IMF and Argentina agree on loan reviews to unlock $7.5 billion.
IMF and Argentina agree on loan reviews to unlock $7.5 billion.
IMF Reaches Agreement with Argentina to Unlock $7.5 Billion Loan Program
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The International Monetary Fund (IMF) has announced that it has reached a staff-level agreement with Argentina to unlock approximately $7.5 billion and complete the fifth and sixth reviews of the country’s $44 billion loan program. This agreement, although still needing approval from the IMF Executive Board, is seen as a positive development for Argentina as it faces a challenging economic environment.
The “very challenging” economic conditions in Argentina, primarily caused by a devastating drought, have led to the missing of some end-June financial targets. The IMF has recognized the impact of this drought and the subsequent policies and delays on Argentina’s economy. The larger-than-anticipated impact of the drought has severely affected exports and fiscal revenues, contributing to a weaker trade balance.
To support Argentina’s peso currency and sustain demand, the agreement requires authorities to ensure that policy interest rates remain “sufficiently positive in real terms.” The IMF and Argentina have also agreed on a more gradual accumulation of reserves, targeting around $1 billion by the end of 2023, compared to the previous goal of $8 billion set in March. This adjustment reflects the current economic circumstances.
To control import demand, the agreement includes the implementation of new foreign exchange taxes on imported goods and strengthening expenditure controls. However, the primary fiscal deficit target for 2023 remains unchanged at 1.9% of GDP.
Argentina’s central bank currently has no liquid currency reserves. To address this issue, the government has introduced multiple peso exchange rates to prevent further depletion. The IMF acknowledges that these measures go against the introduction of multiple currency practices and will require waivers as part of the loan program.
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Before the board approval, the Argentine government will need to take additional measures called prior actions. These measures, yet to be disclosed, will need to be implemented between the staff-level agreement and the approval.
The next review, originally scheduled for December, will now take place in November. Argentina is set to undergo three additional reviews of its 2022 IMF program by September 2024, although the specifics of these reviews were not detailed in the IMF’s statement.
The IMF’s board approval of the reviews will come after the primary vote on August 13, where Economy Minister Sergio Massa is running as one of the presidential candidates for the ruling coalition. Massa believes that the fresh disbursement will provide some stability throughout the second half of the year.
Upon the announcement of the agreement, Argentina’s over-the-counter sovereign debt increased by nearly 2% on average, and the country’s main stock index rose by 1.68%. However, the country still faces the challenge of avoiding a default with the IMF, with maturities of $2.6 billion due on July 31 and almost $800 million due on August 1.
To meet these obligations, Argentine officials are working on getting financing from multiple sources, although no further details were provided. The Development Bank of Latin America (CAF) has approved a $1 billion credit for Argentina, providing another option to make the payments. Additionally, a potential swap line with Beijing, similar to the recent arrangement for June’s payment to the IMF, could further support Argentina.
In conclusion, the IMF’s agreement with Argentina to unlock $7.5 billion is a positive step forward for the country in its ongoing loan program. The challenging economic conditions caused by a devastating drought have necessitated adjustments to the program’s requirements and targets. With the approval of the IMF Executive Board pending, Argentina now has the opportunity to stabilize its economy and meet its upcoming payment obligations.
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