The representative of the Argentine government on the IMF board and right-hand man of the Minister of Economy, Martín Guzmán, in the negotiation with the organization, Sergio Chodos, said that with the new agreement, details of which are yet to be known, the Government managed to avoid a program typical adjustment of the Fund. “Argentina achieved a path of fiscal convergence that allows it to continue having a moderate but positive expansion in spending,” Chodos said in an interview on AM 750 radio.
“What we have avoided is an adjustment program,” the official said. “The great tragedy is having borrowed from the IMF in 2018. Today that means having the Fund involved every three months,” he said, referring to the quarterly reviews of the organization to the countries with which it agrees on a program. “The question is how do you face this problem and how do you arm yourself, and have a negotiation agreement that gives room, that is understood, that you have committed to what you can accomplish, that the goals are attainable, that the policies implemented have to do with increasing Argentina’s competitiveness and development and export capacity”, he added.
The official said that after each review, there will be disbursements “that are related to meeting the goals; It is one of the points where the achievement of negotiating conscientiously and of negotiating what one knows that one can fulfill and not signing anything after five minutes begins to take on a greater dimension”.
However, the details are not yet complete. “We continue working to reach the agreement at the staff level as soon as possible, which will then have to go through Congress,” Chodos said. “Until the last minute, the key was to be able to maintain an increase in spending in real terms every year of the program, that is a core part of protecting the economic recovery and improving it. That guided the discussion of the fiscal path in which the government was very firm”.
In line with the presidential speech on Friday, Chodos pointed out that the program will not include what the IMF calls “structural reforms.”
“In this program you are not going to see a labor reform, a pension reform that affects the majority, but policies designed to improve Argentina’s economic and export performance,” he explained, and contrasted it with the 2018 program. “The previous government by For example, it lowered pensions without the IMF and we, within a program with the IMF, are going to maintain a recovery scheme, of the purchasing power of pensions”.
Other considerations of the official referred to different aspects of the agreement:
Duration, revisions and disbursements
On this aspect, Chodos explained: “When we talk about the 2 and a half year period, we are talking about the period where two things happen at the same time: the disbursements and before the quarterly reviews that precede the disbursements occur. That period will be two and a half years.” In these reviews, the IMF will certify compliance with the final agreement and then make the disbursement for the amount agreed by the disbursement schedule.
In turn, the repayment of each disbursement will be “in a period between 4 and a half years and 10 years, in equal installments and amortizations, that is, 12 equal amortization installments. What you have there is that if a first disbursement comes, the last installment will be paid 10 years after it comes, and since the last installment of this disbursement will occur 2 and a half years after this review process, approximately, the last repayment installment would occur approximately after 12 years, because the repayment of each disbursement installment would take between 4 and a half and 10 years. That’s where the 12 years come from.”
“It will be the size of the program disbursed in the previous government, around USD 44,000 million. The new program is going to be about that volume in size. Like the current debt, at the time we close it will be less in capital, due to the payments of September, December and yesterday, so there will be a differential. Chodos acknowledged, yes, that the precise disbursement schedule has not yet been agreed upon. “The exact distribution of that schedule is something that has not yet been finalized, it is a technical discussion and it also has to do with the need to recompose reserves. The specific schedule is not there; the total size of the disbursement of this new program is going to exceed a little in the total of the debt when it closes, in approximately 4,500 to 5,000 million dollars”.
The schedule will only be known when the final Memorandum of Understanding is signed and is related to repayments and the goal of strengthening reserves.
Chodos explained that the revisions are related to what is agreed. To give an example, he explained, “we do not have a labor reform on paper, so it is impossible for a review to come and ask us where our labor reform is, that is not going to happen.” And he added that currently the strongest threat to the balance of payment that we have is the debt with the Fund”.
He also said that the previous government “lowered pensions without the IMF and we, within a program with the IMF, are going to maintain a recovery scheme, of purchasing power of pensions”, given that an adjustment program was avoided and it was achieved ” a path of fiscal convergence that allows us to continue having a moderate, but positive expansion of spending”.
The core years, Chodos said, are 2022, 2023 and 2024, with a projected fiscal path of 2.5%, 1.9% and 0.9% primary deficit (with respect to GDP) forecast for each of these years. .
“We continue to give the discussion, but it is a global discussion, and it includes Argentina and other countries, it is also a problem for Pakistan, Egypt, Ecuador, Armenia.” In this regard, he added that “like any reform of the international financial architecture, it takes time, it is a job that we are not going to abandon in any way, it is a fair claim. The work of financial diplomacy in this is key”
It would be ready “in the next few weeks,” Chodos said. “We continue working to reach an agreement at the staff level as soon as possible, which will then have to go through Congress.”
“There are several IMF communiqués, and yesterday’s too, where the multi-causal nature of inflation in Argentina is once again recognized. Just as there are indications of modifications to an adjustment in the financing policy of the BCRA to the Treasury, there is also recognition of the role of price agreements, which is very valuable”
Segmentation work is very important, identifying where the subsidy is needed and where it is not. One has the obligation to subsidize those who need it and the duty not to do so with those who do not need it”. In this regard, he recalled that the IMF statement itself included the word “gradual.” And he added that more important than the reduction of subsidies “is to do it in a way that respects progressivity and the right of those who need to be subsidized. It is a coordinated work that is being carried out”
The new program, Chodos said with irony, “either it’s a Hungarian paratrooper, it’s the product of a situation, if we’re here it’s because this disaster of going to the International Monetary Fund happened.” For this reason, he said, during the negotiation “the key was to be able to maintain an increase in spending in real terms every year of the program, that is a core part of protecting the economic recovery and improving it. That guided the discussion of the fiscal path in which the government was very firm”
“There are going to be structural policies, we think of measures that facilitate growth, for example, there is important work on the knowledge industry, work on improving tax administration, there is going to be core work to have a progressive subsidy structure , also an improvement in the capital market”. However, he concluded, “you are not going to see a labor reform, a pension reform that affects the majority, but rather policies designed to improve Argentina’s economic and export performance.