President Alberto Fernández’ announcement on Friday that Argentina had reached an agreement with the International Monetary Fund to avoid default said a lot and a little at the same time, with much still left to be defined, as the Peronist leader admitted himself.
Here are the keys to understanding what has been negotiated and what is still to come.
1. Agreement or understanding?
While Fernández and Economy Minister Martín Guzmán spoke of an "agreement" with the IMF, the Fund’s subsequent communiqué spoke of "an understanding on key policies."
"IMF staff and the Argentine authorities will continue their work in the coming weeks towards reaching a Staff-Level Agreement. As is always the case, final agreement on a programme arrangement would be subject to the approval of the IMF's Executive Board,” the multilateral lender said in its statement, hinting that the "fine print" is still to be written.
Economist Luis Secco warned that the first difference between the stances of the two sides is that "there is no agreement at the technical staff level.”
“There is an understanding" and "there is no austerity, no devaluation, no reduction in fiscal spending. So how will there be a different result to the one we already have?” he asked.
Secco, in conversation with Perfil, pointed out that the initial two-and-a-half year programme implies "10 quarters of IMF reviews, and that if what has been agreed is reached, then we have to start paying what is actually owed," that is, the US$ 44 billion.
"This is a problem for the next government. For now [Argentina] has managed to get out of default," he concluded.
2. Accumulating reserves
Guzmán announced that the agreement contemplates that "there will be no exchange rate leaps" and that it will also promote "the accumulation of international reserves” at the Central Bank.
However, at Friday’s press conference, when questioned about why the government was unable to accumulate reserves in 2021 despite having an additional US$6 billion from the campo and another US$4.4 billion from the IMF, he only managed to say that "more than US$5 billion was used to pay the debt," without explaining what happened to the rest.
Guzmán denied that there will be an increase in utility pricing. However, the Fund reported that "we agreed that a strategy to reduce energy subsidies in a progressive manner will be essential for improving the composition of government spending.”
The question is: how will subsidies be reduced without raising prices? Moreover: how does the call for public hearings on the issue scheduled for February 17 – precisely to raise them throughout the country, but especially in the Federal Capital and Greater Buenos Aires, which have only seen a nine-percent increase between September 2019 and the present – fit into this scheme?
4. The fiscal deficit
How can the fiscal deficit be reduced if spending is maintained? The "understanding" implies, among other things, that Argentina’s fiscal deficit will fall from the 3.3 percent of GDP projected for this year to 2.5 percent. When Guzmán was asked how this reduction would be achieved without lowering subsidies or spending, the minister simply stated that "there will be more tax revenue."
There are doubts here, especially because the government’s so-called ‘wealth tax’ on large fortunes, a one-off levy last year, delivered 0.5 of GDP. In addition, estimates from consultants warn that the trade surplus, which last year left US$14.5 billion, this year will be reduced to US$8 billion due to drought, lower commodity prices and increased imports.
In addition, the proposal calls for a fiscal deficit of 1.9 percent of GDP by 2023, and only 0.9 percent in 2024, by the time the new government takes office, whoever it is.
Senator Luis Juez (Córdoba-Frente Cívico/Juntos por el Cambio) pointed out that the Economy minister "speaks of a reduction in the fiscal deficit of 0.5 percent per year while they govern, but of one percent in the first year of the next. What they are doing is what they have always done: leaving a time bomb behind for the future government.
In statements to the press, the senator for Córdoba said: "It is a big unknown, a big lie.”
“Ask the pensioners if there was no austerity. They don't say so, they don't need to put it in a paper, they get it through inflation," he added.
For his part, former deputy economy minister Emanuel Álvarez Agis pointed out that "this is the first time that the IMF has refinanced a debt without demanding an adjustment in return. It is somewhat unusual by IMF standards."