The number two of the International Monetary Fund, Gita Gopinath, warned this Friday, after the approval of the Executive Board of the disbursement of US$ 800 million, that Argentina must seek to improve the quality of the adjustment and continue with “efforts to reform the income tax”, rationalize the subsidies, tax expenditures and reinforce spending control. He said that “risks remain high” and demand a “agile implementation of policies.”
The organization issued a statement this Friday with statements from Gopinath, who is closely following the Argentine case. On Thursday, the Board had approved the eighth review of the program, endorsed a disbursement and had welcomed the program goals that had been met and exceeded by the Government of Javier Milei, in reserves, fiscal adjustment and monetary policy.
The official repeated the praise. “Since the last review, continued and determined measures to restore macroeconomic stability have put the program firmly on track. The stabilization plan – centered on a solid fiscal anchor without monetary financing – has generated fiscal and external surpluses, a significant increase in reserves, a strengthening of the Central Bank’s balance sheet and a faster-than-expected disinflation, while at the same time increased social spending. All quantitative performance targets through the end of March were overmet, and progress was made in the implementation of structural reforms,” she said.
However, the official pointed out that, despite these achievements, “some macroeconomic imbalances and obstacles to growth persist, and there is still a challenging process ahead. They must be followed strengthening policies to consolidate the progress achieved so far, as well as continue expanding political support and social to the reforms and protecting the most vulnerable.”
He warned that “substantial progress has been made in achieving fiscal balance and priority must now be given to continuing to improve the quality of fiscal consolidation. Efforts must continue to reform the personal income tax, rationalize tax subsidies and expenditures, and strengthen spending control. Beyond this year, it will be essential deepen the reforms of the tax, pension and co-participation systemsso gradually eliminate distortionary taxes”.
He added that “monetary and exchange rate policy must evolve to continue strengthening the disinflation process and further improve reserve coverage. To support the transition to a new monetary regime –in which financial and price stability continue to be the primary objectives of the Central Bank and where the use of currencies is of free choice-the real monetary policy rate should be positive to sustain the demand for pesos and continue reducing inflation.”
He added that “Exchange rate policy should also be made more flexible to reflect economic fundamentals, safeguard disinflation, and the reserve accumulation process, especially as capital flow management (CFM) rules are gradually lifted as conditions permit. They are also necessary new measures to define the pillars of the new monetary regimeas well as to develop and begin to implement a gradual reduction of currency controls and MFCs.”
“Greater focus on micro-level reforms will help support recovery and boost development potential. Proposed reforms to improve competitiveness, increase labor market flexibility and improve the predictability of the investment regulatory framework These are steps in the right direction.and its approval and careful application should be priority. This should be complemented by reforms to improve transparency and governance, including the anti-money laundering framework,” she said.
“The risks, although moderate, remain high, requiring agile policy implementation. “Contingency planning will continue to be essential and policies will need to continue to adapt to evolving outcomes to safeguard stability and ensure that all program objectives continue to be met.”
