called “Covid spending“Since September there was no more distribution of IFE, and with the end of 2020 the ATP program, which served to pay salaries in the private sector in the middle of the pandemic, was ended.
However, the government has already set limits on some other fronts that the IMF considers critical to reduce the imbalance in public accounts.
The variable where there is more “noise” is the rates of public services. Until a while ago, the Economy proposed to raise something above the inflation forecast for 2021. The expectation changed a few weeks ago, when the Executive – through a resolution in the Official Gazette – extended the freeze until March.
It is difficult to think of a quick agreement if the Government does not provide a map with the trajectory of the rate increases. There is no room for subsidies to increase again. This is suggested by the contacts that IMF officials have with bankers and consultants.
This is the key to the Guzmán Plan: that the numbers close in a context of economic recovery.
The minister has already warned that in Argentina there is no margin for an additional cut in public spending
At first glance, it seems possible: after a year with a contraction close to 12%, and after two previous years of falling activity, the economy has margins for recovery. A scenario that would favor the reduction of the fiscal deficit on the virtuous side.
Will it be possible? Surely, as long as the coronavirus vaccine appears. If not, reactivation will be difficult. It is clear that the State has no margin to continue with the aid. Unlike other countries, even neighbors, Argentina does not have a reliable currency. And the over-issuance will feed the exchange pressure.
The head of the Palacio de Hacienda is convinced that expectations play a key role in the exchange market. And it seeks to persuade local economists and Wall Street that a disruptive devaluation is not necessary in Argentina. That is why he believes this support from the Monetary Fund is key.