IMF focus on saving Argentina from dangerous inflation path

The International Monetary Fund is focused on getting Argentina to make economic changes to curb runaway inflation and wants a plan to increase tax revenue and improve public spending in a staff-level agreement with the nation.

The IMF recognizes that the program being worked out after an initial understanding was reached last week needs to have broader support from society, a lesson learned from the deal that collapsed in 2018, Managing Director Kristalina Georgieva said Thursday. A program would help the nation avoid an even-worse economic deterioration and increasing poverty as it battles inflation running above 50%, she said.

Georgieva underlined the importance of the plan being based on realistic assumptions that don’t only depend on the expected scenario but also contemplate risks. It must recognize the limits of the potential for making changes in Argentina in the coming years, given the opposition from the radical left-wing portion of the country’s ruling Peronist coalition, she said.

Tax and spending changes are “two areas of structural conditionality that would come in the staff-level agreement,” Georgieva told reporters in a virtual news conference. “Our main focus is to get Argentina out of this very dangerous path of high inflation.”

Argentina and the IMF must agree on details of the deal in the coming weeks, and it still needs to be approved by the country’s congress and the IMF’s board of directors. The pact would help refinance more than $40 billion of outstanding debt the nation has with the lender stemming from the record 2018 bailout.

‘Generous’ Subsidies

The IMF says that Argentina has agreed to gradually decrease its energy subsidies, which totaled almost $11 billion in 2021 and Georgieva said have been “quite generous, not just for the poor people in Argentina.” But there are still no details on how exactly that process will be carried out, and raising prices may be the most politically sensitive decision in Argentina’s IMF deal.

Argentina’s government expects to reach a staff-level agreement with the IMF in the next three to four weeks before sending it to congress for approval. The Fernandez administration wants to finalize a deal with the IMF before late March, when a $2.9 billion payment comes due, after reaching a staff-level agreement sometime this month.

Asked what will happen if those processes aren’t completed by the time Argentina’s payment is due, Georgieva declined to speculate.

“Obviously we will do our part in terms of engaging to get to the details of the program,” she said. “We have some weeks of hard work for the two teams in front of us.”

Argentine President Alberto Fernandez faced an early setback this week when Maximo Kirchner, the son of influential Vice President Cristina Fernandez de Kirchner, resigned from his leadership post in congress, citing his disagreement over the deal.

Argentina is seeking its 22nd IMF program for the nation’s crisis-prone economy. Some conditions that the IMF required of Argentina in past plans made them politically unpopular and ultimately unfeasible to put into place.

The IMF’s goal has been to “to calibrate the program to be implementable” rather than fixing every aspect of the economy all at once, Georgieva said.

“Let’s concentrate on getting an agreement and then sticking to this agreement, so we see improvements in Argentina, not solving all the problems in one go,” she said. “But what is the alternative? The alternative is nothing, and then the deterioration continues increasing poverty.