An International Monetary Fund (IMF) mission led by Roberto Cardarelli has said that, subject to the completion of review of Argentina’s IMF supported programme under the Stand-By Arrangement (SBA) and approval of the IMF’s executive board, the Argentine economy will receive a $7.6 billion boost.
IMF staff and the Argentine authorities having reached a staff-level agreement on the second review of the economic program commend the authorities for their continued efforts to advance their economic reform program, including building political support for key budget legislation.
The team noted that strong implementation of the government’s plan is essential to pave the way for a rebound of economic activity in 2019 and to support job creation, reduce poverty, and improve the living standards of all Argentines.
The new monetary policy framework put in place by Banco Central de la Republica Argentina (BCRA) in October has been effective in stabilizing financial markets after the extreme volatility experienced in August and September.
Steadfast implementation of its monetary policy framework and clear communication by the BCRA will continue to be essential to guide market expectations, the IMF team said.
Furthermore, the authorities’ commitment to a market determined exchange rate is expected to strengthen the credibility of the framework and enhance resilience to external shocks.
The authorities’ monetary policy framework gives the BCRA the option to begin a gradual process of FX reserve accumulation if the peso were to fall below the pre-announced non-intervention zone.
Given their unsterilized nature, a proper calibration of such FX purchases will ensure that the monetary policy stance remains conducive to a rapid reduction of inflation and inflation expectation.
Recent data suggest that achieving the 2018 fiscal target is well within reach. This and the passage of the 2019 budget point to the authorities’ clear commitment to address a key vulnerability of the Argentine economy.
Eliminating the primary fiscal deficit is a necessary step to reduce the government financing needs and put the debt-to-GDP ratio on a downward path.
Maintaining social spending identified in the program, and strengthening the social safety net, will be essential to shield the poor and vulnerable from the weakening of economic activity in the second half of 2018, and amid still elevated inflation.
In this context, the IMF team noted that the decision to safeguard social assistance spending in the 2019 budget is welcome.