Let’s make two things clear at the outset.
First. The program that Argentina signed with the IMF in March 2022 was never a Extended Facilities (diffuse goals and absence of reforms) [1]. This excuse format was used to grant a bridge loan to Argentina with a net financing tranche at the beginning. That is, they gave us a loan to finance the repayment of the 2018 Stand By Agreement granted to the Administration of Mauricio Macri. The combination of both programs generates a positive net flow with the IMF at the beginning (2022) and a growing negative in subsequent years. Starting with net payments in 2023.
Second. The program failed in its most concrete objectives soon after, since since the second quarter of 2022, the first quarter of effective execution of the agreement, we have the Ministry of Economy appealing to temporarily inconsistent practices and creative accounting resources that more than effectively ensuring the fulfillment of the goals as an indicative metric of the corrections that were going to be applied to correct the imbalances, they were only accommodating the fiscal numbers and reserves to said goals to ensure that the disbursements arrive, deepening in the meantime the economic policy approach that had to be reversed and, with this, the imbalance of the balance of payments that had to be corrected.
Meanwhile, and consequently, the financial indicators, post initial relief, and the macroeconomic performance only worsened. The latter is especially true for the perception of public debt repayment capacity/sustainability, which has not improved and even now affects local currency debt.
It is also indicative to observe what happened to the gap will change, which after an initial decompression bounced and even exceeded levels of 100%. Regarding the macroeconomic performance, see how the economy activity aborted the post-covid recovery during the second half of 2022 and how the inflationary process accelerated in a sustained manner at the same time.
The stocks, more restrictive than before
A great example of temporally inconsistent measures like the ones mentioned were the two editions of the Soy Dollar, which not only required wavers specific to the organism go in the opposite direction that the program was looking for (disarming the CEPO and promoting the unification of the exchange market), in addition, their main effect was to advance the settlement of foreign currency and collection to ensure compliance with the goals of the third and fourth quarters of 2022, but at the cost of mortgage, for this reason itself and for feeding a pernicious alignment of expectations, those of the first months of 2023.
The two editions of the soybean dollar, an example of the macroeconomic inconsistencies that the Stand By program could not correct
Exactly the same can be said of the resource of stepping on expenses during the closing of 2022, which was so evident with the fiscal data of January 2023.
And the IMF validated, as it did, the accounting of financial income that is an accounting pipe dream (due to the reopening of CER bond tenders) and the definition of a monetary target that did not place any limit on BCRA intervention in the secondary debt market in pesos or the integration of reserve requirements with public titles, giving free rein in that sense.
With which, everything we are seeing now was predictable, given that closing of 2022 and how the start-up conception and the history of the agreement were so far.
It was to be expected that Argentina would not be able to meet the reserve and fiscal goals during 2023 and also that the IMF would be willing to grant formal or informal pardons (it already did it both ways) or even renegotiate the quarterly goals or even the annuals. Whatever is necessary so that Argentina does not enter into arrears situation with the organization, always that can be formally justified in line with IMF standards.
“It reconfirms that the program is not going to propitiate a correction in the economic policy approach of the Government and increases the perception that the IMF has no power to contain bad policies. Neither with this nor with future governments”
rearranging. As stated from the beginning, what was signed was never an Extended Facilities Program. AND That is the main problem. Well, without modifying the economic policy scheme and applying reforms, anchoring expectations going forward, which implies apply background corrections that are being avoided, there is no way for Argentina to meet targets and pay the IMF in net terms without the current administration deepening its balance of payments rationing approach, propitiating an even more abrupt drop in economic activity than there already was and, at the same time, a higher rate of inflation in the middle of an election year.
Because? Why the adjustment variable of this approach up to now has been imports, which in Argentina in more than three quarters are inputs, capital goods and their parts, intermediate goods and energy. That is, they are directly linked to production processes. Blocking imports implies less supply of goods, which affects the product and prices. A supply shock and, consequently, a self inflicted stagflationwith its terrible impact on social variables.
Restriction on imports, the adjustment variable of the program that did not correct the structural problems
And there will not be a modification of the scheme, there has not been one until now and the IMF has given up demanding it from the start. At most he appealed to try to contain, betting that it does not break more on the way. But even that doesn’t seem to have succeeded.
heredity worsens
That 2023 is a year affected by a drought, which unfortunately was not an unthinkable element six months ago (most of the models anticipated it, in any case the magnitude was discussed) is an aggravating circumstance. But most likely we would have had the same problem, albeit of a smaller magnitude and a little later. For the Government and the IMF, meanwhile, it serves as a formal excuse.
Therefore, at this point, the renegotiation of the 2023 goals to ensure that Argentina can comply and the disbursements arrive to pay the IMF itself, is neither more nor less than the complete reconfirmation of everything said. The sole objective of the program is to prevent Argentina from falling into arrears, for which disbursements have to arrive.
Again, as was the case when the agreement was signed, this will probably decompress somewhat in the short term, but with a relatively high floor to uncertainty. Well, in the medium-long term, that signal is negative. He reconfirms that the program is not going to propitiate a correction in the economic policy approach of the Government and increases the perception that the IMF has no power to contain bad policies. Neither with this nor with future governments.
In addition, the expectation regarding the potential negative inheritance size that the current administration can generate with the objective of finishing its mandate without having to apply or face the adjustments of the current economic policy scheme.
[1] According to the International Monetary Fund itself, an Extended Facilities Program is intended to help countries experiencing serious balance of payments problems due to structural deficiencies or slow growth and a very weak balance of payments situation, supporting comprehensive programs that contemplate the necessary policies to correct imbalances with execution and repayment terms longer than those considered in Stand By credits. Naturally, when speaking of structural problems, unlike the Stand By, these agreements usually have as indicative goals the realization of structural reforms.
