Agreement with the IMF: this year’s tax cut would be USD 4.2 billion and has already generated internal criticism

Negotiations with the IMF will continue in the coming weeks and the first quarterly review will take place in March. REUTERS/Agustin Marcarian

With the core of the financial program already agreed, The Government must advance towards the first required goals agreed with the International Monetary Fund. The first stop will be just in a few weeks, when the first quarterly revision of the calendar takes place. This first evaluation, very preliminary given that the technical consensus has just been reached, It will take into consideration goals of fiscal type, of monetary financing and of reserves in the Central Bank.

To put in numbers: in 2022 the Government must, according to the roadmap made official on Friday, lower the deficit from about 3% of GDP to 2.5%, that is, an adjustment of 0.5 points of Product. At the weight and size of today’s GDP, this would imply some $235,000 million. The account is not linear since the nominal value in pesos at the end of this year will be different from today due to the inflationary effect. It is not clear, for the moment, what the quarterly goals should be for that final 2.5% that is intended for this year.

There will also be targets enforceable by the Monetary Fund for the size of the Central Bank’s assistance to the Treasury in the form of monetary issue. While in 2021 it was 3.7% of GDP; in 2022 it is aimed at being 1%, a pronounced cut in items. What has not been clarified for the moment -and will be subject to the final version of the memorandum between the parties- is whether this reduction will include transitory advances and turns of profits together or only one of them. This will not imply that there will no longer be BCRA assistance to Economy, but that it will cease to be “systematic”, indicated the Minister of Economy Martin Guzman.

To put in numbers: in 2022 the Government must, according to the roadmap made official on Friday, lower the deficit from about 3% of GDP to 2.5%, that is, an adjustment of 0.5 points of the Product. At the weight and size of today’s GDP, this would imply some $235,000 million

Beyond the fact that the goals are multi-year, this 2022 will already have macroeconomic challenges ahead. In addition to those 2.7 points of GDP drop in assistance from the Central Bank, the red cut in public accounts should be, for some analysts, greater than 0.5 points, since, for example, this year the Treasury will not count on the extraordinary contribution of the great fortunes. In this way, removing that variable from the fiscal account, the pruning should be 1 point of the Gross Product.

The criticisms of the viability of this fiscal goal did not come, for the moment, from the opposition political arch, but from the ruling party itself. The internal tension over the results of the elections became evident -from the moment of the announcement of the technical consensus- through the almost total radio silence of the frontist wing that he leads Cristina Kirchner. Guzmán himself could not respond at a press conference if the vice president agreed with the conclusions of the negotiations, and limited himself to saying that each position will be reflected in the parliamentary treatment.

The director of Banco Nación Claudio Lozano was one of the harshest critics of the agreement reached by the coalition that he himself is a member of.
The director of Banco Nación Claudio Lozano was one of the harshest critics of the agreement reached by the coalition that he himself is a member of.

One of the critics is Claudia Lozano, member of the board of Banco Nación and leader of Unidad Popular Nacional, one of the parties that make up the ruling coalition. The economist and former deputy criticized the negotiation with the Fund while the talks were taking place and then questioned the agreement itself, considering it “adjustment”, an interpretation that Guzmán repeatedly denied, more as a message to the inside than to the outside.

The agreement commits a fiscal adjustment for the last two years of Alberto Fernández’s mandate of 8,920 million dollars (at the exchange rate of the 2022 budget) and 4,200 million dollars with respect to the budget that Guzmán himself presented in Parliament and that does not It was aproved”, Lozano questioned in a public letter.

The first quarterly evaluation, in March and very preliminary given that the technical consensus has just been reached, will take into consideration goals of fiscal type, monetary financing and reserves in the Central Bank

“It is appropriate to add that until a few weeks ago, Minister Guzmán maintained that the discussion with the IMF was that while the organism wanted a zero deficit in 2024, Argentina, in order not to stifle the economic recovery, proposed that goal for 2027. What was agreed (zero deficit in 2025) seems to be closer to the position of the IMF”, mentioned the director of Banco Nación, in a harsh criticism of the Minister of Economy.

For their part, reports from private consultants raised what doubts the fiscal and monetary assistance path generates in the coming years. For Ecolatina, “in the tax plan it is clear that the bet is that a large part of the fiscal consolidation be done through the ‘growth path’: an expense that does not grow in real terms implies, as long as the activity grows, a reduction in it in terms of GDP”.

Gita Gopinath, deputy managing director of the IMF, insisted this Sunday on a reduction in spending on subsidies
Gita Gopinath, deputy managing director of the IMF, insisted this Sunday on a reduction in spending on subsidies

“However, it remains to be seen how this can be achieved: for example, if adjustable expenses for mobility grow in real terms (which can happen if nominality is projected downward, given that retirement, pensions and allocations will adjust for past inflation), the rest of spending (subsidies, goods and services, capital spending) should grow below it,” continued the consulting firm founded by Roberto Lavagna.

“Furthermore, the announced guidelines mean that it will also be necessary to put a special focus on financial strategy: in 2021 a financial program with a primary deficit of 3% of GDP closed with almost 4 points of monetary issue, and in 2022 the program should close with a slightly lower deficit (2.5% of GDP) but with 3 points less than emission”, they considered.

“The agreement commits a fiscal adjustment for the last two years of Alberto Fernández’s mandate of 8,920 million dollars (at the exchange rate of the 2022 budget) and 4,200 million dollars with respect to the budget that Guzmán himself presented in Parliament and that it was not approved” (Lozano)

“Although the Minister of Economy affirmed that other organisms could contribute almost 1 point of the product, the target not only looks difficult but only explains less than half of the resulting ‘gap’. Greater precisions will be necessary in this aspect so that the goal of reducing the monetary financing of the deficit is credible and can effectively anchor inflationary and devaluation expectations”, they concluded.

For its part, LCG mentioned that “specifically, the agreement goes through a fiscal adjustment that would take the primary deficit from 2.5% in 2022 to 0.9% in 2024, a relatively slight effort even more so when the Minister already anticipated that it would be It will be achieved with some type of fiscal reform (possibly a tax increase) and reorientation of spending (presumably through a reduction in spending on energy subsidies)”, they explained in a report published on Friday.

The Government reached a technical agreement with the IMF this Friday and must continue negotiating the fine print
The Government reached a technical agreement with the IMF this Friday and must continue negotiating the fine print

“But nevertheless, the second point of the agreement leaves in doubt the financing capacity of the deficit. Hence the need to aim for a structure of positive real interest rates, something difficult in a context of volatile inflation expectations where price controls are insisted on and where reserves should grow by USD 5,000 million, something that will hardly be achieved. with exchange delay, but with the opposite, a correction (even with exchange controls) that impacts prices”, they completed.

The Government and the IMF will have to embark on new negotiations in the coming weeks to finish defining the fine print of the technical agreement. With that fine print, the final memorandum of understanding will end up being designed, which must be dealt with by Congress and by the agency’s board of directors. The times of the Ministry of Economy speak that this entire process would have to end before the end of March.

The Government and the IMF will have to embark on new negotiations in the coming weeks to finish defining the fine print of the technical agreement

Regarding public spending, still there were no details on how public spending should be composed or how large public investment will be, for example, in public works. The IMF spoke in its statement that the consensus “would allow increased spending on infrastructure and science and technology and would protect targeted social programs. We agree that a strategy to progressively reduce energy subsidies will be essential to improve the composition of public spending,” the agency said in its statement.

This Sunday the IMF insisted on that point, regarding the subsidies to public utility bills, which this year foresee a nominal increase of 20%, something that would not end up reducing that account in real terms in the budget weight. “We agreed that a strategy to progressively reduce energy subsidies will be important,” Kristalina Georgieva’s deputy and former chief economist Gita Gopinath wrote on her Twitter account on Sunday.

Another aspect that Guzmán touched upon when speaking of the fiscal goals was that the Government It will seek to improve tax administration, although it did not give details of what type of initiatives it could include, including tax increases. He did say that he will seek to reduce evasion “especially in the segment with the highest contribution and put in place measures to attack money laundering,” he commented.

KEEP READING:

What impact can the agreement with the IMF have on prices and inflation expectations?
Guzmán said that it took him 2 years to convince the IMF that inflation is “multicausal”, but he agreed to reduce the deficit and the monetary issue
Expenses, taxes, disbursements, subsidies: the fine print of the agreement that the Government will negotiate in the coming weeks
The agreement with the IMF removes the danger of a crisis and gives more air to Kirchnerism for 2023



Reference-www.infobae.com

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