IMF executive board approves relaxation of reserve accumulation targets

The lender did not modify the 1.9% fiscal deficit goal for 2023

The Executive Board of the International Monetary Fund (IMF) completed the fourth review of Argentina’s program yesterday, which will allow an immediate disbursement of about US$5.4 billion. 

In its official press release, the IMF also approved “a modification of the reserve target”, something the government had demanded amid the ongoing drought, and that the IMF staff had recommended on March 13th.

However, the board did not specify the amount of that “relaxation.” Argentine officials told the Herald that reserve targets will be lower at both quarterly and annual levels.

Before the latest review, Argentina was expected to reach US$9.8 billion in reserves in 2023 — a US$4.8 billion increase compared with the 2022 target.

The government and the IMF signed an Extended Fund Facility agreement in 2022 after renegotiating the US$44 billion debt former President Mauricio Macri acquired in 2018. The deal includes an economic program that Argentina must comply with in order to receive disbursements every three months, which are used to pay for the previous debt with the IMF.

In the fourth review, corresponding to the last quarter of 2022, the board said that “all quantitative performance criteria through end-December 2022 were met with some margin, supported by firmer macroeconomic policy implementation.” 

However, the board said that the current backdrop of  “an increasingly severe drought, rising inflation, and weak reserve coverage” demands “a stronger policy package.”

“Achieving the 2023 primary fiscal deficit target of 1.9 percent of GDP remains essential to support disinflation and reserve accumulation, alleviate financing pressures, and strengthen debt sustainability,” Gita Gopinath, First Deputy Managing Director and Acting Chair, said in a statement.

Apart from not revising the fiscal deficit goal, the IMF said the pension buyback scheme approved in February would have a “fiscal cost” that “should be mitigated through strong regulations to target entry only to those with the greatest need.”

The board also said that “real interest rates should remain sufficiently positive to tackle high inflation and support demand for peso assets” and even said that “further rate increases may be warranted in the event of further inflation shocks or intensification of foreign exchange pressures”. 

The statement recommended “additional macroeconomic policy tightening” and “further modifications to foreign exchange policies”. 

“Political support for program policies remains critical in the period ahead,” the communiqué ended.

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