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The keys to the Government’s negotiation with the IMF

The Government and the International Monetary Fund (IMF) This Thursday they will maintain a direct dialogue for the final wording of the document that defines the second renegotiation of the agreement for the US$45 billion loan that the country maintains with the organization.

The negotiations, which were maintained from the moment Javier Milei was elected President, were developed in full agreement given that the economic program of the new administration is more severe than any imposition of the organization.

The key is the elimination of the fiscal deficit and the possibility of quickly reaching a primary surplus that leaves room to service the debt in foreign currency.

In the last pact signed with the former minister, Sergio Massa, in August, the IMF had accepted a primary deficit of 0.9% of GDP for 2024. But Milei goes further in this objective and proposes taking it to zero, which is almost a surprise for the organization’s staff who, now, doubt the political and social capacity for its implementation.

Hence the presence tomorrow in Buenos Aires of the head of the Western Department, Luis Cubeddu, and his deputy, Ashvin Ahuja.

But in addition to Milei’s intention to sweep away the country’s fiscal deficit, the proposed tools are those that the organization always demanded.

  • Lower salaries in the public administration (will be done via liquefaction due to inflation)
  • Lower pensions (they will also be reduced as a percentage of GDP due to inflation).
  • Removal of subsidies (increases in public service rates have already been announced)
  • Reduction of state expenses (will be done with the suppression of ministries, undersecretaries and other expenses).
  • Limitation of public works (new tenders were suspended and a scheme with private participation will be sought).
  • Devaluation of the exchange rate (it has already been done and a monthly correction of 2% is expected)
  • Non-intervention and deregulation of the exchange market (the Central Bank is taking measures in this regard almost daily).

The legal procedure to lift the agreement that is virtually fallen will be the request for a waiver (forgiveness) from Argentina for its non-compliance.

“There has been rapid progress in the formal dialogue with international organizations, including the International Monetary Fund. The central objective is to clear up the uncertainty surrounding the agreed disbursements with a view to meeting future capital maturities. This uncertainty responds to the obligation that Argentina faces initiating the formal process of requesting a waiver for non-compliance with the goals agreed in August of this year,” the BCRA said in a recent report.

The monetary authority added that “the Government will make the necessary efforts to restore the validity of the agreement signed with the IMF and will carry out additional negotiations that it considers will contribute to improving the current financing conditions.”

Another key piece of information is the Argentine Government’s request to postpone a maturity of US$1.9 billion with the IMF until the end of the month.

If negotiations continue along current lines, before the end of January the organization’s Board of Directors could approve the new pact.

There, Argentina could receive some US$3.6 billion of floor, product of the US$2.6 billion pending in November and an advance of the US$1,000 that should arrive in March.

With that money, the US$960 that CAF lent in December would be returned and the January and February maturities (US$900 million) would be paid.

In this way, the BCRA could use part of the accumulated reserves, close to US$3,000 million, to meet some of its pending obligations.

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