The International Monetary Fund's board on Friday approved a new loan tranche of US$3.8 billion to Argentina, signing off on the country's latest quarterly review.
The decision, approved by the IMF's technical teams in September, was taken at the end of the second review of Argentina's Extended Fund Facility deal worth a total of US$44 billion over 30 months. It came, however, with a warning from Managing Director Kristalina Georgieva against creating multiple exchange rates.
The latest tranche brings to US$17.5 billion the total disbursed to Buenos Aires under the arrangement to strengthen the country's economic stability and promote sustainable growth.
"In response to the market disruptions of mid-2022, Argentina's new economic team adopted decisive corrective measures that are starting to restore confidence and policy credibility," IMF Managing Director Kristalina Georgieva said in a statement.
Georgieva's praise appeared aimed at Economy Minister Sergio Massa, who pledged in early August to honour the commitment with the IMF to reduce the country's public deficit to 2.5 percent this year.
But she nevertheless described the country's economic situation as "fragile," and noted that "prudent macroeconomic policies and steadfast programme implementation" including expenditure controls and tighter social spending will still be needed.
"Achieving the fiscal primary deficit targets of 2.5 percent of GDP in 2022 and 1.9 percent of GDP in 2023 is critical to moderate import growth, accumulate reserves, strengthen debt sustainability, and further reduce reliance on central bank financing of the deficit," she said.
The agreement with the IMF, signed last March, provides for a series of measures aimed at controlling the country's chronic inflation – which soared to 50.9 percent last year and 71 percent, year on year, in July 2022 – and reducing its public deficit towards equilibrium in 2025.
The multilateral lender's board also approved two waivers, something it hadn’t done with Argentina since the previous government secured a record US$57-billion IMF loan in 2018. The first waiver was a technical issue because the government hasn’t yet published fiscal data through September that the board needed to review. Those figures will arrive later in October, according to IMF officials who spoke off the record.
The second waiver stems from a key policy implemented by Massa. He created a temporary exchange rate for soybean exporters in September to boost exports and build up cash reserves. Countries with IMF programmes must seek waivers for “multiple currency practices.” The board approved the waiver since the exchange rate only lasted for a few weeks, according to Fund officials.
“While targeted FX measures can temporarily support the balance of payments, they are not a substitute for sound macroeconomic policy,” Georgieva said in her statement. “As such, exchange restrictions and multiple currency practices should be unwound as conditions permit and reserve coverage strengthens.”
President Alberto Fernández's government, under the IMF deal, must boost its international reserves and reduce the fiscal deficit from three percent of gross domestic product in 2021 to 2.5 percent this year, 1.9 percent in 2023 and 0.9 percent in 2024.
This is the 13th agreement between the IMF and Argentina since the country returned to democracy in 1983.
The latest deal provides for repayments starting from 2026 to 2034, if by that date Argentina meets targets, one of which is to establish long-term sustained growth.