Review and change of goals: the details of the negotiation with the IMF and how the program will continue

Sergio Massa and Kristalina Georgieva

Next Monday, the technical staff of the International Monetary Fund dedicated to the negotiation and monitoring of the current agreement with Argentina will formalize a review of the reserve goals. Infobae advanced it this morning and then the confirmation came.

The drought is already hitting the economy hard: revenue and exports have fallen

The data for January show a crude impact on the main variables, including the return of the trade deficit. Public spending flew in January, with a rise of 111%, more than 10 points above inflation

Both the members of the economic team accompanying Minister Sergio Massa at the G20 meeting of ministers and central bankers in India and those negotiating in Washington agreed with the Fund to review the reserve targets for this year (USD 5.8 billion should be added in net terms), in recognition of the impact of the war in Ukraine and, particularly, of the drought.

High sources from the economic team explained that they preferred not to specify the new goals, which will be announced by the IMF in Washington, not a question of a “waiver” or waiver of goals, but of a revision of the agreement in the specific part of reserves for 2023, Therefore, approval from the agency’s board of directors is not required.

Indian G20: Massa will call for measures to offset economic effects of drought and war in Ukraine

The head of the Palace of Finance arrived in the city of Bengaluru to participate in the summit of finance ministers and presidents of the Central Banks, and also today he will hold bilateral meetings with the Secretary of the Treasury, the finance minister of India and the deputy minister of china finance

The review will consider both quarterly and annual goals, always in terms of reserves. But there will be no changes to the fiscal and monetary goals, which both the Economy and the Fund consider an “anchor” of the agreement.

The priority of the economic team, working in tandem with Massa and those accompanying him in India, as well as the technicians who are in Washington, was to “adapt the program to reality”, taking into account both the impact of the war in Ukraine and especially and prospectively, that of the drought on the field, the production and the agro-industrial exports of Argentina.

G20 of India: the Secretary of the Treasury recognized the efforts made by Argentina to order the economy

It happened during an official meeting held by the head of the Palacio de Hacienda, Sergio Massa, with Jay Shambaugh, Undersecretary for International Affairs. In the conclave they also discussed the negotiation with the IMF and the impact of the drought that punishes the country’s agricultural production.

In this way, it is the Fund’s own staff that negotiated and accepted the new reserve goals, to be disclosed on Monday, so that throughout the year it will not be necessary to constantly review them throughout the year. Meanwhile, says the economic team, work continues on the fiscal order, the accumulation of reserves and the monetary order.

Massa, during the G20 ministerial meeting, with Jay Shambaugh, from the US Treasury, and Gita Gopinath, deputy director of the IMF

In the afternoon/evening in Bangalore, India, Massa held a meeting with the director of the Fund, Kristalina Georgieva, and her deputy, the Indian economist Gita Gopinath, in which they confirmed that on Monday the Fund will disclose the “Staff level agreement”, with the approval of the review for the fourth quarter of 2022, which in turn will imply a disbursement of approximately USD 5.4 billion, which the board of directors would approve on March 22.

The new reserve goals take into account, above all, the decline in agro-industrial exports, due to the drought, and also incorporate the need for Argentina to manage dollars to sustain the level of activity through the flow of imports, in order to not stifle the productive sectors most dependent on inputs and parts from abroad.

The economic team did not consider “neither a victory nor a defeat” that the Fund has finally readapted the reserve goals to “the new reality” of war and drought and considers it evidence of the realism of the program.

Regarding whether Argentina could access the “Resilience Fund” created by the Fund to support countries affected by climate change, Economy clarified that this source of resources will only be active from 2024.

“Our premises are to accumulate reserves to strengthen currency and access to credit, restore fiscal order so as not to spend more than what is received and have monetary order, because we are seeing that Argentina in 2020 and 2021 had no external credit: it financed the pandemic and the Exit from the pandemic with issuance and transitory advances. That had an impact on the currency and on the street. We try to sterilize what is accumulated in the city, not in demand for money, but in other variables of monetary circulation,” said a senior source from Massa’s team.

In India, as reported by Infobae, Massa received questions from Georgieva for the use of reserves to repurchase bonds. But Economía reaffirmed there her defense of the use of the instruments at hand to stabilize the economy. “Some may be more or less sympathetic to the IMF and other economic actors. It may seem unorthodox to the Fund, but at that time, faced with so many guarantees, we had to demonstrate the capacity to act against those who were speculating too much,” the economic team pointed out.

Economy denied, on the other hand, that the Fund, through its management or staff, questions the level of the exchange rate or promotes a devaluation. “We don’t talk about it; there is a very Argentine fantasy that the staff pushes a devaluation. If I did, I wouldn’t be rethinking the goals,” the source said. This type of speculation or version is promoted by those who need to take advantage, they say in Massa’s environment. What they do recognize is that the Fund does not agree with the existence of a multiplicity of exchange rates and raises the need to simplify the exchange system, something that in any case is a long-term objective. “Another thing is the rate of devaluation that some businessmen need,” said the Economy source.

Regarding Argentina’s questioning of the Fund’s surcharge policy, the claim was reflected in the document of G20 ministers and central bankers.

Keep reading:

After the improvement of the economy in 2022, they foresee a brake for this year due to the drought and the lack of dollars. What will happen to inflation: the government estimates that it will return to around 6% in February

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