Friday 14.6.2024
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Last update 20:51
The International Monetary Fund (IMF) warned that for Argentina “the risks remain high” and insisted on the need to improve the quality of fiscal adjustment. This was stated by the Fund’s number two, Gita Gopinath, after the executive board’s approval of the disbursement of almost US$800 million.
He argued that Argentina should seek to improve the quality of the adjustment and continue with “efforts to reform the income tax”, rationalize subsidies, tax expenditures and strengthen spending control.
He pointed out that in the face of these high risks, “agile implementation of policies” is necessary. “The risks, although moderate, remain high, requiring agile implementation of policies. Contingency planning will remain essential and policies will need to continue to adapt to evolving outcomes to safeguard stability and ensure continued compliance.” all the objectives of the program,” he indicated.
The organization issued a statement with statements from Gopinath, after the executive board approved the 8th review of the program, endorsed a disbursement and highlighted the fulfillment of the program’s goals that had been achieved and exceeded by the Government of Javier Milei, in reserves , fiscal adjustment and monetary policy.
“Since the last review, continued and determined measures to restore macroeconomic stability have put the program firmly on track,” Gopinath noted. He highlighted that “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, at the same time that social spending has increased”.
He said that “all quantitative performance goals until the end of March were exceeded, and progress was made in the implementation of structural reforms.”
But Gopinath warned that, despite these achievements, “some macroeconomic imbalances and obstacles to growth persist, and a challenging process still lies ahead. Policies must continue to be strengthened to consolidate the progress achieved so far, as well as continue to expand political and social support for 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.” And he considered that “efforts must continue to reform the personal income tax, rationalize subsidies and tax expenditures and strengthen spending control. Beyond this year, it will be essential to deepen the reforms of the tax systems, of pensions and co-participation, in order to gradually eliminate distorting 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 foreign currency is free choice, the real monetary policy rate would remain positive to sustain the demand for pesos and continue reducing inflation.
He considered that “exchange rate policy should also become more flexible to reflect economic fundamentals, safeguard disinflation, and the reserve accumulation process, especially as capital flow management measures are gradually lifted as “conditions allow it.”
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And he said that “new measures are also necessary to define the pillars of the new monetary regime, as well as to develop and begin to implement a gradual reduction of currency controls.”
Gopinath said that “increased focus on micro-level reforms will help support recovery and boost development potential. The proposed reforms to improve competitiveness, increase labor market flexibility and improve predictability of the investment regulatory framework are steps in the right direction, and their approval and careful implementation should be a priority. This should be complemented by reforms to improve transparency and governance.
Financial investments in dollars
The Central Bank facilitated financial investment in dollars by revoking a regulation that hindered this possibility, thus adding a new chapter to the process of gradual dismantling of the stocks with an eye toward currency competition.
The monetary authority established that people will no longer have to transfer the dollars obtained from income or amortizations to their bank accounts and then reinvest them, but rather they will be able to do so directly in the following 15 business days. The measure was adopted based on Communication “A” 8042 and will come into effect on July 1.
The standard does not include dividends obtained from that investment. Market operators considered the measure insufficient to achieve an improvement in the functioning of the market and demand that Communication 7,340, which maintains much more severe restrictions on this type of operations, be repealed.
Caputo for “the only way”
The Minister of Economy, Luis Caputo, highlighted that the “best news” for the country is that “people decided that this is the only way to be a better country” and stated that “the course is not going to change.”
“The best news is not the drop in inflation, nor the Base Law, nor the renewal of the swap with China, nor the review of the Fund. The best news is that people decided that this is the only way to be a better country “, the minister published on his social network “X”.
Along these lines, he urged that “we do not lose focus, because there will always be difficulties, but the important thing is that the course is not going to change.” “And, if we do not change course, we are going to get where we set out to be. And if businessmen and ordinary people accompany us, we are going to get there much faster,” the official concluded.
After knowing the inflation data for May, Caputo remarked that with 4.2% “the ongoing disinflation process deepened,” highlighted the Minister of Economy. “The price dynamics were once again below what was expected by the consensus of the analysts participating in the BCRA’s Market Expectations Survey (REM),” said the Treasury Palace.
He stated that the three-month moving average of the National CPI variation was at the lowest level since July 2023, and was almost 6 points lower than the 6-month moving average. “This last indicator, which still incorporates the months where the main relative price adjustments occurred (exchange rate, goods and services under price controls and public service rates), is already the lowest since December,” said Economía.
And he considered that “core inflation, which excludes regulated and seasonal components, was 3.7%, also the lowest pace since January 2022. The interannual variation of the CPI was 276.4% yoy, exhibiting the first deceleration in 12-month comparison for the first time since July 2023.”
