Argentina announced on Thursday the signing of a “standby” agreement – the one with the highest impact on policies – three years with the International Monetary Fund ( IMF ) for 42,500 million euros -50,000 million dollars-, to which will be added another 4,800 million – 5,650 million dollars – contributed by other organizations, to lower inflation, achieve fiscal balance and avoid a crisis.
“What we have achieved with the support of the international community is to avoid a crisis and be able to continue with the growth process,” Argentine Finance Minister Nicolás Dujovne told a news conference in Buenos Aires after the IMF announced in Washington the closing of the agreement.
The funds will be available from June 20 and it is expected that immediately the first disbursement will be made, for some 12,800 million euros that will be applied to reinforce the budget items and the reserves of the Central Bank of the Argentine Republic (BCRA).
The Argentine government had requested to negotiate an agreement with the IMF on May 8, amid heavy financial turbulence that caused the Argentine peso to depreciate by almost 25% against the dollar in the last month. In that bid with the market, the BCRA lost 6,500 million dollars of monetary reserves, now in about 40,000 million.
According to the government of Mauricio Macri, the economic plan that will be applied during the 36 months of the agreement is “consistent and sustainable economically, socially and politically” and will seek a “faster convergence” to fiscal balance and reduce inflation.
The program sets more ambitious fiscal targets: a primary deficit of 2.7% of GDP this year and 1.3% in 2019, primary equilibrium in 2020, to move to a surplus of 0.5% in 2021. This will mean that in the period 2018-2021 Argentina will have to reduce its deficit by 16.100 million euros -19.300 million dollars-, an adjustment that Dujovne did not specify how it will be carried out.
He stressed that the agreement contains for the first time in history in a program with the IMF a safeguard that allows increasing social spending if the Argentine Government deems it necessary. The plan also includes inflation targets, with which the Central Bank will be guided within a regime of floating exchange rate: 17% for 2019, 13% for 2020 and 9% for 2021.
In order to strengthen the Central Bank’s equity situation, the Central Bank will stop financing the Treasury and, in addition, the Government will send to Parliament a bill to reform the Organic Charter of the BCRA to strengthen its autonomy. “A stronger Central Bank emerges from this program, which makes us very confident,” BCRA president Federico Sturzenegger said at the press conference.
Argentina must repay each one of the disbursements of this loan in eight quarterly installments, with three years of grace and with variable interest rates ranging from 1.96% to 4.96%.
In addition to the agreement with the IMF, Argentina announced today that it has agreed with other multilateral organizations for additional financing of 4,800 million: the funds will be provided by the Inter-American Development Bank (2,120 million), the World Bank (1,450 million) and CAF-Banco de Desarrollo of Latin America (1,200 million) will be disbursed during the next 12 months.
The opposition has already charged against the adjustment Dujovne said Argentina must “understand” that the solution to the country’s problems “depends on the Argentines and that there is no magic.” “The IMF can help us, but we solve our problems depends on us,” said the minister on the scope of the agreement, to which the opposition Kirchner expressed his “concern” and asked to be treated in Parliament.
With the devaluation pushing up the already high inflation in Argentina, the BCRA opted in May to raise the monetary policy reference rate to 40%. The devaluation and the rise in interest rates prompted private consultants to revise downwards the growth projections of the Argentine economy for this year, taking it from an average of 2.5% to 1.3%, according to the Last Survey of Market Expectations released by the Central Bank.