IMF warns that electoral uncertainty could divert investment – 25/01/2019

Washington (correspondent) .- The International Monetary Fund warned on Friday that the uncertainty badociated with the presidential elections of October in Argentina is a "risk" that can undermine confidence and noted that the elections they could reduce "reform appetite".

The diagnosis for Latin America and the Caribbean that published Alejandro Werner, director of the Western Hemisphere of the IMF, underlines in the Argentine chapter that "the government's stabilization plan, based on revised and strengthened monetary and fiscal policies, helped to mitigate the financial turbulence and stabilize the rate exchange rate ".

He adds that "Inflation and inflation expectations have been dropping since October, and all indications are that continue to decline slowly in 2019. This would allow a gradual reduction of the rate of interest that, combined with an increase in real wages and exports, would generate a recovery in economic activity from the second quarter of 2019"

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The official reiterated the growth forecasts for the country, which coincide with those that the agency had already disclosed in its report on global expectations: a decline of 1.7 for 2019 and a rebound in 2020 that would reach 2, 7%. More optimistic, the government estimates that GDP will fall this year 0.5 percent.

In the chapter on internal risks, he mentions a "decline in confidence due to political uncertainties in Brazil and Mexico, as well as the uncertainty related to the elections in Argentina", adding that "the elections of October may "reduce the appetite for reform".

At a press conference at IMF headquarters, Werner detailed the risks and made it clear that they are not tied to any potential expenses during an election year. "We have seen a clear commitment from the government to meet the budget targets it set for 2018, even more severe than before."

"When we see the effect of political uncertainty on the prospects of the Argentine economy, it is insofar as investors must see what will happen in the long run"Says Werner and it is understood that elections can have an impact, especially if the Kirchner wins.

"Investors must not only know how the Argentine economy will behave in the next 6 or 8 months, but also in the next 24 and 36 months," he said. what will be the political framework that will govern Argentina from 2020 This will be very important for someone who wants to invest in Argentina for the next decade. "

"For the recovery of investments, it will be important to know what will be the policy framework not only in 2019, but in the next four years. Same thing for an investor who is considering buying a bond a year or 24 months or for the saver in Argentina who plans to extend his term of office and, in this sense, all the noise badociated with an electoral process limits his speed. "When asked s & # 39; They saw economic policy as a potential risk after the elections, Mr Werner said forcefully: "In emerging economies, a major shift in the direction of economic policy has always represented a considerable risk."

Regarding the price index, Werner said that "inflation expectations will drop slowly as they stand at around 28% or 27% by 2019," badysts said. However, a decline in inflation of a rate closer to 50% at a rate of 28 or 27% is not a slow decline. I think this will reflect the consistent monetary policy implemented, the stability of the exchange rate found. "

"It would be desirable not to have observed such a high inflation revision in 2018., but I think we need to focus on the change of trend that will be important in 2019 with a reduction in inflation of the order of 2 digits. "He added that the IMF would make a second revision of this index when a new mission of the IMF would arrive in Argentina, in February.

As part of the confirmation agreement with the IMF, Mauricio Macri's government has agreed with the agency to reduce the budget deficit to 0% this year, implying a strong fit in an election year. To date, the agency has approved the results of the economy (a final exam was finalized in November) and disbursed nearly half of the $ 57,000 million of the total loan. The government also did its part because it exceeded the proposed fiscal target for 2018. The primary deficit was 2.4% (the target was 2.7%).

At the regional level, the report points out that economic activity in Latin America continues to grow, but at a slower pace than expected. "The weakening of the world economy and the increase in political uncertainty contribute to moderating the growth momentum in Latin America, "he said.

The region is expected to grow by 2% in 2019 and by 2.5% in 2020, below the global growth average of 3.5% for this year and 3.6% for next.

Werner notes that tighter global financial conditions and falling commodity prices, which have generated trade tensions between the United States and China, have contributed to slowing growth in the region.

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In addition, he adds, monetary policy in some economies has contracted to contain the inflationary pressures partly related to the depreciation of the currency, further dampening growth.

"In terms of tax policy – which has also become less flexible – around half of the region's economies reduced their primary deficit as a percentage of GDP in 2018. However, this was not enough to put the public debt on a downward path, with the exception of Argentina, "he said.