With impact of drought on agenda, government travels to US to wrap up review with IMF

This week, the Ministry of the Economy will send its entourage of civil servants in Washington to conclude with the IMF, before the end of February, the technical review of the objectives for the end of 2022, but also with the mission of shaping a more urgent and critical: the concrete impact that the drought in the Argentine economy and its possible effect on the program of goalssomething that for months has been at the top of the agency’s list of concerns.

After an initial face-to-face contact with second-line officials of the Monetary Fund in early February in Buenos Aires with a first series of meetings in various offices of the Palacio de Hacienda and the Central Bank, the economic team is now preparing its own delegation to the North American capital, which will give this technical round trip a definitive shape, an agreement on the result of the revision of the quarterly objectives of last December, and the paved way for weeks later to arrive at a first disbursement of $5.4 billion with the approval of the board of directors.

The Minister of Economy Sergio Massa instructed its Deputy Minister and Secretary for Economic Programming Gabriel Rubinstein and the head of advisers and one of the finicky ones in relations with the Monetary Fund, Leonard Madcur, to travel this Friday to the United States to take this step. The bulk of the meetings will take place the following week and will conclude with a statement from agency staff with general directions.

Like every quarter, they will highlight whether they have been fulfilled or not and to what extent the quarterly objectives, if any to renouncer (exempted) for an item that falls outside the body’s manuals – one of them will be the soybean dollarwhich, because it is a differential exchange rate practice, is not accepted by the Fund’s Articles of Association – and certain forward-looking considerations regarding how the overall implementation from the program.

It is here that appears a central element of the discussion of these last months with the technicians of the Monetary Fund: that of being able to measure as precisely as possible whatconcrete consequences will have in the public accounts – mainly in the accumulation of reserves at the Central Bank – the severe drought which affects agricultural production over a vast territory of the whole country. The government, for the moment, does not risk a final projection on the number of fewer tonnes of production, fewer exports and therefore fewer dollars that will be liquidated.

as much as he could tell GlobeLiveMedia, the issue of drought had already been on the concerns of IMF technical staff since the end of 2022, when a serious climate impact was expected. Something along these lines even came to express the team of the agency in its latest report approved by the board of directors. “The intensification of the current drought could reduce the agricultural exports and foreign currency inflows, fueling inflation and jeopardizing program objectives. The risks of program implementation remain high given the highly complex internal economic, social and political situation,” he said.

The central consequence of the drought would be to reduce the inflow of reserves, which would trigger, according to the Fund’s hypothesis, different consequences at the macro level. “Contingency planning and agile policy adjustment, including increased hardening of politics if the risks materialize, they will be essential to safeguard macroeconomic stability. Efforts will be essential to maintain broad political support for the program and its funding strategy,” stressed the Fund’s technical team.

The IMF had also already given signs that a third episode of the soybean dollar was not desirable. “Measuring dependence for that and distortions, including foreign exchange restrictions and multi-currency practices (among which the soybean dollar), should be avoided in the future, as they are not an adequate means of addressing macroeconomic imbalances,” the IMF warned. . The Fund’s warning is that such measures lose efficiency as they repeat themselves.

Minister Massa predicted in an interview over the weekend that the drought would be part of the discussion. “The Fund proposes that let’s talk frankly what is the impact of drought. With the intelligence of the staff, we see what that impact is,” he said in statements to cnn in spanish and assured that the agreement with the Monetary Fund “is workable”.

The risk is that with a much weaker inflow of dollars from agricultural exports, the first quarterly reserve target for this year, of $500 million above last December’s level, will not be met. So far this year, the BCRA has lost some $1.1 billion.

The December 2022 targets, in this context, are a less thorny issue. The economic team assumes that the three central objectives, which are the accumulation of reserves, the limitation of the deficit and the monetary question, will be approved by the staff and the board of directors. Accordingly, the first disbursement of the year, scheduled for mid to late March, would be $5.4 billion. They will be used, in full, to pay the installments to the Fund itself in the coming months.

Regarding this year, the government must reduce the primary budget deficit by 2.4% of GDP with which it would have ended 2022 until 1.9% of GDPwith a monetary issue ceiling to help the Treasury 0.6% of GDP. On this last point, the first three months of the year will have as much ceiling to finance the deficit $139 trillionabout one-sixth of the nominal annual peak, which is $883,000 million.

According to the agency’s estimates, the main tools for achieving the goal of 1.9% of the deficit will be the reduction of social expenditurewhich would represent 0.8 points percentages and an additional size to the energy subsidiesfor an amount equivalent to other 0.6 points percentage.

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