The first step was achieved with the IMF on a long road that will require adjustment and strong reforms, although the Government omits it in its account

File photo: the president of Argentina, Alberto Fernández, poses with the managing director of the International Monetary Fund (IMF), Kristalina Georgieva

Each person has the right to call things as they prefer. Minister Martín Guzmán, for example, logically stated that the principle of agreement with the International Monetary Fund (IMF) does not imply an adjustment. It is an irritating term, although in fact the Government applies it when pensions and a good part of salaries show a drop in real terms since the end of 2019.

Inflation, damn problem, is both the solution in this regard. Guzmán said it: since inflation was higher than previously expected (50 percent against 29 percent in 2021), the deficit could be better controlled. There was an adjustment, by society, which will now continue.

This agreement –in principle, since the memorandum of understanding with all the details of the program and the approval of the board in Washington still need to be completed in the coming weeks- implies accepting the guidelines that the Fund wanted: inflation has as its root, among others, the monetary issue.

For this reason, the minister promised to reduce the Central Bank’s assistance to the Treasury and to increase interest rates to positive territory in real terms; this is: more rate, less credit, to achieve greater exchange stability, if the market responds.

The word “agreement” mentioned both by the president Alberto Fernandez as per the minister also requires clarification: several aspects are missing to be discussed between the staff and the economic team; for example, if the 20% tariff increase that Guzmán proposed is enough with an expected inflation of 50% at least this year –an aspect that is also reviewed by the Central Bank-; how the goals of reducing the fiscal deficit committed by the Government are reached; what structural reforms there will be –because there will be, since it is a program of facilities extended to 10 years and the Government, for example, does not want to discuss the issue of retirement-, among other axes.

Martin Guzman and Miguel Pesce
Martin Guzman and Miguel Pesce

The Government will be able to celebrate, of course, several achievements: first, the default process was not triggered, which would have been very costly in terms of exchange and financial stability; second: he postponed the reduction of the fiscal deficit until 2024, when there is a new president, or Alberto Fernández is re-elected.

The Fund can also celebrate that its largest debtor did not start a arrears process, in a context in which no country is in default with the multilateral organization. Hence the phrase of the new strong woman of the Fund, Gita Gopinath, when he said that he was working with a “pragmatic and realistic” approach to reach an agreement in principle. In Washington, some observers wonder if the government will have the same approach to fulfilling what it promises, because for the staff its implementation is as important as the commitments, especially after the poor result of the 2018 program.

Meanwhile, the important payments will be left to the next government, since in the next presidential term both maturities with the IMF and those agreed with the bondholders in the renegotiation of the debt with the bondholders in 2020 will begin to increase substantially. pay the next one, it could be expressed in street terms.

Alberto Fernandez, Sergio Massa and Cristina Kirchner
Alberto Fernandez, Sergio Massa and Cristina Kirchner

And if the one that follows is of the same political sign? Well, then a new agreement will have to be negotiated, perhaps with another political configuration within the ruling party, which implies more vertical and unified decisions.

For now, The Government avoided another abyss that would have further accelerated inflation with the brutal exchange rate correction of recent days – before it was already estimated that January inflation would have been close to 4% – but it did not achieve the term it wanted to refinance the debt with the IMF in a longer term. Not too long ago, the vice president exclaimed that she wanted a term of 20 years to pay. Someone explained to him that, in the longer term, greater demands. Why would Argentina want to have the IMF review its accounts every three months in Buenos Aires for the next two decades? asked a former technician from the multilateral organization.

Politics does not always require technical explanations; If a part of the ruling party resisted (or resists) signing the agreement, it was because they understood that, after having lost the 2021 elections, a severe adjustment could ensure a defeat in 2023. That’s it. The response of the moderate wing has been that without an agreement there would be no 2023. “The fate of 2023 is at stake in the signing of the agreement, also that of Cristina and Máximo,” he told Infobae a high official source.

Hard dilemma: adjust so that, at some point, the economy rebounds and inflation drops -with a previous jump in prices- before the next elections, or that the adjustment is made by the market in a disorderly manner and a dollar in a value undesirable. For now, the first step has been taken in favor of the first option; There is still a long way to go, within the ruling party in Congress and in Washington, with all the demands that the most relevant countries in the directory will make, beyond the good will that allowed this Friday to arrive with a happy ending.


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