IMF: Deal opens door to another “soy dollar” but government must speed up subsidy removal

The new stage of the program with the International Monetary Fund will be marked by a concession and a stronger demand, which will take place in parallel: there will be a higher margin for the Ministry of the Economy to accumulate Reservations without falling into non-compliance but should speed up the start of the removal of subsidiesa point on which the organization has notably hammered when discussing the fiscal future of the executive in recent weeks.

The government celebrated, but cautiously, the approval of the agreement with the staff of the Monetary Fund, which will give the green light to a modification of the reserve accumulation requirement, a goal which has been complicated by the impact of the severe drought that affected agricultural production. Caution is linked to a very tight time game.

the directory won’t happen decide on the approval of the staff report before March 22 -date on which the due dates fall- so that two alternatives will be open to the economic team: either pay the $2.7 billion with reservations or is negotiating that payment obligations move to the end of the month, a more likely date when the board can give the go-ahead for the disbursement of $5.4 billion.

Beyond the definition of a payment date, the consensus reached by the economic team with the technical services of the IMF provides for substantial modifications to the program Extended fund facilities (EFF), which will be one year old next week. The main change concerns the more sensitive target of the program, and the one that was announced with the biggest storm clouds due to the drop in exports caused by the drought.

At the Palacio de Hacienda, they chose not to give specific figures on how the new targets for collecting foreign exchange in the BCRA would be established, but it turned out that at the end of the year they would end up being around $2 billion less than $9.8 billion traced in the original roadmap.

The use that can be made of the reserves was also on the table of discussions between Buenos Aires and Washington. The agreement was that monetary authority dollars cannot be used to effect debt buybacks in foreign currencies, which does not mean that the redemption process has been prohibited. “Maybe with a deposit (banks)”, slipped a high-level official source on Monday a few hours after the publication of the Fund’s press release.

There will also be another restriction on the use of reserves: they cannot be used for intervention at the price of parallel dollars such as Cash with Settlement or MEP. “That not to do with reservationsit’s not a problem”, they defended themselves to the economic team.

Another element that led to the conclusion of the showdown between the government and the IMF is the possibility of a new soybean dollar. The Fund, by law, does not accept the practices of multiple exchange rates as a regime of this nature would be. In the last staff report, he even advised against a third edition of this measure, considering that it could “stop being effective”. He had also acknowledged that he had served the executive branch to meet its reserve targets last year.

In the end, this last criterion prevailed. As they made known to the economic team, although they cannot give direct support because it is a measure that goes against their manual, the negotiation between the government and the Fund Open the door for a new “soybean dollar” or alternative versions such as the differential exchange rate for regional economies that he announced Sergio Massa A few weeks ago.

There has been room, during the last two weeks of exchanges between the staff and the group of managers, for flirtations on various subjects. One of them, on which the IMF has particularly hammered, concerns the establishment – complete and definitive – of a system of removal of subsidies which has a weight in the tax reduction. The agency felt that the announced plan had fallen behind schedule and informed the government of this, even leaving it reflected in the statement.

“To achieve deficit reduction targets and strengthen the progressivity of energy subsidies, the authorities plan to continue implementing the agreed segmentation scheme, eliminating subsidies for high-income residential users. From May and for commercial users end of 2023hurried the staff.

According to the logic of the Monetary Fund, it does not make economic sense for tariff subsidies to continue to be a mechanism by which low-income sectors pay with their taxes for subsidies to the wealthier part of society. Possess advice He had already warned against this issue on different occasions in the past.

In the economic team, they now admit that they will have to speed up this process, and that a significant part of the population still has to access and regularize its situation before the Ministry of Energy. For this, they will carry out renewed campaigns so that users return to the Register of Access to Energy Subsidies (RASE).

There retirement moratorium recently approved by Congress was one of the factors that stretched the definition of the staff agreement. As the Palacio de Hacienda commented, even the enactment of this law took place when the bulk of the consensus had already been reached, which is why forced to review tax forecasts.

Part of the budgetary cost of this payment plan for pensioners without full contributions, they say within the executive branch, is covered in the 2023 budget, but the Monetary Fund has particularly insisted that its implementation will not does not imply “a spending overflowand its scope is limited.

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