Agreement with the IMF: Will the government be able to achieve the goals this year?

Agreement with the IMF: Will the government be able to achieve the goals this year?

According to a report by economic consulting firm Analytica, Argentina met all agreed targets in the first quarter; However, the trend may change for the rest of the year

Alberto Fernandez and Martin Guzman
Alberto Fernandez and Martin Guzman

After uncertainty, friction and political tensions arising from negotiations with the International Monetary Fund, the government finally managed to close the deal with the multilateral organization. The focus now is on achieving the agreed goals, with the first early review in May.

The agreed program has four criteria: the accumulation of net international reserves (i.e., the fact that the central bank manages to bring dollars into its bed), the reduction of the primary deficit, the freezing and shrinking of floating public debt. Bank financing. Treasury Central (issue). In all cases they have quarterly progression, that is They relate to funds made by the International Monetary Fund.

According to a report by consulting firm Analytica, In the first quarter of the year, the country managed to achieve each of its agreed goals. January-February fiscal deficits left more than $ 129 billion in March; Accumulated floating debt as of February was $ 7.5 billion (against a target of $ 353.9 billion); Cash outflows were $ 122,000 million ($ 236,800 million in the first three months of the year) and net income of $ 5,700 million (compared to $ 1.2 billion targets) in March, thanks to an IMF allocation of $ 9,800 million.

However, the rest of the year will not be the same. The biggest challenge the government will face will be fiscal issues, where the international context and the war between Russia and Ukraine will be key to analyzing the future of public accountability. International Monetary Fund Director Kristalina Georgieva has already stated: “The risks of the program are particularly high and the consequences of the war in Ukraine have already materialized.

It so happens that the conflict in Argentina operates on two different fronts. According to analysts, the rise in international prices may amount to 0.3% of GDP in terms of export taxes compared to last year. On the other hand, rising energy prices hinder the goal agreed with the International Credit Organization Reduce public spending on energy subsidies by 0.6 percentage points of GDP.

“The board of directors of the fund signed the agreement, but warned that the armed conflict could have consequences and it would be necessary to reconsider the goals of the agreement. For example, in the reduction that Argentina can achieve in energy subsidies. “If the country achieves its goals, given the escalation of international prices, the tariff jump will be huge,” said Claudio Capraulo, director of analytics.

An increase in energy puts pressure on the fiscal deficit
An increase in energy puts pressure on the fiscal deficit

For an economic consultant, in fiscal terms, Shock The price of goods produced as a result of the war leaves a negative balance if the government does not change its position. This prevents the target of an annual fiscal deficit. Conversely, the same factor makes it possible to improve the trade balance by adding contract net income for the year ($ 5.3 billion) and other organizations ’equity income ($ 2.5 billion). The goal of accumulating net reserves will be possible in 2022.

“On the other hand, the financial report is improving. This is due to the combined effect of the aforementioned net loans from IDB, the World Bank, CAF and the IMF. As a result, international reserves will increase by approximately $ 7.544 million. This result implies that the government can deepen stocks mainly through imports if the accumulation of reserves does not meet the target. “Agreed in the program with the IMF,” they claim.

finally, As for the monetary goal, From the analysis, they point out that the fiscal deficit stems from a “worrying fact”: funding needs are unlikely to decrease compared to 2021. Accordingly, the agreed reduction for the public sector primary deficit. Could not be performed with a product score of 0.3.

“The intention of the government will be to obtain additional funding through the market, which is based on the main assumption: Banks should triple their participation in treasury first auctions. And if the fiscal target is not met, it is almost quintuple. If the economic team fails to achieve this goal, The exchange rate gap may widen again. “Something similar to what happened in 2020,” they added. If banks do not behave as the government expects, the loss will be 1.5 points per product.

At the moment, the fiscal deficit remains under scrutiny. Accelerating food prices is forcing the executive to increase social spending and energy subsidies. First of all, given that inflation in March was 6.7%, which helped the Alberto Fernandez’s government move parity.

“Any policy that seeks to restore wages and guarantee access to the basic food basket is fundamental. “But it has to be consistent and sustainable over time, otherwise the problem will only get worse in a few months,” the report said.

Source: La Nacion