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Risks agreement with the IMF

In this context, every revision and implementation of the program is vital to cover servicing the public debt in hard currency and maintaining the fragile stability achieved. But the million dollar question is whether an agreed plan can lead to a successful exit.

The crossroads on which Argentina is located is complex: the peak of GDP is in 2011; 10% coastal unemployment; We coexisted with double-digit annual inflation ten years ago; production investment is limited and infrastructure is not perfect; poverty affects half of the youth, and public education does not provide equal opportunities; export levels are limited and concentrated in agricultural products, while dependence on imports is high; tax pressure and budget deficit are record highs; and after two years of indebtedness, Public debt in the hands of private and international organizations is about 50% of GDP, and more than 80% are nominated in foreign currency.,

As we have said, the second agreement with the IMF stabilized the foreign exchange market and covered the services of short-term government debt, but did not guarantee its repayment. own staff The Foundation has doubts: Argentina's debt was classified as stable, but with low probability, and warned about the agency’s exposure to a possible default of our country.This shows that the political wing of the IMF was imposed on the technical line, which created a symbiosis between the Argentine authorities and the authorities of the Fund: both organizations need a work plan.

The bad news is that even if they are effective, IMF assistance typically depresses the economy for several years: breaking the recessive cycle created by external and fiscal adjustment of domestic demand is a difficult and long-term taskIt is also unclear whether an exit requires debt restructuring in the hands of private lenders.

Unlike convertibility goals or European countries that are tied to the euro, our economy has the flexibility of exchange, which can speed up the process (for better or for worse). A jump in the exchange rate dangerously increases the debt-to-product ratio (due to currency mismatch), but if the acceleration of inflation does not weaken the resulting external competitiveness (improves the real exchange rate), external deficit recovery and recovery activity (by increasing exports and import substitution) are achieved faster.

Can the Argentine economy go this way? Or will a new capital outflow end up in a crisis? Payments by the IMF to guarantee repayment of public debt until 2020, as well as fiscal adjustment, which hinders monetary policy and the introduction of the non-intervention zone (ZNI) stabilized nominal variables. In fact, after a sharp rise in prices due to a jump in currencies at the end of AugustInflation shows signs of slowing down (it will close the year below 3% per month).

However, as global liquidity conditions have disappeared, the only way to achieve the resumption of external financing is to create repayment capacity. This means that the economy must restore external surplus, and public finances receive surplus in order to buy currencies from the private sector to repay debt in foreign currency.

The problem with an agreed stabilization plan is that the exchange rate band has two drawbacks. First is the lower limit implies a real exchange rate near the historical average, which is not enough for the current context. Moreover, when taking into account the growing tax pressure on the traded sector: an increase in export duties to achieve the required primary fiscal balance undermines the receipt of foreign currency from the private sector.

Secondly, 30% of the amplitude of the stock range looks excessive, given the high distrust of our currency. The lack of BCRA tools to influence the stock market in ZNI implies that the dollar can strike with sudden jumps. This will be relevant in 2019, when we go through a dichotomous electoral process about the future of economic policy.

In short, at best, this will be the first revision of the agreement with the IMF for many people to come. And, unlike the late shield of convertibility or saving countries in the euro areathe problem of exchange will be key to determining the success or failure of the plan.

* Director Ecolatina

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