What are the variables that Argentina and the IMF are negotiating to approve the objectives for the first quarter?

The negotiation between the government and the Monetary Fund which will define the scope of the change in accumulation goals reservations was this Tuesday at “writing phase”as they assured GlobeLiveMedia official sources. At the Ministry of Economy, they hoped to have concluded the agreement with the technical staff of the organization this week.

A series of elements appeared, in the technical round trip, as the most amply defined in this last kilometer of negotiation between Buenos Aires and Washington. The main one was to determine, in addition to the new annual and quarterly foreign exchange collection targets at the Central Bank, whether there would be a system and how it would work. “automatic” mechanism readjustment according to the rhythm of exports.

This happens because in some official offices they believe that external sales can after the full impact of the drought in this first part of the year, pick in the second quarter during the months of heavy harvest. Although the reduction in the dollar accumulation obligation should be significant, the final scope will be known with the final report that staff will send to the board for processing towards the end of March.

The statement from the Fund’s technical team will also include a general overview the implementation of the program, beyond the specific discussion on the new scenario of reserves due to the drought and the drop in exports. A lower than expected level of grain sales will imply less export duties collected and less tax revenue.

This variable will therefore have an impact on collection prospects for the first months of the year, an effect which is already beginning to be felt in the official figures for January and February. In the government, they ensure that there will be no modifications in the budget targetseven if compliance with the quarterly primary deficit ceilings will be more in a hurry because the public sector has fewer source deductions.

In January, for example, the Treasury has already “used” more than 40% of the nominal ceiling it has for the first quarter due to an acceleration in late payments at the end of 2022, which caused it to grow by more than 1000% the primary deficit.

There collection It was part, until last September, of the conditionalities of the program. It even had a tax revenue floor to reach during each quarterly review. But after staff’s second review, when they assessed the numbers at the end of June, and in which the collection target was narrowly missed, this metric Was eliminated of all the required objectives.

In addition, on the tax front, discussions took place between the parties on the cost savings that could have been achieved in the event of full implementation of the grant segmentation to energy prices.

For the IMF, the relevance of the removal of subsidies for the fiscal program is central: if fully implemented, it would represent savings equivalent to 0.5% of GDPwhich is exactly the proportion of deficit reduction that Casa Rosada needs this year.

The initial quarterly objective stipulated that the leading agency Miguel Pesce should have by about March 31, about $7.8 billion. This is composed of $2,277 million with which the BCRA already had in December 2021 -according to IMF calculation- plus the $5.5 billion which were planned for this first quarter. Everything indicates that these figures will now be much lower.

Time is running out and the next expiration date – which borders the $2.7 billion– approaches in the payment schedule. The staff, after communicating that they are relaxing the foreign exchange collection target at the Central Bank, must prepare the technical report which will be turned to the directory Few weeks later. With the final green light, there will be a disbursement of some $5.4 billion.

The IMF’s board of directors agreed in recent hours to extend the funding limit available to member countries and avoided a decision on changing the interest surcharge system available to their funding programs.

“The Board today agreed to temporarily increase the limits on members’ annual and cumulative access to Fund resources in the General Resources Account (GRA). These changes aim to better support Fund members in a particularly challenging and uncertain economic environment,” the agency said in a statement.

“IMF loans are subject to an annual and cumulative limit… Access limits were last set in 2016, with an annual limit of 145% of fees and a cumulative limit of 435% of the quota“recalled the organization. With the update of this mechanism, the annual ceiling has been raised to 200% of fees of each country and the cumulative limit to 600% share for a period of 12 months.

“These changes will provide member countries, especially emerging markets and developing economies, in the face of higher pressures and vulnerabilities to access greater financial support from the Fund without activating the exceptional access framework,” the Monetary Fund said.

The discussion within the board of directors, which took place on Monday, not included in this agenda the debate on the interest surcharges that its programs have, a usual claim of Argentina before this forum. “Yesterday’s decision by the Executive Board to temporarily increase general limits on access to the General Resources Account (GRA) has no impact on the IMF’s surcharge policy (i.e. level-based and time-based surcharges). remain unchanged),” said a spokesperson for the agency when interviewed by GlobeLiveMedia.

“The surcharges were last discussed by the Board of Directors as part of the precautionary balances review in December 2022 and were not changed at that time,” the source added.

Roughly speaking, there are two types of rates that influence the amount outstanding with the IMF: one of 200 basis points (2% annual) because the credit taken by Argentina exceeded 187.5% the amount of quota that the country has as a member of the organization -was even close to 1.200%-, and other 1% annual to have access to this exceptional level of loan for a period of more than 36 months.

The accumulation of these surcharges ends up having a considerable specific weight in the financial roadmap of the agreement. According to data provided by the Monetary Fund, of these 54.8 billion dollars to be returned between 2025 and 2032, some $8.7 billion correspond to the considered element “charges”. Within this category, flight attendants will represent slightly more than $5 billion.

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