The Executive Board of the International Monetary Fund (IMF) completed on Friday the first review of Argentina’s economic performance under the 36-month Stand-By Arrangement (SBA) that was approved on June 20, 2018.
The completion of the review allows the authorities to draw the equivalent of about US$5.7 billion (SDR 4.10 billion), bringing total disbursements since June to about US$20.4 billion (SDR 14.71 billion). The Board also approved an augmentation of the Stand-By Arrangement to increase access to about US$56.3 billion (equivalent to SDR 40.71 billion or 1,277 percent of quota). The authorities have requested the use of this IMF financing as budget support.
Argentina’s strengthened economic plan aims to bolster confidence and stabilize the economy through a reduction in the budget deficit, the adoption of a simpler monetary policy framework, and freely floating the exchange rate (with foreign currency intervention limited to cases of an extreme overshooting of the currency). Protecting the most vulnerable in Argentina continues to be a central component of the authorities’ efforts including by prioritizing social assistance spending and planning for an increase in spending on social assistance programs in the event that social conditions deteriorate.
Following the Executive Board discussion of Argentina’s economic plan, Ms. Christine Lagarde, the IMF’s Managing Director, stated:
Argentina has faced difficult market conditions but the authorities have remained steadfastly committed to the Stand-By Arrangement’s main policy objectives to address longstanding vulnerabilities, protect the vulnerable, ensure that the public debt remains sustainable, reduce inflation, and foster growth and job creation.
To achieve these goals, the authorities have redoubled their reform efforts by accelerating the reduction in the fiscal deficit to reach primary balance in 2019 and achieve a primary surplus starting in 2020. The 2019 budget, which is anchored by this target, has been approved by the Lower House. Its passage into law will be key to restoring confidence and ensuring policy continuity.
The authorities have redesigned their monetary policy framework with strict limits on the growth in the monetary base. This framework is expected to provide a simpler and more effective anchor that will decisively lower inflation and inflation expectations.
The authorities are allowing the currency to freely float. However, in the event that there is a significant overshooting of the exchange rate, the Central Bank is prepared to intervene in a limited, simple, and rules-based way.
“The program continues to emphasize improving gender equality, protecting society’s most vulnerable, and laying the foundation for growth and job creation. The authorities have already taken measures to increase social assistance programs and have prioritized social assistance and childcare spending in the 2019 Budget.
Despite the challenging environment the government has proactively strengthened its policy plans. Important challenges remain. However, full implementation of the policies that underpin the Stand-By Arrangement, together with strong support from the international community, should allow the country to return to macroeconomic stability and fulfill its full economic potential, for the benefit of all Argentines.