The IMF approves a review of the program with Argentina and asks for stricter fiscal policies

First modification: 06/25/2022 – 03:36Last modification: 06/25/2022 – 03:34

In a context of greater global uncertainty due to the war in Ukraine and challenges associated with the Covid-19 pandemic, the IMF executive board considered that the Argentine authorities met all the continuous performance criteria and goals of the end of March 2022, when the program was given the green light, and that progress was made on the structural front.

He also highlighted that the Government of President Alberto Fernández maintains the commitment to achieve the fiscal, monetary financing and annual reserve accumulation objectives without changes as planned.

The IMF warned, however, that a “firm implementation” of the program is essential if the agreed primary fiscal deficit of 2.5% of Gross Domestic Product (GDP) is to be achieved by 2022.

This “will require stricter fiscal policies in the second half of the year through a reorientation of public spending to make way for greater spending on energy subsidies and social assistance,” the Fund’s technical team said in its report published on Friday.

IMF Managing Director Kristalina Georgieva celebrated the approval of the first review on Twitter as “the conclusion of an important initial step under the program to support Argentina’s ongoing economic recovery and strengthen stability.”

But in a statement he also emphasized the importance of meeting the fiscal goal “to moderate domestic demand, limit the monetary financing of the deficit and support the accumulation of reserves,” and stressed that this will mean “firm monitoring” of budget commitments.

“Exceptional Risks”

The third Latin American economy after Brazil and Mexico, Argentina negotiated with the IMF a loan with extended facilities, known as SAF, to settle the 44,000 million dollars disbursed within the framework of a credit agreed four years ago for 57,000 million, the largest in the history of the Fund.

The 30-month SAF, for which the IMF has already delivered some 9,656 million dollars when approving the credit on March 25, allowed Argentina to reschedule the debt and not fall into default.

The Argentine Minister of Economy, Martín Guzmán, highlighted the approval of the first review of the SAF “with which the debt taken with the IMF in 2018-2019 is refinanced.”

“We continue to implement macroeconomic policies to strengthen growth with job creation and stability,” he tweeted.

The program with Argentina, which seeks to improve the effectiveness of public spending, reduce persistently high inflation and lay the foundations for more sustainable and inclusive economic growth, “remains subject to exceptional risks,” the IMF said on Friday.

In its technical report, the Fund mentioned the global challenges intensified both by the Russian invasion of Ukraine, as well as by the resurgence of the pandemic, the tightening of external financial conditions and the slowdown in the main emerging economies.

“Persistent high inflation, if not addressed through appropriate macroeconomic policies, could lead to renewed market pressures, escalating social tensions and weakening political support for the program, especially ahead of the October 2023 presidential election.” “says the report.

The cost of living in Argentina increased 5.1% in May and has accumulated an increase of 29.3% since January, one of the highest inflationary indicators in the world.