After more than two years of negotiations, the Government of Argentina has managed to agree with the IMF on a restructuring plan for the multimillion-dollar debt that the country contracted with the international institution in 2018. The pact closed today will give Argentina two and a half years of margin to reorganize its economy before restarting in 2026 the return of the 45,000 million dollars (40,407 million euros) that the country owes to the Fund.
As explained by the Minister of Economy, Martín Guzmán, the agreement means that the Government undertakes to balance its budgetary expenses by 2025: it will go from a deficit of 2.5% this year to one of 0% by then. The objective of this point is to stop the monetary issue, since the Central Bank of the Argentine Republic (BCRA) finances the Government’s deficit with the printing of new pesos. This vicious circle has caused a skyrocketing inflation, which has exceeded 50% per year in two of the last four years, which is behind the large macroeconomic imbalances that the country suffers, such as capital flight, the black market for foreign exchange or permanent devaluation of the peso.
“The agreement was to be able to have a fiscal policy that does not inhibit recovery, with spending growing moderately, that is, it was achieved without adjustment policies. And a fiscal correction was proposed: for the year 2022 a deficit of 2 .5%; in 2023 1.9% and 2024 0.9%,” Guzmán explained. The BCRA, for its part, will lower its delivery of money to the Government: from 3.7% in 2021 to 0% in 2024. “The plan is to converge to a situation in which there is no more systematic financing,” he said. “To target the fiscal reduction, the tax administration will be strengthened to reduce evasion and money laundering.”
Another of the IMF’s conditions is to put an end to the so-called exchange rate trap, which limits the amount of pesos that citizens can exchange for dollars or other currencies, and keeps the currency artificially overvalued. “The idea is to have a structure of positive real interest rates to have greater financial and exchange stability,” he assured. Former president Mauricio Macri has already tried to lift the stocks using the money that the fund lent him, but a slowdown in deficit reduction and the subsequent electoral victory of the current president, Alberto Fernández, led the markets into a state of panic that forced reintroduce controls.
During the 30 months of the agreement, the IMF will carry out 10 quarterly controls to verify that the commitments are being fulfilled. If it gives its approval, the institution will pay Buenos Aires a figure similar to the one signed by Macri, of 45,000 million, with which to cancel the previous debt. This new credit will have a maturity of 10 years from 2026.
End to blanket subsidies
Guzmán stressed that the agreement does not imply an obligation to privatize companies or make cuts in pensions or public spending. What they do ask for is to put an end to the policy of generalized energy subsidies. “It is important to note that [el acuerdo] it would also allow increased spending on infrastructure and science and technology, and would protect specific social programs. We agree that a strategy to progressively reduce energy subsidies will be essential to improve the composition of public spending,” the IMF said in a statement.
The main firm commitment required by the IMF is to put an end to inflation and uncontrolled printing of money. “The work between the public and private sectors will be important in two years so that price agreements help anchor expectations and so that price and income policies result in an increase in purchasing power,” said the minister.
The agreement will now go to Congress to be ratified. Fernández lost his majority in the legislative elections last November and the new majority showed muscle on December 17, shortly after taking office, knocking down the Government Budget. Even so, the first signs of the ‘macrista’ coalition already indicate that the text will be approved without major problems.
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