Monday , October 25 2021

Chronology of the Year in which Argentina Returned to the International Monetary Fund


In the local front, few events marked both the economic and political agenda of 2018 and the government's decision to request, in a preventive way, the entry of credit agreement with the International Monetary Fund. If 2019 will be remembered as one of the many years marked by the electoral factor, 2018 was undoubtedly the year that Argentina returned to the Fund.

The history of the agreement between Argentina and the IMF is divided in two years, strictly speaking, because there were two requests to Washington, where the agency headquarters is: first in June, and the second in October. The first chapter occurred in the last weeks of April, when, after a relatively quiet start to the year in terms of trade, the value of the dollar began to rise rapidly.

For the government, the "turbulences", as he called them, were the result of a combination of external factors (the increase in US Federal Reserve interest rates) and internal factors (the approval of a bill that allowed the application of a financial income tax to the foreign holders of Lebacs). Over the 7 days, the exchange rate ended up increasing 11.44%.

Faced with such escalation, the government left to calm the waters. In a message of just over 3 minutes, President Mauricio Macri announced that he had communicated with IMF Managing Director Christine Lagarde., to start negotiations for a line of financial assistance with the multilateral credit agency.

On June 7, the Minister of Finance, Nicolás Dujovne, and the president of the Central Bank, Federico Sturzenegger, announced that the credit granted to Argentina was the highest in the history of the multilateral credit agency: US $ 50,000 million in special drawing rights (the units used by the Fund to express its credit lines). The conditions at the time were as follows:

– The funds would be part of an agreement stand-bywith US $ 15,000 million in a first installment Equally strengthen the reserves of the Central and Treasury of the National Treasury.

– O USD 35 billion remaining to be delivered in equal shares over the period 2018-2022.

– Each disbursement would be linked to an assessment by a mission of the Fund on the basis of compliance with the fiscal and inflationary targets proposed by the Government to the multilateral organization.

– The Government has undertaken to accelerate the path of reducing the primary fiscal deficit, primary fiscal deficits of 2.7% of GDP by 2018; 1.3% in 2019; reach the primary balance in 2020 and register a surplus of 0.5% of GDP by the end of 2021.

Among the points of Memorandum of Economic and Financial Policies (MEFP) which was shared by the government included a request from the Fund to move forward with a disarmament of Lebac. The central letters were an important burden for the monetary authority, and each expiration signaled a warning. The expression "Super Tuesday" is no longer a novelty for a custom every two months.

But the announcement of the Accord's details did not accomplish its purpose. Despite the daily auctions of Central, the first disbursement of USD 15 billion was unable to calm the waters of exchange. The dollar rose 11% in a week. Seven days after accompanying Dujovne at the press conference, Sturzenneger resigned. Luis Caputo, until that time Minister of Finance, was in charge of the monetary entity.

So, without a strong change in politics or context, there was relative calm. July was the first month of the year in which the value of the dollar fell5 percent.

The peace lasted little. In the second week of August, the dollar rose 9.45% in four days. And after a short interval of two weeks, the last days of the month and the September saw an increase in the exchange rate by more than 23.76%.

As for many analysts it was an unfortunate maneuver under Caputo's supposed advice, President Mauricio Macri announced that the Government would initiate a second round of negotiations with the Fund to change the disbursement scheme. In principle, it would seek to adjust the times by advancing all funds before the end of 2019.

In September, the dollar hit a high of $ 41.87. It came to a breaking point in the last weeks of the month, when every day brought the headline "maximum historical dollar" in portals. The rule of non-intervention in the foreign exchange market "Toto" Caputo more firepower.

On September 25, during the first hours of operation, the president of the Central, who had a policy of "surprising" the market to combat the exchange rate increases, gave one last surprise. and I give up. Macri and Dujovne were in New York only hours away from announcing the new scheme of disbursements with Lagarde.

In Agreement II, the government planned to receive about $ 50 billion between 2018 and 2019, to which $ 7.1 billion will be added between 2020 and 2021. In return, the road to fiscal equilibrium will be accelerated, with the government committed to a primary zero deficit in relation to GDP.

With the agreement came a new chairman at the monetary authority, the third in four months. Guido Sandleris, the former number two from Dujovne, began implementing the new monetary program agreed with the Fund. The strategy was changed in relation to inflation targets a freeze on the growth of the monetary base was agreed to dry up the place of all outstanding surplus pesos.

Another element of the new monetary strategy strategy was analysts' recurrent concern about the government's ability to avoid the strong dollar swings that led to the recession in which the country was located. The exchange bands, or zones of nonintervention, place a ceiling and a clear floor in the value of the dollar with which Central was comfortable.

From the outset, the government seemed determined to demonstrate an unwavering commitment to the fiscal aspect of the economic program. Overriding the fiscal targets during the first agreement gave a margin of error, and the government was confident that, in fact, it guaranteed disbursements in the remaining section of 2018.

The latest disbursement was approved on December 19 after the Fund's executive board met for the last time in the year and gave its approval for progress on issues not only fiscal but also monetary.

In 2018, Argentina received $ 28 billion from the IMF. The government is confident that the continued seriousness shown in the fiscal plan will be enough to guarantee disbursements at least in the first half of 2019.

One year ends when the local economy has been marked by the Fund. Then, 2019, there will be elections. There is no doubt about the influence that the results of the first will have on the second.

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