IMF warns about debt level and thinks recovery will be slower than expected

IMF halves its growth projection Argentina's economy for 2020, suggesting that the international organization expects the recovery to be slower than expected by the government. The budget advance for the following year, sent by the executive branch to Congress last week, provided for a change in the GDP of 3.5%, the Fund placed it in 1.1%.

The Monetary Fund published this afternoon the report prepared by the technical staff who visited Buenos Aires in May. The report was approved last Friday by the agency's board of directors, which announced a new $ 5.5 billion payment to the Treasury.

The document includes, in addition to this change in the estimation of growth, warnings on financing needs in the coming months, recognition of the objectives achieved by the government in fiscal terms and monetary policy. On the other hand, he again called for a comprehensive tax reform that eliminates some taxes, expands the scope of the results and increases the collection of VAT.

The technical team led by Roberto Cardarelli estimated that the reduction in growth forecasts for 2020 was influenced by two factors. The first was that inflation rates, despite the decreases recorded in recent months, expected. "On the other hand, the pace of economic recovery" will be slower "compared to what the IMF previously estimated.

The expected growth rate then went from 2.2% for the next year to 1.1%. Thus, the Fund's projection is well below that indicated by the executive in the progress of the draft budget, in which it calculated a GDP improvement of 3.5%.

The report said that prospects for improved activity have been reduced this year by a "weak" rebound in consumption and imports and by lower growth for Brazil, the country's main economic partner. . "The revival of agricultural production and the gradual rebuilding of real wages should help restore growth in the second quarter of the year," the IMF said.

However, he warned, with inflation being "more persistent" than expected, "interest rates will have to stay high longer, which will affect consumption and imports." Technicians also adjusted the rise in prices that they expect for 2020: it went from 21.2% over the year to 32.1%.

The Monetary Fund has acknowledged that the program signed with Argentina "faces significant risks". The most important, he says, is a change in the "preferences" of investors that lead to the sale of domestic badets and an increase in dollarization that "triggers a depressing pressure that influences inflation, on an increase in the debt / GDP ratio and losses in international reserves, "he explained.

This situation, speculate staff technicians, could also be combined with "a reluctance (of investors) to renew debts in pesos and dollars, which could create a" budget deficit to finance and which deepens the concerns about liquidity and "solvency" in the payment of debt by the government.

Finally, the IMF said that in the medium term, "debt sustainability remains extremely vulnerable to shocks, especially negative surprises about economic growth." In addition to these financial risks, inflation could remain stuck at high levels. or that the recovery of activity is delayed, which would lead to a deterioration of social indicators, an increase in poverty and an erosion of public support for the program signed by the government, "the report said.

More firepower for the BCRA and the challenge of raising a tax

The IMF has agreed to extend the room for maneuver the Central Bank needs to operate on the future dollar market, which is one of the ways in which the monetary entity is to intervene on the dollar. Change market.

According to the report released Monday, the body that runs Guido Sandleris will now have an open position on the dollar futures market for $ 3,600 million. The current limit of the BCRA was 1,000 million.

This implies that the Central Bank will have even greater firepower to act in case of exchange rate instability. At the end of April, the Central Bank, after entering into an agreement with the IMF, decided to eliminate the restriction on its intervention as long as the dollar remained in the waterline. Since the announcement of this policy change, the peso has appreciated nearly 8%.

The report of the body that runs David Lipton acting also blamed the government for a measure taken in recent months. This is the increase in the statistical rate applied to imports from the country, adjusted from 0.5% to 2.5%.

"Obviously, an increase in this tax is contrary to the staff's recommendation to increase openness and remove barriers to free trade, and the increase in tax is likely to # 39, have a direct impact on inflation ", criticized the IMF technicians.

News in development being updated.