Government trusts in recalibration as IMF audits accounts

Everything is via “zoom.” Aseptic, with no need to reserve hotels or go dodging downtown traffic in Buenos Aires or scrums of reporters. In that framework, the deputy director for the Western Hemisphere, Julie Kozack, and the chief of the “Argentine case,” Luis Cubeddu, will get down to monitoring the public accounts with a view to approving the performance of the Argentine government in the second quarter.

President Alberto Fernández is confident the International Monetary Fund (IMF) will revise the targets agreed with Argentina’s government, reducing the fiscal deficit aim from 3 to 2.5 percent of gross domestic product, limiting Central Bank assistance to the Treasury to only one percent of GDP and the accumulation of reserves.

“The IMF has already said that the agreements must be revised because of significant economic alterations. The repercussions of the [Ukraine] war in Argentina remain to be seen, as is the case with inflation,” said Fernández in Paris during a foreign visit last week.

The multilateral lender’s officials will put the fiscal data presented by Economy Minister Martín Guzmán under the magnifying-glass. The fiscal deficit undershot the targets of the first quarter at 192,735 million pesos as against the objective of 222,264 million pesos established in the agreement.

But analysts warned that Guzmán’s accountancy included 155 billion pesos as asset income from operations placing local bonds. It is feasible that the IMF ask that this accountancy operation not be taken into account for the second quarter.

Reserves

The main problem presented by the programme is the almost zero capacity of the Central Bank to add international reserves. In May, the institution headed by Miguel Pesce was supposed to have bought US$2.5 billion with only US$600 million brought in up until now, despite it being the peak of the maize and soy harvest with exports.

Kozack and Cubeddu will insist on the Central Bank accelerating devaluation in order to encourage exporters to cash in their hard currency and also reduce imports.

In the first quarter of the year exports grew 25.6 percent to just over US$19.3 billion but imports were around US$18 billion for a year-on-year increase of 39.5 percent.

Guzmán finds himself in the horns of a dilemma, because if he wants to maintain such levels of activity, he must hand over more dollars to purchase inputs and if not, he must hike the price of the greenback, thus discouraging a growth which the IMF has estimated at four percent and private consultants at 3.5 percent as a “knock-on” effect from last year’s 10.3 percent growth.

Brazilian views

Until early this year the Brazilian Ilan Goldfajn was almost unknown among the economic sphere in Argentina, despite having been the Brazilian Central Bank governor during the Michel Temer presidency.

But Goldfajn hit the front pages of Argentine newspapers last January when he took over as the new IMF director for the Western Hemisphere, the post vacated by Alejandro Werner. From that position, Goldfajn will be in charge of supervising the agreement with Argentina, a review headed by Kozack.

At the end of April he clarified two aspects. There will be no “recalibration” of the objectives with which Argentina must comply and he suggested that the Central Bank should accelerate the devaluation of the peso.

“The [macroeconomic] objectives could change due to the new global economic framework [or] new shocks. Nevertheless the objectives [agreed with Argentina] are fiscal, the reserves, and structural and those will not change because we have formal objectives and what we must do is to help the authorities to give priority to the measures to carry them out,” said Goldfajn at a press conference.

Last March, the IMF board approved a new programme with President Alberto Fernández’s government to refinance Argentina’s debt of US$44 billion, while at the same time granting a loan for a further net US$4 billion to boost reserves.

The IMF board has recognised that this agreement carries “exceptionally high risks,” due in part to the secondary effects of the Russian invasion of Ukraine.