Friday, June 21, 2024

ECONOMY | 16-05-2024 17:52

IMF expects Argentina's economy ‘to start growing’ in second semester

Multilateral lender reiterates its satisfaction with the progress made by President Javier Milei's government in Argentina.

The International Monetary Fund insists that Argentina’s adjustment plan is giving “better results than expected” and foresees the economy as “starting to grow” in the second half of the year, a spokeswoman of the financial organisation stated on Thursday. 

The IMF is satisfied with the progress made since President Javier Milei was inaugurated in December with one goal: to drastically cut public expenditure, which he dubbed the “chainsaw” plan.

“The strong involvement and application by authorities of its stabilisation plan is delivering results that are better than expected,” said Julie Kozack, director of communications of the Fund at a press conference in Washington.

She cited as cause for the remarks the first quarterly fiscal surplus in 16 years, the “swift recovery” of international reserves and an improvement in the figures of the Central Bank, as well as a rapid reduction of inflation – which went from 25 percent in December to around 8.8 percent in April.

Kozack also repeated the conclusions of the IMF’s technical team, which this week reached an agreement with Argentina over the eighth review of the aid package which will enable a disbursement of nearly US$800 million as soon as the Fund's executive board green-lights it.

It is the first review “where all criteria have been met,” said Kozack, referring to Argentina’s credit programme with the Fund, through which the country receives US$44 billion over 30 months in exchange for an increase of international reserves and a reduction of the fiscal deficit.

“These are all steps in the right direction and we expect the economy to start growing again the second half of this year,” but “the road ahead is still difficult,” the spokeswoman stressed.

The IMF believes that the Milei government must contain the crisis on three fronts: fiscal, monetary and reforms to generate formal employment and attract private investment.

Fiscally, the efficacy of the tax system must improve, but authorities in Argentina must also “continue to ensure that social aid is sufficient and properly orientated towards protecting the most vulnerable” to ensure that the burden of the adjustment “does not fall disproportionately on working families."

Around 50 percent of the population is currently living below the poverty line, according to multiple surveys.

Monetary policy “must continue to evolve to anchor inflation” and the foreign exchange policy “must become more flexible over time,” Kozack stated.

The spokeswoman did not mention the foreign exchange restrictions Milei wishes to lift, which have been in place since 2019 and limit access to dollars in a country where the US currency serves as wealth reserve for savings.

Yet she claimed that “policy changes will be necessary as foreign exchange controls become gradually relaxed” and authorities “make the transition” towards a new regime whereby “the peso and other currencies such as the US dollar can coexist and be used freely." This is what happens in Peru and Uruguay, she said.

She did not mention whether the IMF would lend Argentina more money than agreed under the terms of its current credit programme either.

“Current conversations with authorities are centred on this ongoing review,” the spokeswoman said.



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