election allergy | IMF does not like polls

Neither record inflation nor rising unemployment. Neither capital flight nor industrial paralysis. The International Monetary Fund is concerned about elections. The authorities of the multilateral body warned yesterday that the election result "could reduce the appetite for reform". After pledging more than $ 28,000 million to end the exchange rate and eliminate the risk of default, the IMF said "election uncertainty" is the main domestic risk for Argentina. . The next disbursements of the Fund are not only subject to compliance with the budget adjustment and monetary contraction plan, but also to the implementation of a set of "structural reforms" as part of the lender's ongoing program. . For this reason, although the Washington DC reports celebrate the implementation of the austerity program, the authorities of the organization fear that an electoral defeat of Cambiemos will block the reform of the pension system or labor reform.

The warnings were issued yesterday by the head of the IMF's Western Hemisphere Department, Alejandro Werner. "In Argentina, the general elections to be held in 2019 could reduce the appetite for reform," said the economist in an article published on the blog Diálogo a Fondo. Werner's concerns about the outcome of the elections have not changed his forecasts for the country. In allocating its badysis to the forecasts of the Latin American countries, the Fund Manager repeated that Argentina would end the year 2019 with a decline in the level of activity of 1.7% . The recovery would occur in 2020, when they expected GDP growth of 2.7%.

"The political uncertainty weighing on the outlook for the Argentine economy essentially has the effect that investors need to know what will happen in the long run," Werner said at a press conference at MFI Headquarters "In emerging economies, a major change in the direction of economic policy has always been a considerable risk, and what will be the political framework in Argentina from 2020 will be very important for someone who wants to invest in the next decade, "said the economist. From his point of view, the combination of austerity, deregulation, openness and flexibility can recover market confidence and promote a growth cycle based on investment . It expresses the same logic that accompanied the announcement of the frustrated investment rain. Historical evidence, on the other hand, reveals that local or foreign firms make capital expenditures only when they expect an increase in demand.

"The government's stabilization plan has helped ease the financial turmoil and stabilize the exchange rate," Werner said. Although the Fund has reached its highest level in 27 years in 27 years, the austerity program will be accompanied by a slow reduction in price increases that will translate into improved purchasing power. "Inflation and inflation expectations have been trending down since October, and all indications are that they would continue to decline slowly in 2019. This would allow for a gradual reduction in the interest rate badociated with inflation. an increase in real wages and exports., would generate a recovery in economic activity from the second quarter of 2019, "said the head of the department of the Western Hemisphere. In the logic of the agency, the increase in real wages would not be done by the joint but by lower price increases. In this combo, the IMF adds a drop in rates and an increase in exports to achieve "a recovery from the second quarter."

The agency also hopes that the neoliberal program announced by Jair Bolsonaro in Brazil will boost growth. This is why he raised his forecast for the neighboring country from 2.4 to 2.5%, from 2.4 to 2.5%. "The new government's pro-market reform program has helped boost business confidence and improve the country's growth prospects in the short term, with growth expected to exceed 2% in 2019 and 2020 for the first time since 2013", indicates the report prepared by Werner.

But the IMF does not discriminate. Although he does not hide his enthusiasm with Bolsonaro, the body warns that "market confidence could deteriorate if it does not advance pension reform or fiscal consolidation". Werner's concern is that "the fragmentation of the Congress could create obstacles to the implementation of the ambitious program of structural reforms." If it continued, political uncertainty could discourage investment and jeopardize growth prospects. of the region. "

@ tomaslukin