## 1argea2019003 ## Source details **Canonical URL:** [1argea2019003](https://www.imf.org/-/media/files/publications/cr/2019/1argea2019003.pdf) ## Other formats - [Markdown version](/-/media/files/publications/cr/2019/1argea2019003.pdf.md) - [Structured JSON version](/-/media/files/publications/cr/2019/1argea2019003.pdf.json) --- ### Recent developments and real economy - Economic activity contracted during all quarters of 2018; GDP fell by 2.5 percent for the year as a whole. - Recession accelerated in the last quarter of 2018, with virtually all sectors shrinking except agriculture. - Labor market: about 200k formal jobs lost during 2018; unemployment rate ended the year at 9.1 percent versus an average 8.4 percent in 2017. - Real wages fell by about 8 percent on average in 2018; decline appears to be bottoming out in early 2019. - High-frequency indicators point to a slowing pace of contraction in early 2019. ### Monetary policy, FX operations, and financial markets - Monetary base kept below BCRA targets in 2019Q1: below target by 0.5 and 3 percent in January and February respectively. - BCRA FX rule allowed purchases when peso traded below the lower edge of the non-intervention zone; close to US$1 billion purchased in January/early February under rules-based framework. - BCRA measure limiting banks' LELIQ holdings: banks could hold no more than 65 percent of their deposits or 100 percent of their capital (whichever is higher) in LELIQs; staff considers this a Capital Flow Management Measure (CFM) consistent with the Fund’s Institutional View. - Sovereign issuance: government placed AR$23 billion in inflation-linked bonds; average maturity of new issuances lengthened from 5 months in December to over 7 months in January/February. - Treasury FX conversion auctions: daily auctions of US$60 million per day from April 15 until end-November implying total sales of US$9.6 billion; pesos received to remain deposited at the BCRA until needed for fiscal purposes. - BCRA actions to tighten monetary conditions: zero-growth in monetary base extended (average February monetary base outturn as target until November); change in slope of non-intervention zone reduced to 1¾ percent per month in Q2; FX purchases when outside non-intervention zone capped at US$50 million a day in March and April and limited to no more than 2 percent of the monetary base target. ### Inflation dynamics and outlook - Monthly headline inflation: February 2019: 3.8 percent; annual inflation reached 51.3 percent. - Core inflation: monthly 3.9 percent in February 2019. - Regulated prices contributed 1.3 percentage points to headline inflation in February 2019. - Inflation expected to end-2019 at 30 percent (10 percent higher than projected at time of the Second Review). - Reducing inflation will be protracted; extension of zero-monetary base growth to November 2019 and reduced non-intervention zone slope aim to signal tight monetary stance. ### External sector, reserves, and financing - Trade balance moved to a surplus of US$2.6 billion in 2018Q4. - Broad-based 20 percent y/y fall in import volumes in 2018Q4. - 2018 current account deficit: 5.4 percent of GDP (source also notes 2018 current account closed at 5.2 percent of GDP in another table). - Gross international reserves rose to US$65.8 billion at end-2018; end-March NIR was US$21.2 billion, US$1.1 billion above the adjusted program target. - Fund and other multilateral budget support cumulative projections: IMF budget support cumulative flows reported (e.g., end-March 2019: 24,412 US$ mn; end-September 2019: 35,356 US$ mn). ### Banking sector and credit conditions - Domestic currency credit to private sector shrank in real terms by 18 percent (y/y) in December 2018. - FX loans grew by 1.8 percent (y/y) in December 2018 (versus 110 percent expansion in 2017). - Spreads on new loans doubled from 12 to 23 percent. - Banking resilience indicators: specific provisions to NPLs at 87 percent; liquid assets to deposits ratio >50 percent; system-wide Tier 1 capital ratio at 14.2 percent. - Private sector NPLs: 3.0 percent in December 2018; mortgage defaults at 0.3 percent. ### Fiscal outcomes, targets, and adjustments - Primary federal government deficit: 2.6 percent of GDP in 2018 (down from 3.8 percent of GDP in 2017). - Primary spending fell by 7.3 percent in real terms in 2018. - Provinces ran a 0.4 percent of GDP primary surplus in 2018. - Fiscal outturns for January–February 2019: cumulative surplus of AR$23 billion or 0.1 percent of GDP; suggest end-March target likely to be met. - Tax revenue projections for 2019 revised downward by 1.7 percent of GDP relative to Second Review forecast. - Authorities intend to meet zero-primary deficit target for end-year and close remaining fiscal shortfall of 0.4 percent of GDP by reductions in capital spending and efficiency savings in lower priority social assistance spending. - Growth and inflation forecasts: Growth 2019 revised from -1.7 to -1.2 percent; inflation expected at 30 percent by end-2019. ### Fiscal quarterly profile and key fiscal numbers (as presented) - Authorities requested lower end-June primary surplus by about 0.1 percent of GDP while maintaining zero-primary balance target for end-year; revised end-June target AR$20 billion; end-September accumulated surplus AR$60 billion; end-December cumulative figures in AR$ millions (baseline cumulative from Jan 1): end-March 2019: 33,201; end-June 2019: 68,568; end-September 2019: 110,172; end-December 2019: 163,211. - Key fiscal table excerpts (percent of GDP or share values as presented): - Total revenue: 25.3 28.3 28.1 26.4 - Taxes: 17.2 19.7 19.8 18.2 - VAT (net of devolutions): 7.3 7.8 7.6 7.4 - Export taxes: 0.8 2.4 2.5 1.7 - Import taxes: 0.7 1.0 0.8 0.7 - Social security contributions: 6.2 6.6 6.3 6.0 - Non-tax revenue: 1.9 2.1 2.0 2.2 - Primary spending: 27.9 28.3 28.1 26.4 - Federal: 19.4 19.5 19.4 18.0 - Wages: 3.4 3.6 3.6 3.3 - Pensions: 8.9 9.7 9.6 9.2 - Subsidies: 1.9 1.6 1.5 1.4 - Capital: 1.3 0.9 0.9 0.8 - Transfers to provinces: 8.5 8.8 8.8 8.4 - Automatic: 7.4 8.1 8.1 7.8 - Discretionary: 1.1 0.7 0.7 0.6 - Memorandum item: GDP, in billion of pesos: 14,567 18,415 18,532 20,175 ### Revenue administration, compliance gaps, and structural benchmark actions - VAT compliance gap: estimated 33 percent, translating into 3.7 percent of GDP in foregone revenue; reducing this gap by one-third in five years would yield 1.2 percent of GDP in extra tax revenues. - Monotributo (simplified tax regime) concerns: about 3.5 million taxpayers registered; abuse creates inequity and significant revenue losses. - Administrative fragmentation: different units administer taxes with same base; recommendation to expand Large Taxpayer Office coverage nationwide and integrate fragmented IT systems. - Proposed structural benchmark for June 2019: implement an integrated auditing action plan for the Monotributo covering 20 percent of taxpayers under this regime. - Near-term AFIP actions include speeding up collection of revenue in arrears, enforcing payment plans, pressing VAT compliance using IMF TA advice, strengthening transfer pricing controls, and broader use of third-party data. ### Contingency revenue measures and spending composition - Staff suggested contingency measures in case of additional revenue shortfalls: - (i) deeper reductions in economic subsidies; - (ii) elimination of a range of tax exemptions; - (iii) an increase in the concessional VAT rates that apply to selected goods and services; - (iv) improving tax compliance. - Authorities indicated limited room for revenue measures requiring legislation during electoral year; reductions in capital spending identified as primary option. - Staff cautioned that cuts in capital spending should safeguard the highest quality projects. ### Social impact, AUH, and protecting vulnerable groups - World Bank estimates poverty rate: 31 percent in second semester of 2018, an increase of 5 percentage points from previous year; extreme poverty increased by 1.1 percentage points. - AUH covers almost two-thirds of poor households (3.9 million children); benefits are relatively low at 5 percent of the average wage per child. - Over 80 percent of AUH spending is received by the bottom 40 percent. - World Bank simulations: doubling AUH (cost ~0.5 percent of GDP) would have fully prevented increase in extreme poverty in 2018. - Government measures: additional child allowances paid in September and December; announced a 45 percent increase in AUH benefits starting in March with annual cost of AR$15 billion accommodated through a larger program adjustor for social spending. - Social spending cumulative targets (AR$ millions, cumulative from January 1): end-March 2019: 10,000; end-June 2019: 14,700; end-September 2019: 21,000; end-December 2019: 29,417. ### Social programs, labor, gender equity and safeguards - Authorities plan to increase spending on selected health programs, active labor market programs, and direct food and cooking gas assistance; requested expansion of social expenditure floor and increase cap on social spending adjustor from 0.2 to 0.3 percent of GDP. - Reforms to support female labor force participation: improve childcare availability (IDB support), potential expansion of Primeros Años, time-use survey by 2020, publish stock-taking of gender balance in listed companies by end-March. - Staff advocated eliminating tax disincentives for female participation; authorities noted limited short-term legislative space. ### Debt management, program financing and DSA findings - Public debt: about 86 percent of GDP at end-2018, up from 58 percent at end-2017. - Debt projected to begin declining in 2019 and stabilize below 60 percent of GDP over medium-term under baseline. - Gross financing needs (GFNs) projected to exceed 15 percent of GDP in 2019. - DSA baseline assumptions: - Growth 2019: -1.2 percent; rebound to 2.2 percent in 2020; 3.6 percent by 2023–24. - Inflation and GDP deflator values presented in DSA tables (e.g., Inflation (GDP deflator): 41.0 for 2019 in one table). - Stress-test outcomes: - Debt could jump to above 110 percent of GDP in a scenario with 0.25 pass-through of a 50 percent real depreciation. - Debt could rise to nearly 80 percent of GDP under a growth shock. - A combined macro-fiscal shock could lead to GFN of 35 percent of GDP and debt peaking over 150 percent of GDP. - Staff assessment: debt sustainable but not with a high probability; exceptional access justified if non-Fund financing improves debt sustainability. - Recommendations: build liquid benchmark issues concentrating peso issuance in 3- and 18-month maturities; introduce market maker program; greater reliance on private financing at longer maturities; reduce FX risk in debt composition; improve governance of debt management. ### Program conditionality, targets, adjustors, and monitoring - Schedule of Reviews and Purchases (selected): March 15, 2019: SDR 7,800.00 (245% of quota); June 15, 2019: SDR 3,900.00 (122% of quota); Total: SDR 40,714 (1277% of quota). - Quantitative PCs/ITs and monetary targets defined in TMU; change in monthly average monetary base ceiling measured against February 2019 average AR$1,343 billion. - NIR targets and adjustors include: multilateral loans adjustor, FX intervention adjustor, FX debt issuance adjustor, Treasury FX sales adjustor (capped at US$9.6 billion for 2019). - Continuous performance criteria include: non-accumulation of external debt payment arrears (ceiling 0.0), zero net BCRA financing of government, and limits on NDFs (stock on Sept 28, 2018: US$3.6 billion). - Reporting requirements: daily, weekly, monthly data flows specified with maximum lags (e.g., daily data within one day; monthly federal government operations within 25 calendar days). ### Financial stability, supervision, and governance reforms - BCRA charter revisions proposed to strengthen independence: establish price stability as first mandate; prohibit monetary financing of the government; allow remuneration of commercial bank accounts at BCRA; submit draft to Congress by end-March. - Safeguards Assessment (Oct 2018) recommended strengthening central bank independence; BCRA adopted plan to implement IFRS by 2020. - Supervisory work: fine-tune stress testing for smaller institutions; customize capital and liquidity requirements; smaller institutions non-systemic (1.1 percent of sector assets). - Recommendations to strengthen fiscal reporting, medium-term budgeting, fiscal risks reporting, and adopt contingency reserve in budget. - Proposed structural benchmarks: finalize time-bound plan for transfer of TSA to BCRA by Sep-2019 (transfer in June 2020); implement integrated audit plan covering 20 percent of Monotributo taxpayers by Dec-2019. ### Policy implications and staff appraisal - Policies are helping stabilize macroeconomy; new monetary framework brought stability to the peso. - Inflation is high and likely to remain so throughout the year; inflation projection: likely to end the year around 30 percent y/y. - Recovery expected to begin in Q2 2019 and be relatively slow; economy expected to start growing in annual terms in 2020 and reach about 3.5 percent in the medium term. - Key priorities: steadfast implementation of authorities’ economic plan; continued fiscal consolidation via expenditure restraint and revenue measures; maintain external liquidity and manage rollover risks; monetary and exchange rate policy to support disinflation while preserving financial stability. *Source: 1argea2019003 - IMF staff report excerpt.* ### 1. Shortcomings in Revenue Administration _____________________________________________________ 12 ### 1. Shortcomings in Revenue Administration ### Recent developments and real economy - Economic activity contracted during all quarters of 2018; GDP fell by 2.5 percent for the year as a whole. - Recession accelerated in the last quarter of 2018, with virtually all sectors shrinking except agriculture. - Labor market: about 200k formal jobs lost during 2018; unemployment rate ended the year at 9.1 percent versus an average 8.4 percent in 2017. - Real wages fell by about 8 percent on average in 2018; decline appears to be bottoming out in early 2019. - High-frequency indicators (industrial production, cement sales, consumer confidence) point to a slowing pace of contraction in early 2019. ### Monetary policy, FX, and financial markets - The monetary base was kept below BCRA targets in 2019Q1: below target by 0.5 and 3 percent in January and February respectively. - BCRA FX rule allowed purchases when peso traded below the lower edge of the non-intervention zone; close to US$1 billion purchased in January/early February under rules-based framework. - BCRA measures to limit carry trade flows (announced February 8): banks could hold no more than 65 percent of their deposits or 100 percent of their capital (whichever is higher) in LELIQs. - In March, rising inflation and less favorable global conditions reversed flows into peso assets, weakening the currency and raising short-term interest rates. - Sovereign issuance: government placed AR$23 billion in inflation-linked bonds and increased the share of peso debt; rollover rates averaged 100 percent over last 5 months; average maturity of new issuances lengthened from 5 months in December to over 7 months in January/February. - Sovereign spreads tightened in January but retraced more than one-half of early-year gains by March. ### Inflation dynamics - After three months of consecutive decline, inflation rose in January and February 2019. - February 2019 monthly headline inflation: 3.8 percent; annual inflation reached 51.3 percent. - Core inflation rose to 3.9 percent (monthly) in February 2019. - Regulated prices contributed 1.3 percentage points to headline inflation in February 2019. - Monthly inflation expectations (REM survey/BCRA/staff calculations) moved upward after tariff announcements. ### External sector and reserves - Trade balance moved to a surplus of US$2.6 billion in 2018Q4. - Broad-based 20 percent y/y fall in import volumes in 2018Q4. - 2018 current account deficit remained high at 5.4 percent of GDP. - Gross international reserves rose to US$65.8 billion at end-2018, financed by official flows (from the Fund, World Bank and increased swap with the People’s Bank of China). - Households continued purchasing foreign currency in 2018Q4, but at a much slower pace than earlier in 2018. ### Banking sector and credit - Domestic currency credit to the private sector shrank in real terms by 18 percent (y/y) in December 2018. - FX loans grew by 1.8 percent (y/y) in December 2018 (versus 110 percent expansion in 2017). - Credit contraction driven by demand and supply factors; banks substituted into high-yielding LELIQs. - Spreads on new loans doubled from 12 to 23 percent. - Banking resilience: specific provisions to NPLs at 87 percent; liquid assets to deposits ratio >50 percent; system-wide Tier 1 capital ratio at 14.2 percent. - Private sector NPLs were 3.0 percent in December 2018; mortgage defaults at 0.3 percent. ### Fiscal outcomes and projections - Primary federal government deficit was 2.6 percent of GDP in 2018, down from 3.8 percent of GDP in 2017. - Primary spending fell by 7.3 percent in real terms in 2018. - Provinces ran a 0.4 percent of GDP primary surplus in 2018. - Fiscal outturns for January–February 2019: cumulative surplus of AR$23 billion or 0.1 percent of GDP; suggest end-March target likely to be met. - Tax revenue projections for 2019 revised downward by 1.7 percent of GDP relative to the forecast underpinning the Second Review. - Authorities intend to meet the zero-primary deficit target and close remaining fiscal shortfall of 0.4 percent of GDP by reductions in capital spending and efficiency savings in lower priority social assistance spending. ### Outlook and staff forecasts - Growth 2019 revised from -1.7 to -1.2 percent. - Inflation expected at 30 percent by end-2019 (10 percent higher than projected at time of the Second Review). - Current account deficit expected to shrink by 3 percent of GDP in 2019 due to normalization in agricultural output, weaker real exchange rate, stronger growth in Brazil, and continued import compression. - Downside risks: October national elections (candidates announced in June), potential for increased dollarization and capital outflows, deeper-than-expected recession, inability to bring down inflation, or worsening global sentiment toward emerging markets. ### Program implementation and structural progress - Binding targets for the review are end-March ones; end-March NDA target expected to be met due to NIR over-performance and lower monetary base target. - NIR overperformed adjusted target by US$3 billion as of March 15; stock of NDFs at US$600 million on same date (below end-March target). - All-but-one end-December program targets were met; federal primary balance closed at -2.6 percent of GDP meeting adjusted target of -2.8 percent of GDP. - NIR increased by nearly US$7 billion in Q4; NDA target for December missed due to technical factors. - All end-December and end-March structural benchmarks were met: published debt management strategy; outstanding stock of LEBACs eliminated by end-March; holding of LELIQs limited to domestic banks; draft of central bank’s new charter to be submitted to Congress by end-March. ### Policy responses and measures - BCRA announced tightening measures to counter inflationary pressures: - Zero-growth in monetary base extended, setting average February monetary base outturn as the target until November. - Change in slope of non-intervention zone reduced from 2 percent to 1¾ percent per month in Q2. - FX purchases when exchange rate is outside non-intervention zone capped at US$50 million a day in March and April (from US$75 million per day in February); such purchases limited to no more than 2 percent of the monetary base target. - Authorities announced measures to support lending to SMEs (late February): subsidized interest rate loans and subsidized pre-financing of exports (staff estimates fiscal cost under AR$1 billion in 2019). - Energy and utility tariff adjustments in 2019: electricity tariffs up by about 30 percent on average in February 2019 (another 5 percent increase scheduled for May and August); gas tariffs scheduled to increase in April 2019. - Planned changes in natural gas industry (introduction of auctions between gas producers and distributors) and planned tariff increases expected to reduce subsidies and lower spending as a share of GDP. *Source: 1argea2019003 - 1. Shortcomings in Revenue Administration (PDF).* ### 18. Given lower revenues, there is a need to modify the quarterly profile of the primary ### Given lower revenues, there is a need to modify the quarterly profile of the primary ### Fiscal adjustment and quarterly targets - Revenues will be lower due to delays in introducing the export tax on services, lower tax buoyancy, and the more persistent effect of administrative change in VAT on imports—impact concentrated in the first half of 2019. - Authorities request that the primary surplus target for end-June be reduced by about 0.1 percent of GDP relative to that originally envisaged, while maintaining the zero-primary balance target for end-year. - Achieving the revised Q2 target requires a more frontloaded cut in primary spending than envisaged at the time of the Second Review, particularly in capital spending. - Greater cuts in capital spending imply a slightly more negative fiscal impulse for the whole year than assumed in the Second Review. ### Key fiscal and macro figures (as presented) - Total revenue: 25.3 28.3 28.1 26.4 - Taxes: 17.2 19.7 19.8 18.2 - VAT (net of devolutions): 7.3 7.8 7.6 7.4 - Export taxes: 0.8 2.4 2.5 1.7 - Import taxes: 0.7 1.0 0.8 0.7 - Social security contributions: 6.2 6.6 6.3 6.0 - Non-tax revenue: 1.9 2.1 2.0 2.2 - Primary spending: 27.9 28.3 28.1 26.4 - Federal: 19.4 19.5 19.4 18.0 - Wages: 3.4 3.6 3.6 3.3 - Goods and services: 1.0 0.9 0.8 0.8 - Pensions: 8.9 9.7 9.6 9.2 - Social spending under the program 1/: 1.3 1.3 1.3 1.4 - Other social assistance 1/: 1.3 1.3 1.3 0.9 - Subsidies: 1.9 1.6 1.5 1.4 - Capital: 1.3 0.9 0.9 0.8 - Other: 0.4 0.3 0.3 0.2 - Transfers to provinces: 8.5 8.8 8.8 8.4 - Automatic: 7.4 8.1 8.1 7.8 - Discretionary: 1.1 0.7 0.7 0.6 - Memorandum item: GDP, in billion of pesos: 14,567 18,415 18,532 20,175 - Note: 2018 2019; 1/ The set of social spending programs considered towards the program floor on social spending changed between the second and third program review. ### Contingency revenue measures and spending composition - Staff recommended contingency revenue measures in case of additional revenue shortfalls; authorities noted limited room to maneuver during the election year and indicated reductions in capital spending are likely the primary option. - Staff cautioned that cuts in capital spending should safeguard the highest quality projects. - Suggested contingency measures include: - (i) deeper reductions in economic subsidies; - (ii) the elimination of a range of tax exemptions; - (iii) an increase in the concessional VAT rates that apply to selected goods and services; - (iv) improving tax compliance. - Authorities view revenue measures requiring changes in legislation as unrealistic in an electoral year. ### Tax administration and compliance improvements (structural benchmark for June 2019) - New measures considered by the tax administration authority (AFIP) are expected to improve tax compliance over the medium term. - Design of a tax compliance improvement plan should include: - Reducing the VAT compliance gap and lessening taxpayer compliance costs. - Undertaking an assessment to identify those taxpayers incorrectly registered under the simplified tax regime (Monotributo); implement an integrated auditing action plan for the Monotributo covering 20 percent of taxpayers under this regime (proposed structural benchmark). - Expanding the coverage of the Large Taxpayer Office in Buenos Aires to administer/monitor the compliance of all large taxpayers nation-wide. - Working towards integrating the currently fragmented IT systems to better support tax administration core operations. - Near-term AFIP actions include: - Speed up collection of revenue in arrears and strictly enforce agreed payment plans; - Press with improvements in VAT compliance using IMF TA advice; - Strengthen control over compliance with transfer pricing regulations; - Broaden use of third-party data to identify non-compliance with corporate and personal income tax. ### Shortcomings in revenue administration (Box 1) - VAT compliance gap: At an estimated 33 percent, the VAT compliance gap translates into 3.7 percent of GDP in foregone revenue. Reducing this gap by one-third in five years would yield 1.2 percent of GDP in extra tax revenues. - Abuse of the simplified tax regime (Monotributo): About 3.5 million taxpayers are registered under Monotributo; large differences in tax rates between general and simplified regimes have incentivized registration under Monotributo, creating inequity and significant revenue losses. - Administrative fragmentation: Different units administer taxes with the same base (e.g., social security contributions and personal income tax), limiting coordination and effective use of taxpayer-related information; large taxpayers and their files should be administered by the national Large Taxpayer Office. ### Fiscal safeguards, budgeting, and Treasury Single Account (TSA) - Fiscal Safeguards Review findings: need to develop a more comprehensive fiscal risks report; improve medium-term budgeting; and strengthen the quality of fiscal reports. - Recommendations and actions: - Improve coordination among units assessing macroeconomic and fiscal impact of new policy measures and better analyze fiscal risks. - Improve reporting of arrears and contingent liabilities. - Adopt a formal legislative procedure for modifying the annual Budget law (e.g., supplementary budget) requiring ex-ante Congressional approval of additional spending needs. - Introduce an explicit contingency reserve in the budget to absorb unexpected macro shocks. - By September 2019, finalize a time-bound plan for transferring the Treasury Single Account (TSA) to the BCRA in June 2020 (proposed structural benchmark), with IMF technical assistance. ### Debt management strategy and actions - Authorities are using a favorable market environment to extend maturities and build cash buffers, increasing reliance on peso debt with maturities over 12 months and aiming to maintain rollover rates close to 100 percent for peso and FX debt. - Actions taken and planned: - Move from US$ LETES into AR$ LECAPs to reduce FX debt share. - Increased repos with international banks and placed an inflation-linked bond maturing in 2021 to achieve a sizable maturity extension in March. - Plan to phase out repos more gradually than previously expected. - Prepared to temporarily pay higher interest costs to lengthen maturities if needed. - Staff welcomes changes and recommends: - Building liquid benchmark issues by concentrating peso issuance in 3- and 18-month maturities. - Introducing a market maker program in April to increase secondary market liquidity and demand, particularly from mutual funds. - Scope for a securities lending facility provided by the ministry to support market functioning. - Greater reliance on private financing at longer maturities for managing large financing needs in 2020-21, continuing reduction of FX risk in debt composition, and extending debt maturity beyond 2022-23 to smooth the redemption profile. - Improve governance of debt management, strengthen capacity of the debt management office, and improve debt transparency and communication. ### Social impact, AUH, and protecting the vulnerable - Recession and high inflation had negative social impacts: - World Bank estimates poverty rate reached 31 percent in the second semester of 2018, an increase of 5 percentage points from the previous year. - Extreme poverty is estimated to have increased by 1.1 percentage points. - Most vulnerable households: those with young children, larger families, and younger heads of household. - Universal child allowance (AUH): - AUH covers almost two-thirds of poor households (comprising 3.9 million children); benefits are relatively low at 5 percent of the average wage per child. - Over 80 percent of program spending is received by the bottom 40 percent of the income distribution. - World Bank simulations suggest doubling the benefit (at a cost of around 0.5 percent of GDP) would have fully prevented the increase in extreme poverty experienced in 2018. - Government measures: additional child allowances paid in September and December; announced a 45 percent increase in AUH benefits starting in March. - The 45 percent AUH increase has an annual cost of AR$15 billion and will be accommodated through a larger program adjustor for social spending. ### Social programs, labor, and gender equity measures - Authorities plan to increase spending on: - Selected health programs (including provision of medicines in public health centers), - Active labor market programs, - Direct food and cooking gas (garrafa social) assistance. - Authorities requested expansion of the social expenditure floor and coverage of the social expenditure adjustor to include these programs and an increase in the cap on the adjustor on social spending from 0.2 to 0.3 percent of GDP. - Plans to work with the World Bank to improve household survey questions to better identify coverage gaps. - Reforms to support female labor force participation: - Improving quality and availability of childcare centers for lower income families with IDB support. - Potential expansion of Primeros Años program duration from 3 to 6 months pending impact evaluation. - A time-use survey to be rolled out by 2020 to inform policies supporting women’s labor market participation. - Swift passage of legislation to increase paternity leave (currently dormant in Congress) would help level the playing field; City of Buenos Aires has implemented a 45-day paternity leave for public employees. - Government will publish by end-March a stock-taking of gender balance in executive board and management positions in listed companies and identify steps to address imbalances. - Staff advocated eliminating tax disincentives for female participation, particularly high marginal tax for second earners; gradual phasing out of spouse allowance as household taxable income increases could be done at negligible fiscal cost, but authorities noted limited short-term legislative space. ### Monetary and exchange rate policies - New monetary framework has reduced volatility in financial markets and the currency by shifting to a quantity targeting regime where interest rates are determined endogenously. - Interest rate volatility example: the 7-day LELIQ declined from 59 to 44 percent over a few weeks and then retraced to 63 percent as demand for peso assets diminished. - BCRA actions and rationale: - Kept the monetary base below the BCRA’s target ceiling and adjusted the pace of change in the non-intervention zone to keep monetary conditions tight while allowing market-determined interest rates. - When the peso was outside the non-intervention zone in January and early February, BCRA undertook smaller FX purchases than originally envisaged to allow a stronger peso to contribute to disinflation. - In late February and March, as exchange rate pressures and higher-than-expected inflation occurred, BCRA further constrained the monetary base. - Any recalibrations to the framework should be clearly communicated to avoid uncertainty. - Inflation outlook and policy stance: - Reducing inflation will be a protracted process driven by rising utility tariffs, stronger-than-expected wage increases, and rebuilding of margins by producers and retailers. - Extension of the zero-monetary base growth target to November 2019 and a lower rate of change of the non-intervention zone aim to signal a tight monetary stance and strengthen BCRA credibility. - Lowering inflation requires conservative monetary and fiscal policy until inflation expectations are anchored. - If demand for peso assets strengthens, the exchange rate should appreciate outside the non-intervention zone, triggering unsterilized FX purchases and an automatic increase in the monetary base. *Source: IMF staff summary of chapter/section text.* ### 31. While the Fund considers the BCRA’s recent measure to limit the holdings of LELIQ ### 1argea2019003 - 31. While the Fund considers the BCRA’s recent measure to limit the holdings of LELIQ ### Capital Flow Management Measure (LELIQ holdings) - The BCRA measure limiting banks' LELIQ holdings to 65 percent of their deposits or 100 percent of their capital (whichever is higher) is considered a Capital Flow Management Measure (CFM). - Staff deems the measure consistent with the Fund’s Institutional View because it is designed to limit capital flows and does not substitute or avoid macroeconomic adjustments envisaged under the program. - The measure is warranted and consistent with the IMF’s Institutional View. ### BCRA charter revisions and central bank governance - Revisions aim to strengthen central bank independence and operational autonomy. - Proposed amendments: - Establish price stability as the first and fundamental mandate of the BCRA. - Prohibit monetary financing of the government. - Allow the remuneration of commercial bank accounts held at the BCRA. - Objectives: improve governance, internal oversight and decision-making structures, and commit the central bank to international standards of transparency and accountability. - The authorities intend to submit the revisions to Congress by end-March (meeting the program structural benchmark). - The new charter will provide a solid foundation for an eventual return to inflation targeting. ### Financial stability and banking supervision - The banking system is generally resilient, but supervisory practices can be strengthened. - The BCRA conducts regular stress tests; current credit risk models are suited to large universal banks. - Work is underway to fine tune stress testing models to better customize capital and liquidity requirements for smaller institutions, accounting for funding structure and activities. - Smaller institutions are non-systemic, accounting for 1.1 percent of total banking sector assets and with a very small share of retail deposits (relying instead on wholesale funding and term deposits). - Footnote: As of December 2018, 18 private institutions, accounting for 2.7 percent of banking sector assets, had less than 10 percent of their total funding coming from private sector deposits. For banks accounting for 70 percent of banking sector assets, over half of their funding was from private deposits. ### Supply-side reforms: trade, competition, and taxes - Trade openness and tariffs: - Argentina has free trade relations with countries representing only about 10 percent of global GDP (including bilateral agreements via Mercosur). - Mercosur's common external tariff is high by international standards: 9 percent for capital goods and around 6 percent for intermediate goods. - Significant non-tariff barriers remain despite scaling back non-automatic import licenses and eliminating a range of restrictions to FDI. - Authorities are examining improvements to Mercosur’s common external tariff, working to simplify and reduce administrative costs (single window for importers/exporters), and negotiating free-trade agreements with Canada, the EU, and the European Free Trade Association. - Staff sees scope to unilaterally reduce tariffs on goods not subject to the common external tariffs. - Competition and barriers to entry: - Barriers to entry and administrative burdens remain high; competition is low. - The government opened several sectors, including airlines, to private competition. - Argentina ranks poorly across product market regulation dimensions per OECD and World Bank assessments. - The Competition Law (May 2018) improved the legal framework: new independent competition authority, new thresholds for mergers and acquisitions, higher fines for cartels, greater disclosure—but the authority has scarce resources. - Tax system reform needs: - The 2017 tax reform and the 2018 Fiscal Pact lowered corporate income tax burden, turnover taxes, and effective tax on labor income for lower-income workers. - There remains overreliance on distortionary taxes (including the financial transactions tax and export taxes until at least 2020) and need to further reduce direct taxes on labor and new investment. - Given the fiscal position, tax reform should be at least revenue-neutral, with tax reductions offset by: - Broader coverage of the personal income tax (currently paid only by about the top 10 percent of wage earners), - Removal of VAT exemptions, - Higher consumption taxes. - Authorities indicated a tax reform would not garner sufficient support in Congress and will be infeasible prior to the elections. ### Tackling corruption and AML/CFT measures - Asset declaration and beneficial ownership: - Authorities intend to introduce an electronic system for the declaration of assets and interests by high-ranking officials to enhance transparency, support AML/CFT, and assist criminal investigations. - Regulatory changes by end-June will ensure availability of adequate, accurate, and timely information on ultimate beneficial owner(s) and control structures of legal persons for the Financial Intelligence Unit and law enforcement. - Launch awaiting approval from the Ministry of Justice. - Asset seizure and recovery: - Amendments to the anti-money laundering law will provide safeguards for the financial intelligence unit to freeze assets when there are suspicions of money laundering, terrorism financing, corruption, or other crimes. ### Program financing, debt, and repurchase obligations - Program financing: - The program remains fully financed. - Market rollovers have been higher than expected. - World Bank and IDB disbursements in budget support up to end-2018: US$589 million and US$429 million, respectively. - Capacity to repay and risks: - Argentina’s capacity to repay remains adequate but subject to sizable risks. - The Fund’s exposure in debt service metrics is at the higher end compared to other exceptional access cases. - Frontloaded disbursement schedule implies considerable bunching of Argentina’s repurchase obligations to the Fund. - International reserves are projected to remain adequate throughout the program and during the repayment period. - Sustained program implementation is crucial to reduce sovereign and balance of payments risks, lower spreads, increase access to global capital markets, and allow Argentina to smoothly exit Fund financial support. - Safeguards and reporting: - Safeguards assessment (October 2018) recommended strengthening central bank independence; recommendations were incorporated into Charter amendments. - BCRA adopted a plan to implement international financial reporting standards by 2020. - Limited progress in providing weekly analysis on the use of IMF resources and in strengthening the compilation of monetary data. ### Debt levels, gross financing needs, and projections - Public debt: - Public debt was about 86 percent of GDP at end-2018, up from 58 percent of GDP at end-2017 and about 9 percent of GDP higher than projected at the Second Review. - Debt is expected to begin declining in 2019 and to stabilize below 60 percent of GDP over the medium-term. - Gross financing needs (GFNs): - GFNs now projected to exceed 15 percent of GDP in 2019, above the high-risk threshold. - GFNs will be met from a mix of issuance to public and private residents, deposit drawdowns, and Fund financing. - Tighter-than-expected market conditions, exchange rate movements, and contingent liabilities are important risk factors for debt and GFNs. - Debt revision drivers (compared to the Second Review): - Inclusion of (i) fiscal pact bonds for provinces, (ii) new guarantees on SOE debt issued around year-end, (iii) capitalized interest on LECAPs, (iv) higher-than-expected debt issuance to build larger deposit buffers; and (iv) intra-year valuation adjustments, including in the context of high exchange rate volatility. - Sizable 2018 revision is not likely to repeat given improved tracking and accounting measures. ### Monetary policy and FX operations - Monetary target change: - Authorities requested program adopt ceiling on changes in monetary base, replacing ceiling on changes in NDA. - Staff agrees; change has no economic significance and improves comparability of targets and program monitoring. - Monetary base target will apply from April onwards. - Treasury FX conversion in pesos: - Treasury does not expect to need to convert Fund budget support proceeds into pesos until mid-April. - To ensure smooth conversion, on April 15 the BCRA intends to begin auctioning US$60 million per day on behalf of the Treasury. - Daily auctions will continue until end-November, at the same time of the day, unless interrupted with at least 20 calendar days’ notice. - Total sales of FX will amount to US$9.6 billion and have been incorporated into the program’s macro-framework. - Sales have been preannounced and set at a sufficiently low level to minimize impact on the exchange rate. - If the peso is below the non-intervention zone, Treasury FX will be sold directly to the BCRA at the reference rate of the day, in the amount consistent with the central bank’s monetary policy stance. - Pesos received will remain deposited at the BCRA until needed for fiscal purposes. - Authorities propose new adjustors to NIR targets to accommodate Treasury FX sales. ### Program modality adjustments and structural benchmarks - Proposed program modifications include: - Adjust end-March and end-June performance criteria for the federal government primary balance target to reflect new social spending adjustor and revised quarterly fiscal pattern. - Adjust end-March and end-June targets for the floor on social spending due to new definition and projections. - Adjust end-June target for domestic arrears to account for higher inflation. - Eliminate ceiling on changes in net domestic assets from June onwards (monthly ITs eliminated beginning end-April). - Introduce ceiling on changes in the monetary base from June onwards (monthly ITs beginning end-April), remaining at zero until end-September, consistent with authorities’ commitment to maintain zero growth in the monetary base until November. - Introduce an adjustor for FX sales to accommodate Treasury FX sales in NIR targets. - Set end-September QPCs. - Set structural benchmarks for end-September 2019 and end-December 2019: finalize time-bound plan for transfer of the Treasury Single Account from Banco Nación to the BCRA and implement an integrated audit plan covering 20 percent of taxpayers in the Simplified Taxpayer Regime (Monotributo). - Waivers of applicability requested for end-March fiscal targets, as relevant data per the TMU will only be available after the scheduled date for Executive Board consideration of the Third Review. ### Arrears to private and official creditors - External private creditors: - New agreements to settle and dismiss totaling US$26 million reached since the Second Review. - Bondholders Meeting on February 22: majority of bondholders of remaining defaulted Japanese Yen Bonds accepted the Standard Offer, making it applicable to all outstanding Japanese Yen Bonds. - Currently around US$1.1 billion in principal (or US$3.2 billion including accrued interest) remains outstanding to private creditors. - All documentation to enter into agreements available on the government’s website; terms are the same as those offered in 2016. - Litigation by certain bondholders continues in several jurisdictions; discussions continue to advance. - Staff views authorities as making good faith efforts as required under the Fund’s Lending into Arrears policy. - Official bilateral creditors: - Limited outstanding arrears: approximately US$30 million (principal) claimed by the French export credit agency relating to a gas pipeline project in the late 1970s. - Arrears to Paraguay (US$120 million) from the Treaty of Yacyreta have been resolved. ### Exceptional access criteria assessment - CRITERION 1: - Argentina is experiencing or has potential to experience exceptional balance of payments pressures; large external financing needs cannot be met within normal access limits. - Return of market confidence has been somewhat better than expected since the Second Review; rollovers of most maturing debt in 2019 so far near or over 100 percent. - CRITERION 2: - Rigorous analysis indicates debt is sustainable but not with a high probability; exceptional access is justified if non-Fund financing improves debt sustainability and safeguards for Fund resources. - Debt projected to remain on a downward path and fall below 60 percent by 2024. - Staff judges required safeguards are in place; prospects for market access and long maturity of privately-held foreign currency-denominated debt improve prospects for adequate private creditor exposure. - Footnote: As of end-2018, stock of the federal government’s privately-held foreign currency denominated debt is approximately US$112 billion, of which about one quarter is expected to mature by June 2021 (the expiry of the SBA). - CRITERION 3: - Member has prospects of regaining access to private capital markets within a timeframe and scale to meet obligations to the Fund. - Argentina maintains access to domestic financial markets with resident and non-resident investors participating in peso- and US$-denominated bond placements. - Non-residents purchased over US$2 billion of peso-denominated LECAPs in the past five months. - Average yields on Argentina’s external bonds remain elevated. - CRITERION 4: - Staff judges the policy program provides a reasonably strong prospect of success, including institutional and political capacity. - Passage of the 2019 budget by Congress earlier than expected and with a wider-than-expected Senate margin demonstrates commitment to the Stand-By Arrangement policies. - Congressional approval indicates efforts at building cross-party consensus. - Social opposition to the program remains subdued. - Central bank’s monetary policy framework implementation supports a path to disinflation. - BCRA adhered to its transparent FX intervention rule, purchasing FX in limited amounts when the peso moves outside the strong side of the non-intervention zone. - Meetings with opposition revealed broad consensus on the Fund’s financial assistance as essential for regaining market confidence. - Strong, sustained, and consistent policy implementation and broad societal ownership remain crucial for program success. ### Staff appraisal and outlook - Policies are helping stabilize the macroeconomy; new monetary policy framework brought stability to the peso. - Inflation is increasing and likely to remain at high levels throughout the year due to planned utility tariff increases and buoyant nominal wage growth. - Inflation projection: likely to end the year around 30 percent y/y. - Recovery in economic activity expected starting in the second quarter, underpinned by higher real wages and a rebound in agricultural production. - Structural benchmarks for end-December and end-March for publishing a debt strategy and eliminating the stock of LEBACs have been met. - Submission of a new charter for the BCRA to Congress is expected by end-March, meeting the structural benchmark. *Source: ARGENTINA — INTERNATIONAL MONETARY FUND (excerpt).* ### 50. Weaker tax revenues require additional expenditure restraint to achieve the 2019 ### 1argea2019003 - 50. Weaker tax revenues require additional expenditure restraint to achieve the 2019 ### Fiscal outlook and policy stance - Weaker tax revenues require additional expenditure restraint to achieve the 2019 fiscal targets. - Contingency plans are in place to allow the government to achieve a zero-primary deficit by the end of the year. - Risks to the fiscal outlook are sizable. - Efforts to restrain primary spending in the first half of the year will be key to achieving the full-year fiscal target. ### Social protection and poverty mitigation - Greater effort is needed to protect the most vulnerable from the impact of the economic recession. - The deep recession and high inflation are pushing up the poverty rate, calling for expedited action to improve the conditional cash transfer program and to address gaps in the coverage of the social safety net (particularly for families without children and the elderly without pension). - The authorities’ frontloading of the increase in AUH benefits for the year should help preserve the purchasing power of beneficiaries. - The authorities should take full advantage of the larger program adjustor to increase spending on high-impact social programs. ### Monetary policy and central bank credibility - Allowing the monetary policy framework to fully operate will be crucial to re-anchoring inflation expectations and rebuilding BCRA credibility. - The commitment to extend the zero-monetary base growth through November, together with the announcement of a reduced rate of change in the limits of the non-intervention zone, signal the BCRA’s determination to counter inflationary pressures. - A new charter which strengthens the BCRA’s independence and improves operational autonomy should increase confidence in the central bank’s nominal anchor. ### Structural reform priorities - A sustained improvement in the living standards for Argentina’s population will need a new impetus in the agenda of structural reforms. - Priorities include: - a less distortionary tax system, - greater competition in domestic product markets, - the removal of barriers to trade and foreign investment, - continued efforts to improve governance and confront corruption. *Source: 1argea2019003 - 50. Weaker tax revenues require additional expenditure restraint to achieve the 2019* ### 54. Steadfast implementation of the authorities’ economic plan will be essential to ### 1argea2019003 - 54. Steadfast implementation of the authorities’ economic plan will be essential to ### Program endorsement and policy priority - Staff supports the authorities’ request for completion of the Third Review under the Stand-By Arrangement, the modifications of the performance criteria under the program, waivers of applicability, and the completion of the financing assurances review. - Steadfast implementation of the authorities’ economic plan is identified as essential to reassure financial markets and solidify Argentina’s return to macroeconomic stability. ### Recent market developments - Sovereign and CDS spreads are below last year’s peaks. - The widening gap between 2019 and 2021 bond yields may reflect electoral uncertainty. - Stock markets reversed some of the gains of the January rally. - Net private sector demand for foreign assets has fallen. - Debt rollover rates have remained well over 50 percent in 2019. - Average maturities of new issuances have been extended since December (data up to March 10). ### Real sector: recent performance and outlook - Agriculture switched from being a drag on growth in Q1-Q3 to being the only sector growing in Q4. - Staff expect the recovery to begin in Q2 and be relatively slow compared to recent recessions. - Investment will remain weak at least in the beginning of 2019, as import compression continues. - Consumption is expected to be sustained by a recovery in real wages. - As in 2018Q4, net exports are expected to positively contribute to 2019 growth. - The economy is expected to start growing in annual terms in 2020 and reach about 3.5 percent in the medium term. ### Fiscal outlook and composition of adjustment - The lower primary deficit in 2018 reflects mainly lower spending, but also greater non-tax revenues. - VAT performed strongly in 2018, while social security contributions fell owing to both the 2017 reform and lower wages and employment. - High inflation eroded spending on pensions and wages, but cuts in other spending were also significant. - Provinces reduced spending on wages and salaries, preserved capital spending, and reached primary surplus. - The overall general government deficit fell in 2018, with the reduction in the primary deficit offsetting higher interest payments. - The fiscal adjustment is continuing in 2019, largely through expenditure restraint. - Cumulative Primary Deficit, 2018 vs 2017: factors listed include Blanqueo (2017), Tax reforms 2018, Tax revenue, Non-tax revenue, Spending cuts, Autom. Trans. Prov., PIP 1/ — numeric contributions shown in figures (e.g., 0.35, 0.13, 0.55, 0.30, 0.24, -0.52, -2.29, 3.83, 2.59). ### External sector adjustment and flows - The REER appreciated since October 2018 but is still below its long-run average. - The external adjustment has been sharp in both goods and services; the contraction in imports has been broad based. - Normalization in agricultural production helped exports in 2018:Q4. - Dollarization slowed in 2018:Q4, while portfolio investors continued to wind down peso asset positions. - Trade balance (12-month rolling sum) and contributions to import and export growth show large swings across 2016–2019 in the figures. - Gross international reserves: for projections and levels see tables (e.g., Gross international reserves (billions of U.S. dollars) 25.6 39.3 55.1 57.3 54.4 65.8 62.2 68.3 74.9 79.1 83.7 91.7). ### FX and monetary developments - The LELIQ rate fell sharply between October and February, but rose subsequently. - Peso volatility picked up in March, with the currency moving more widely within the Non-Intervention Zone (NIZ). - Time deposits have continued to outgrow sight deposits; deposit growth has held up well in pesos and dollars. - Central bank liabilities have shrunk significantly as a share of the monetary base. - Growing holdings of BCRA securities and lower demand for loans led to a rapid decline of the loan-to-deposit ratio. - Private sector deposits (billions of ARS) and other monetary aggregates are shown across Jan-18 to Mar-19 in the figures. - Interest rates (percent) series show large movements: LELIQ rate and large deposit rate depicted across May-18 to Mar-19. ### Key macroeconomic indicators and projections (selected figures from tables) - GDP at constant prices (series as presented): 2.7 -2.1 2.7 -2.8 -1.7 -2.5 -1.2 2.2 3.2 3.4 3.6 3.6 - Domestic demand (series as presented): 4.2 -1.6 6.0 -4.1 -6.5 -3.7 -5.1 3.7 3.9 4.6 4.6 4.4 - CPI inflation (eop, y/y percent change series as presented): 24.8 47.4 20.2 47.6 30.5 21.2 16.3 10.17.05.0 - Nominal GDP (billions of Argentine pesos): 5,955 8,228 10,645 14,054 18,553 14,567 20,175 25,458 31,107 36,270 40,703 44,322 - Total external debt (billions of U.S. dollars): 178.9 189.6 237.3 274.5 267.0 289.3 285.5 286.9 296.9 295.1 293.0 313.1 - Total public debt (gross, federal, billions of Argentine pesos): 3,130 4,366 6,079 10,961 12,606 12,569 15,313 17,577 20,264 22,775 24,696 26,379 - Gross federal debt (percent of GDP series as presented): 52.6 53.1 57.1 78.0 67.9 86.3 75.9 69.0 65.1 62.8 60.7 59.5 - Gross international reserves (billions of U.S. dollars, selected values): 39.3 55.1 57.3 54.4 65.8 62.2 68.3 74.9 79.1 83.7 91.7 ### Public financing and rollover dynamics - Private rollover rates (monthly series shown) have varied widely; Table 8 reports private rollover rates including values such as 151%, 215%, 87%, 74%, 98%, 50%, 50%, 55%, 55%, 55%, 65%, 70%, 60%. - Table 8 and Table 9 present detailed monthly and quarterly gross financing needs and sources, including Total Needs and Total Sources across 2018–2021 and specific items such as Interest, Amortizations, IMF Disbursements, IFIs, Private Sector Issuances, FX LETES, Peso LECAPs/LECER. - Memorandum: IMF Disbursements noted in calendar flows (e.g., disbursements of 5,740 and 7,700 in specific months shown in financing tables). ### Policy implications emphasized by staff - Implementation of the authorities’ program measures is critical to stabilize markets and restore macroeconomic stability. - Continued fiscal consolidation through expenditure restraint and revenue measures under the program is essential to reduce deficits and debt trajectories. - Maintaining external liquidity and managing rollover risks are key near-term priorities given large amortization and financing needs shown in the financing tables. - Monetary and exchange rate policy should support disinflation while preserving financial stability given deposit and leverage dynamics documented in monetary and banking-sector tables. *Source: IMF staff report (figures, tables, and text as provided in the source content).* ### 0. Argentina: Schedul ### 0. Argentina: Schedul e of Reviews and Purchases ### Schedule of Reviews and Purchases — key amounts and timing - Available on or after June 20, 2018: SDR 10,613.71 (333% of quota) — Approval of Arrangement. - October 26, 2018: SDR 4,100.00 (129% of quota) — First Review and end-September 2018 performance criteria. - December 15, 2018: SDR 5,500.00 (173% of quota) — Second Review and end-October 2018 performance criteria. - March 15, 2019: SDR 7,800.00 (245% of quota) — Third Review and end-December 2018 performance criteria. - June 15, 2019: SDR 3,900.00 (122% of quota) — Fourth Review and end-March 2019 performance criteria. - September 15, 2019: SDR 3,900.00 (122% of quota) — Fifth Review and end-June 2019 performance criteria. - December 15, 2019: SDR 700.04 (22% of quota) — Sixth Review and end-September 2019 performance criteria. - March 15, 2020: SDR 700.04 (22% of quota) — Seventh Review and end-December 2019 performance criteria. - June 15, 2020: SDR 700.04 (22% of quota) — Eighth Review and end-March 2020 performance criteria. - September 15, 2020: SDR 700.04 (22% of quota) — Ninth Review and end-June 2020 performance criteria. - December 15, 2020: SDR 700.04 (22% of quota) — Tenth Review and end-September 2020 performance criteria. - March 15, 2021: SDR 700.04 (22% of quota) — Eleventh Review and end-December 2020 performance criteria. - June 1, 2021: SDR 700.05 (22% of quota) — Twelfth Review and end-March 2021 performance criteria. - Total: SDR 40,714 (1277% of quota). - Note: Apart from periodic performance criteria, conditions also include continuous performance criteria. ### Quantitative Performance Criteria and Indicative Targets — selected entries (amounts in billions of Argentine pesos unless otherwise stated) - Fiscal targets (performance criteria): - Primary balance of the federal government (floor) cumulative Jan 1–Dec 31: sample values include -378.0, -404.4, -374.3, 6.0, 40.0, 20.0, 60.0. - Federal government accumulation of external debt payment arrears (ceiling): 0.0 across listed periods. - Federal government accumulation of domestic arrears (ceiling): sample values 24.4, 11.9, 30.0, 40.0, 45.0, 53.2. - Social assistance spending (floor): sample values 173.0, 184.9, 60.0, 110.0, 132.0, 205.0. - Indicative targets: - Primary balance of the general government (floor): sample values -378.0, -404.4, -303.2, -14.0, 30.0, 10.0, 80.0. - Monetary targets (performance criteria): - Change in non-borrowed net international reserves (floor) (in billions of U.S. dollars; change measured against value on September 28, 2018): sample values 7.1, 6.5, 7.2, 4.1, 7.4, 2.9, 8.8, 12.5, 2.7, 6.4, 9.0, 6.2, 5.8, 9.0, 8.4, 8.2, 13.1. - Change in stock of non-deliverable FX forwards (ceiling): sample values 0.0, -3.6, -0.7, -1.0, -1.2, -1.5, -1.7, -2.0, -2.3, -2.6. - Change in central bank credit to government (ceiling): sample values 0.0, -432.3, 0.0 (measured against value on September 28, 2018 which stood at 2,592.86 billion pesos). - Central bank financing of the government (ceiling): 0.0 across listed periods. - Change in net domestic assets of the central bank (ceiling) (change measured against average value for September 2018, which was AR$ 574 billion): sample values -46.2, -10.6, 24.5, -112.1, -157.5, -36.0, -177.5, -185.6, -154.5, -208.2, -101.5. - Change in monthly average monetary base (ceiling) (change measured against average value for February 2019, which was AR$1,343 billion): listed month indicators 0.0 across specified months. - Notes/definitions: - Targets as defined in the Technical Memorandum of Understanding (TMU). - Based on program exchange rates defined in the TMU. - Certain continuous performance criteria and measurement baselines are indicated in TMU footnotes. ### Structural Program Conditionality — timing and implementation status (selected) - Jun-2018: Publish regulation to introduce a foreign exchange auction for BCRA intervention in the spot and forward markets. — Met. - Sep-2018: Establish senior-level debt management coordinating committee between Treasury-Finance-BCRA to meet weekly. — Not met. Implemented with one day delay. - Oct-2018: Present a three-year budget document to Congress with transparent medium-term objectives. — Not met. Implemented with delay. - Nov-2018: Congress to pass the 2019 Budget targeting a zero primary balance. — Met. - Nov-2018: Congress to pass revenue legislation underpinning the 2019 fiscal plan, including increase in rate and base of the wealth tax (Impuesto sobre los Bienes Personales). — Not met. Implemented with delay. - Dec-2018: Publish a debt management strategy to increase predictability, pricing, and liquidity of treasury issuances. — Met. - Dec-2018: Provide sufficient resources to the newly created CBO (Oficina de Presupuesto del Congreso). — Met. - Mar-2019: Limit the BCRA’s counterparties for sale of LEBACs, open market operations and repos to domestic banks. — Met. - Mar-2019: Submit to Congress a new charter for the central bank to ensure operational autonomy and strengthen mandate. — (Timing listed; implementation status not provided). - Jun-2019: Design a compliance improvement plan and risk mitigation strategies around taxpayer segments, taxpayer obligations, and core taxes. — (Timing listed). - Sep-2019: Finalize a time-bound plan for transferring the Treasury Single Account (TSA) from Banco Nacion to the BCRA in June 2020, including operational details and deleveraging plan for Banco Nacion. — Proposed. - Dec-2019: Recapitalize the central bank to ensure adequate capital as percent of the monetary base plus outstanding stock of LEBACs. — (Timing listed). - Dec-2019: Implement an integrated auditing action plan for the Simplified Taxpayer Regime (Monotributo), covering 20 percent of taxpayers under this regime. — Proposed. ### Indicators of Fund Credit — key projections and stocks (in millions of SDRs unless otherwise specified) - Existing and Prospective drawings (36 month SBA): - 2018: 20,214 - 2019: 16,300 - 2020: 2,800 - 2021: 1,400 - (subsequent years displayed with "..." in source) - In percent of quota: 2018: 634; 2019: 511; 2020: 88; 2021: 44. - Amortization (Projected Debt Service to the Fund based on Existing and Prospective Drawings) — sample values: - 2018: 0.0 - 2019: 0.0 - 2020: 0.0 - 2021: 2,653.4 - 2022: 14,494.4 - 2023: 16,128.5 - 2024: 5,600.1 - 2025: 1,575.1 - 2026: 262.5 - GRA charges and surcharges — sample values: - 2018: 110.1 - 2019: 971.1 - 2020: 1,422.3 - 2021: 1,652.5 - 2022: 1,604.6 - 2023: 790.4 - 2024: 146.8 - 2025: 28.8 - 2026: 3.0 - Total debt service — sample values: - 2018: 211.2 - 2019: 1,052.6 - 2020: 1,436.3 - 2021: 4,313.0 - 2022: 16,099.0 - 2023: 16,918.9 - 2024: 5,746.9 - 2025: 1,603.9 - 2026: 265.5 - Outstanding stock (Projected Level of Credit Outstanding based on Existing and Prospective Drawings) 1/: - 2018: 20,213.7 - 2019: 36,513.8 - 2020: 39,313.9 - 2021: 38,060.6 - 2022: 23,566.2 - 2023: 7,437.7 - 2024: 1,837.6 - 2025: 262.5 - 2026: 0.0 - In percent of quota: 2018: 634.2; 2019: 1,145.6; 2020: 1,233.5; 2021: 1,194.1; 2022: 739.4; 2023: 233.4; 2024: 57.7; 2025: 8.2; 2026: 0.0 - In percent of GDP: 2018: 5.6; 2019: 10.9; 2020: 10.9; 2021: 9.7; 2022: 5.6; 2023: 1.6; 2024: 0.4; 2025: 0.1; 2026: 0.0 - In percent of GIR: 2018: 44.0; 2019: 84.0; 2020: 82.3; 2021: 72.7; 2022: 42.6; 2023: 12.7; 2024: 2.9; 2025: 0.4; 2026: 0.0 - Memorandum items: - Exports of goods and services (US$ mn): 2018: 76,156; 2019: 84,165; 2020: 87,056; 2021: 92,260; 2022: 97,226; 2023: 104,611; 2024: 112,558; 2025: 121,108; 2026: 130,307. - US$/SDR exchange rate: 1.4 across listed years. - Gross International Reserves (US$ mn): 2018: 65,806; 2019: 62,217; 2020: 68,314; 2021: 74,922; 2022: 79,097; 2023: 83,686; 2024: 91,716; 2025: 100,517; 2026: 110,163. - Quota: 3,187.3 across listed years. ### External Debt Sustainability Framework — headline projections and ratios (percent of GDP unless otherwise indicated) - Baseline external debt (selected years): 2013: 27.3; 2014: 30.2; 2015: 27.9; 2016: 34.1; 2017: 36.9; 2018: 55.6; 2019: 59.8; 2020: 55.6; 2021: 52.9; 2022: 48.8; 2023: 45.1. - Change in external debt (selected): 2013: -1.7; 2014: 2.9; 2015: -2.4; 2016: 6.2; 2017: 2.9; 2018: 18.7; 2019: 4.1; 2020: -4.1; 2021: -2.7; 2022: -4.1; 2023: -3.7. - Identified external debt-creating flows (4+8+9) (selected): 2013: -0.9; 2014: 3.3; 2015: -2.7; 2016: 6.5; 2017: -1.7; 2018: 5.0; 2019: 2.3; 2020: 0.4; 2021: -0.4; 2022: -0.8; 2023: -1.1. - Current account deficit, excluding interest payments (selected): 2013: 1.5; 2014: 0.9; 2015: 2.2; 2016: 1.8; 2017: 3.7; 2018: 2.9; 2019: -0.2; 2020: 1.0; 2021: 1.5; 2022: 1.9; 2023: 2.1. - Automatic debt dynamics (selected): 2013: -0.9; 2014: 3.0; 2015: -3.1; 2016: 5.1; 2017: -3.3; 2018: 3.5; 2019: 2.9; 2020: 0.3; 2021: -0.6; 2022: -1.1; 2023: -1.3. - External debt-to-exports ratio (in percent) (selected): 2013: 186.4; 2014: 208.2; 2015: 255.5; 2016: 265.7; 2017: 323.4; 2018: 379.9; 2019: 339.3; 2020: 329.6; 2021: 321.8; 2022: 303.5; 2023: 280.1. - Gross external financing need (in billions of US dollars) (selected): 2013: 85.8; 2014: 82.6; 2015: 81.7; 2016: 104.9; 2017: 97.7; 2018: 147.6; 2019: 114.7; 2020: 103.2; 2021: 100.7; 2022: 122.3; 2023: 122.6. - Gross external financing need (in percent of GDP) (selected): 2013: 14.0; 2014: 14.7; 2015: 12.7; 2016: 18.8; 2017: 15.2; 2018: 10-Year (table shows label "10-Year" in source); later columns show percentages such as 28.4, 24.0, 20.0, 17.9, 20.2, 18.9 (as presented in source). - Scenario with key variables at their historical averages (selected): external debt path values include 55.6, 49.1, 43.8, 40.4, 35.9, 31.8; change in external debt in that scenario: -3.5. - Key macroeconomic assumptions underlying baseline (historical average, standard deviation, and projections presented in source): - Real GDP growth (in percent) — sample values across periods: 2.4, -2.5, 2.7, -2.1, 2.7, 1.6, 4.7, -2.5, -1.2, 2.2, 3.2, 3.4, 3.6. - GDP deflator in US dollars (change in percent) — sample values: 3.0, -5.4, 10.9, -11.4, 12.3, 7.2, 10.7, -17.0, -7.0, 5.6, 5.4, 4.3, 3.6. - Nominal external interest rate (in percent) — sample values: 2.3, 2.4, 2.2, 2.7, 4.2, 2.5, 0.6, 5.2, 3.6, 2.7, 2.0, 1.2, 0.7. - Growth of exports (US dollar terms, in percent) — sample values: -5.0, -8.7, -14.4, 1.9, 2.8, 2.1, 15.3, 3.8, 10.5, 3.4, 6.0, 5.4, 7.6. - Growth of imports (US dollar terms, in percent) — sample values: 8.3, -10.4, -5.3, -1.6, 18.0, 7.1, 20.7, -3.0, -10.1, 8.4, 9.5, 7.5, 8.6. - Current account balance, excluding interest payments — sample values: -1.5, -0.9, -2.2, -1.8, -3.7, -0.4, 2.1, -2.9, 0.2, -1.0, -1.5, -1.9, -2.1. - Net non-debt creating capital inflows — sample values: 1.5, 0.6, 1.7, 0.4, 2.1, 1.6, 0.7, 1.5, 0.4, 0.9, 1.3, 1.6, 1.9. ### External Debt Sustainability: Stress tests and vulnerabilities — summary - Figure 6 bound tests (descriptive): - Shocks shown include Interest Rate Shock, CA (current account) shock, Combined shock, Real Depreciation Shock (one-time real depreciation of 30 percent occurs in 2018), and Growth shock. - Individual shocks are permanent one-half standard deviation shocks; other scenarios include permanent 1/4 standard deviation shocks applied to real interest rate, growth rate, and current account balance. - Key solvency vulnerability: - High share of foreign currency denominated debt makes Argentina particularly vulnerable to exchange rate shocks. The standard DSA stress test includes a 50 percent real depreciation as a major vulnerability. ### Annex I. Public Debt Sustainability Analysis — executive findings and scenarios - Overall assessment: - Staff’s overall assessment is that Argentina’s debt is sustainable, but not with a high probability. - The program remains fully financed. - Background (stock, currency composition, maturity, holders): - By end-December 2018: - Gross federal government debt (including intra-public-sector holdings) estimated at AR$12,560 billion (US$332 billion), up from AR$6,030 billion (US$321 billion) at end-2017. - Federal government debt increased from 58 percent of GDP in 2017 to 86 percent by end-2018. - The peso ended 2018 at AR$37.8/US$, while it was AR$18.8/US$ at end-2017. - FX-denominated portion of debt increased from around 68 percent at end-2017 to about 78 percent by end-2018, driven by: - US$9 billion external bond placement in January 2018; - about US$28 billion in IMF disbursements; - currency depreciation. - The stock of short-term treasury bills in private hands is around US$23 billion, 42 percent of which are FX denominated. - Average weighted maturity of federal public debt at end-2018: 9.0 years. Among privately held debt, weighted average maturity: 12.9 years. - About 35 percent of federal government debt is held by other public-sector entities and provinces; nearly 70 percent of this intra-public-sector debt is denominated in US$, and the majority are low-interest Letras Intransferibles held by the BCRA. - Debt to IFIs (including the IMF) and bilateral creditors increased from about 9 percent of total debt to 17 percent of total debt. - Baseline scenario (projections and assumptions): - Debt trajectory: - Debt expected to decline to around 76 percent of GDP in 2019 and gradually to below 60 percent of GDP by 2024. - Gross financing needs (GFN): - Expected to breach 15 percent of GDP in 2019 but remain below the threshold for the rest of the projection period. - Key assumptions: - Growth and inflation: - Growth in 2019 expected at -1.2 percent; rebound to 2.2 percent in 2020; rise gradually to 3.6 percent by 2023 and remain there in 2024. - Inflation expected to continue to erode the real value of long-maturity, peso-denominated debt. - Primary deficit: - Fiscal consolidation throughout the period will help reduce accumulation of debt. - Exchange rate: - Projected real peso appreciation in 2019 will improve debt dynamics as excess real depreciation in 2018 unwinds during program period. - Financing assumptions: - Continued rollover of intra-public-sector financing assumed, together with capitalization of interest payments by non-financial public sector. - Statutory advances from the BCRA are zero. - No international bond issuance expected until 2020. - The IMF will continue to play a key role in financing the federal government in 2019. - Higher than expected rollovers in Q4 2018 and Q1 2019, together with projected repayment for a credit line with Banco Nación in December, increased financing needs for 2019 and 2020; nonetheless, under the baseline, these continue to be fully financed. - Shocks and stress tests — solvency risks: - Given the high share of foreign currency denominated debt, an exchange rate shock remains a major vulnerability. - The standard DSA stress test includes a 50 percent real depreciation (identified as a major risk in the source). *Source: IMF staff estimates and calculations as presented in the provided IMF content.* ### 0.25 pass-through) shows that debt could jump to above 110 percent of GDP in such a scenario. ### 1argea2019003 - 0.25 pass-through) shows that debt could jump to above 110 percent of GDP in such a scenario. ### Debt dynamics and baseline projections - Under the baseline, public debt-to-GDP is projected to follow a steady downward trajectory from 2019 onwards. - Debt would fall under the planned fiscal consolidation to below 60 percent of GDP by end-2024. - If the primary balance were to remain unchanged at its 2018 level, debt would remain largely flat, at 83 percent of GDP by 2024. - Debt is vulnerable to a growth shock, which under the stress test could raise debt to nearly 80 percent of GDP. - A combined macro-fiscal shock (see stress test definition) could cause debt to peak at over 150 percent of GDP. - A specific stress scenario (0.25 pass-through) shows that debt could jump to above 110 percent of GDP. ### Stress test specification and outcomes - Combined macro-fiscal shock components: - (i) a one-standard deviation shock to growth, with the corresponding automatic stabilizers and lower inflation; - (ii) a 50 percent real depreciation, with 0.25 pass-through to inflation; - (iii) 200bps shock to interest rates. - Stress-test outcomes highlighted: - Debt could jump to above 110 percent of GDP in a scenario with 0.25 pass-through. - Debt could rise to nearly 80 percent of GDP under a growth shock. - A combined macro-fiscal shock will lead to GFN of 35 percent of GDP. - In such a combined-shock scenario, it may not be possible to finance GFN through market access on favorable terms. ### Key vulnerabilities and risk factors - Size of gross financing needs under a stressed scenario. - Large (and potentially rising) share of foreign currency debt, making debt dynamics susceptible to deviations from the programmed path of the real exchange rate. - Large external financing needs of the economy, which in past emerging market crises has been a strong predictor of a debt crisis. - The fiscal consolidation path is ambitious relative to similar country situations (it is in the top 5 percent of the distribution of fiscal consolidations achieved by a broad sample of program countries). - The DSA covers only federal government debt and could understate the sustainability of general government debt; provincial debt at end-2017 was projected to be around 6 percent of GDP. - The national government faces contingent liabilities from needing to recapitalize the central bank and unfunded pensions; for 2019, potential contingent liabilities from court settlements with provinces in the context of the Fiscal Pact are potentially around 0.2 percent of GDP. - Risks are mitigated by the high share of federal government debt held by other public-sector entities and the relatively long maturity of dollar-denominated debt issued on international markets. ### Liquidity and market-perception indicators - Gross financing needs (GFN) under a combined macro-fiscal shock: 35 percent of GDP. - Public gross financing needs (baseline projections shown in the DSA table): 5.2 (2017), 13.3 (2018), 13.5 (2019), 15.5 (2020), 10.9 (2021), 10.3 (2022), 12.0 (2023), 11.6 (2024) — expressed in percent of GDP as in the source table. - EMBIG (bp) noted as 700 in the DSA table; 5Y CDS (bp) noted as 677 in the DSA table. - Public gross nominal debt (percent of GDP) in the DSA table: 47.3 (2017), 57.1 (2018), 86.3 (2019), 75.9 (2020), 69.0 (2021), 65.1 (2022), 62.8 (2023), 60.7 (2024), 59.5 (end projection) — preserved exactly as presented. ### Fiscal policy stance and commitments - Fiscal consolidation is critical to stabilizing the debt level. - The government remains strongly committed to implementing the 2019 Budget and achieving a zero-primary deficit for 2019. - If primary balance remains at 2018 level, debt remains at 83 percent of GDP by 2024; under planned consolidation, debt falls below 60 percent of GDP by end-2024. - Identified measures to achieve the zero-primary deficit target for 2019 include: - Revenue measures (including from changes in revenue administration). - Spending cuts (including further rationalization of expenditure on goods and services and lower-priority capital spending). - The authorities affirm commitment to transparency, data sharing, and consultation with the IMF on policy measures. ### Indicators and model components used in the DSA (as presented) - Effective interest rate (defined as interest payments divided by debt stock at end of previous year): values shown in DSA table (e.g., 4.5, 8.9, 9.1, 5.1, 7.3, 8.9, 9.0, 8.2, 8.2). - Real GDP growth (in percent) as in projections: 1.5 (2017), 2.7 (2018), -2.5 (2019), -1.2 (2020), 2.2 (2021), 3.2 (2022), 3.4 (2023), 3.6 (2024), 3.6 (projection). - Inflation (GDP deflator, in percent): 26.4 (2017), 25.8 (2018), 41.0 (2019), 39.6 (2020), 23.6 (2021), 18.4 (2022), 12.8 (2023), 8.3 (2024), 5.2 (projection). - Exchange rate and foreign-currency-denominated debt share factor a and depreciation term e are used in the automatic debt dynamics formula as specified in footnotes. *Source: IMF staff.* ### 4. The revenue loss will be particularly acute during the first half of the year. For that reason, ### 4. The revenue loss will be particularly acute during the first half of the year. For that reason, ### Fiscal targets, revenue and expenditure management - End-June target revised to a smaller surplus of AR$20 billion. - By end-September, accumulated surplus of AR$60 billion to cover the deficit in the last quarter. - Achieving the revised end-June target will require additional effort in managing capital spending. - Proposed structural benchmark: By December 2019, implement an integrated auditing action plan for the Simplified Taxpayer Regime covering 20 percent of taxpayers under this regime. ### Tax administration and revenue efficiency - Intend to improve efficiency of tax collection and equitable distribution of the tax burden. - Enhance VAT collection efficiency and use third-party information to cross-check corporate tax returns. - Launched a program to reduce abuse of the monotributo regime and strengthen the large-taxpayers’ central office. ### Public Financial Management reforms - Plan to strengthen the macro-fiscal unit at the Ministry of Finance to assess costs and benefits of new policy measures and analyze fiscal risks. - Improve coordination among units assessing macroeconomic and fiscal impact of new policies. - Improve integrated information system for reporting all provincial fiscal outturns to strengthen Federal monitoring of provinces’ adherence to the Fiscal Responsibility law. - Commit to move the Treasury Single Account (TSA) from Banco Nación to the BCRA by June 2020. - Proposed structural benchmark: By September 2019 finalize a plan including operational details of the new TSA at the BCRA, transfer timeline, and a deleveraging plan for Banco Nación. ### Debt management strategy and practices - Expanded issuance of short-term peso-denominated government securities during the first half of the program. - Published a debt management strategy in December providing a medium-term view, auction calendar, intention to increase share of peso debt, and allotment method. - No longer permit investors to purchase dollar-denominated securities with pesos. - Market makers program unveiled in January 2019 to increase local market liquidity. - Will continue to strengthen medium-term debt management procedures and extend maturities to lower rollover risks. - Build liquidity buffers during the first half of 2019 and replace some callable debt with standard debt as market conditions permit. ### Use of IMF budget support and FX operations - Fund’s budget support will be used solely to meet primary balance needs and the interest and amortization payments on the debt of the Treasury. - Commit not to undertake FX sales through state-owned banks. - FX sales of Fund disbursements into the market will only be undertaken if a peso funding need arises and in agreement with IMF staff; such sales will be cash management operations via pre-announced daily auctions. - Do not envisage a need to sell IMF budget support FX to the market until mid-April. - On April 15, the BCRA will commence conversion of IMF budget support from FX into pesos, on behalf of the Treasury, through transparent and predictable pre-announced daily FX auctions into the market: - The daily amounts will be constant at US$60 million per day. - Auctions will take place daily until end-November at a same time of the day, unless interrupted (announced with at least 20 calendar days in advance). This will imply a total of US$9.6 billion sold. - If the exchange rate moves below the non-intervention zone during the pre-announced auction period, Treasury will sell its pre-announced daily amount to the BCRA at the reference rate of the day up to the daily limit defined by the BCRA in accordance to its monetary stance; these purchases will not be sterilized and will count towards the BCRA’s daily purchase limit. - Commit to maintaining the peso proceeds from these auctions at the BCRA until their use to ensure traceability. ### Monetary policy framework - Eliminated the BCRA’s LEBAC securities during the first half year of the program. - New monetary policy framework targets money supply; maintained cautious approach keeping monetary base growth below levels announced in October. - As currency appreciated beyond the non-intervention zone in January and February, BCRA began purchasing FX from the market allowing modestly faster growth in the monetary base; purchases presented in BCRA’s fortnightly review separately from monetary base target. - Committed to maintain until end-November the level of monetary base as of February 2019: AR$1,343 billion pesos net of potential FX purchases. - This is consistent with a 3 percent overcompliance relative to the original March target and 10.5 percent relative to end-November. - Remain committed to a floating exchange rate; prepared to intervene outside the non-intervention zone in a transparent and fully anticipated way. - Will calibrate non-sterilized FX purchases outside the non-intervention zone to support reduction of inflation and inflation expectations. - Limits of the non-intervention zone will be adjusted daily at a monthly rate of 1.75 percent during the second quarter of 2019. - Commit to submit a draft of a new BCRA charter to Congress by end-March 2019 to: - Enshrine autonomy of the central bank. - Establish price stability as the first and fundamental mandate of the BCRA. - Restrict monetary financing of the public deficit. - Enhance decision-making structures, transparency and accountability. - Commit to continue work towards achieving an adequate level of capital for the BCRA by end-December 2019. ### Financial stability and banking sector oversight - Banking sector remains healthy despite recession and financial turmoil experienced last year. - Vigilant against risks from a more protracted and deeper recession, particularly for small banks that serve financially excluded segments. - Small banks, due to size and lack of reliance on retail deposits, do not pose risks to financial stability, but will have stress test models fine-tuned and capital requirements adjusted accordingly. ### Social safety net measures - Provided one-off payments in September and December to Universal Child Allowance (AUH) beneficiaries such that real value of benefits in 2018 was higher than in 2017. - Provided a one-off payment in December to nearly 520,000 beneficiaries of the Employment Support Program (Apoyo al Empleo and Proyectos Productivos Comunitarios). - On March 1, front-loaded to March all increases in AUH benefits implied by the indexation formula for 2019: - This implies a 45 percent increase in benefit levels starting in March. - Expanded the definition of the social spending adjustor under the program to include selected programs: provision of medicines in public health centers, active labor market programs, and direct food support. - Cap on the social spending adjustor increased from 0.2 percent of GDP to 0.3 percent of GDP. - Commit to improve childcare system for low-income mothers with IDB support, including expanding hours. - Consejo Nacional de Coordinacion de Politicas Sociales working on impact study of Primeros Años program. - Roll-out of a time-use survey across Argentina by 2020. - Public monitoring paper of gender balance in executive board and management positions in listed companies will be published by end-March. ### Growth-enhancing structural reforms - Will refocus on structural reforms as macroeconomic environment stabilizes to generate growth and job creation. - Measure to provide subsidized loans to SMEs to support businesses in tight monetary environment with relatively low fiscal impact. - Continue efforts to lower barriers to trade and foreign investment: ongoing trade liberalization negotiations with the EU, EFTA and Canada. - Analyze improvements to Mercosur’s common external tariff and continue simplifying and reducing import and export administrative costs through single window (VUCE) program. - To improve domestic competition and ease of doing business will: - (i) simplify entry regulations and coordinate information across government to reduce administrative burden on new firms; - (ii) examine phasing out regulatory protection of state-owned enterprises and private incumbents, and residual price controls; - (iii) continue strengthening financial and institutional independence of the competition authority; - (iv) clarify and improve regulatory framework in network industries. - Aim to significantly reduce time needed to pay taxes within the next five years. ### Tackling corruption and transparency measures - Adopt and effectively implement the Executive Branch Anti-Corruption National Strategy; an executive order will approve the strategy by end-June 2019, with implementation of some pillars shortly afterwards. - Office of Anti-corruption and the Secretary for Institutional Strengthening at the Chief of Cabinet Office to monitor effectiveness. - Expedite testing of electronic declaration (e-declaration) system for high-ranking Executive branch officials by June 2019 after Minister of Justice approval; Office of Anti-Corruption empowered to monitor and report on results and to support full implementation. - Support implementation of company registry (Registro Nacional de Sociedades, Concursos y Quiebras): ensure required modifications to Resolution No. 6 are adopted by competent authority by end-June 2019 to ensure adequate beneficial ownership information accessible to competent authorities. - By end-March 2019, present to Congress amendments to the Ethics in Public Service Law to establish framework for granting the Office of Anti-Corruption necessary authority, powers, roles, responsibilities, and sanctions. - By end-September 2019, submit to Congress amendments to the AML law to incorporate provisional measures with safeguards for freezing funds and other assets by the Financial Intelligence Unit when suspicions of money laundering or terrorism financing arise in investigations linked to corruption or other crimes. ### Selected quantitative schedules and targets (as reported) - Table 1: Schedule of Reviews and Purchases: - June 20, 2018: 10,613.71 SDR millions, 333% - October 26, 2018: 4,100.00 SDR millions, 129% - December 15, 2018: 5,500.00 SDR millions, 173% - March 15, 2019: 7,800.00 SDR millions, 245% - June 15, 2019: 3,900.00 SDR millions, 122% - September 15, 2019: 3,900.00 SDR millions, 122% - December 15, 2019: 700.04 SDR millions, 22% - March 15, 2020: 700.04 SDR millions, 22% - June 15, 2020: 700.04 SDR millions, 22% - September 15, 2020: 700.04 SDR millions, 22% - December 15, 2020: 700.04 SDR millions, 22% - March 15, 2021: 700.04 SDR millions, 22% - June 1, 2021: 700.05 SDR millions, 22% - Total: 40,714 SDR millions, 1277% - Table 2: Selected fiscal and monetary targets and indicators (values quoted as in source): - Primary balance of the federal government (floor): values shown include -378.0, -404.4, -374.3, 6.0, 40.0, 20.0, 60.0 (as presented in the table). - Federal government accumulation of domestic arrears (ceiling): values include 24.4, 11.9, 30.0, 40.0, 45.0, 53.2 (as presented). - Social assistance spending (floor): values include 173.0, 184.9, 60.0, 110.0, 132.0, 205.0 (as presented). - Change in non-borrowed net international reserves (floor): values include 7.1, 6.5, 7.2, 4.1, 7.4, 2.9, 8.8, 12.5, 2.7, [6.4], 9.0, 6.2, 5.8, 9.0, 8.4, 8.2, 13.1 (as presented). - Change in stock of non-deliverable FX forwards (ceiling): values include 0.0, -3.6, 0.0, -3.6, -0.7, -3.6, -1.0, [-3], -1.2, -1.5, -1.7, -1.7, -2.0, -2.3, -2.6 (as presented). - Change in central bank credit to government (ceiling): values include 0.0, -432.3, 0.0 (as presented). - Change in net domestic assets of the central bank (ceiling): values include -46.2, -10.6, 24.5, -112.1, -157.5, -36.0, -177.5, -185.6, -154.5, [-208.2], -101.5 (as presented). *Source: 1argea2019003 - 4. The revenue loss will be particularly acute during the first half of the year. For that reason,* ### 11. Change in monthly average monetary base (ceiling) 12/ ### 11. Change in monthly average monetary base (ceiling) 12/ ### Monetary base ceiling: definitions and measurement - The change is a ceiling defined in the Technical Memorandum of Understanding (TMU). 1/ Targets as defined in the TMU. - The change is measured against the average value for February 2019, which was AR$1,343 billion. 12/ - The accumulation is measured against the average during Q4 2017, which stood at 45.6 billion pesos. 5/ - The change is measured against the value on September 28, 2018, which stood at 2,592.86 billion pesos. 7/ - The change is measured against the average value for September 2018, which was AR$ 574 billion. 8/ - Increases reflect IMF budget support disbursements, which increase NIR. 10/ - Continuous performance criterion until end-December 2018; thereafter this is a quarterly performance criterion with monthly indicative targets. 11/ ### Program exchange rates (for program valuation) - Argentine Pesos to the US dollar 1/41.25 - Argentine Pesos to the SDR 1/57.55 - Argentine Pesos to the Euro 1/47.90 - Argentine Pesos to the Canadian dollar 1/31.91 - Argentine Pesos to the British pound 1/53.79 - Argentine Pesos to the Renminbi 1/6.01 - Gold prices (US$/ounce) 2/1,190.88 - 1/ Rate published by the BCRA as of September 28, 2018. - 2/ Spot price published by Bloomberg as of September 28, 2018. ### Numerical items and short notes appearing in the source - Explicit zero entries: 0.0 (repeated) - 0.76 - 45.6 billion pesos (Q4 2017 average) - 2,592.86 billion pesos (value on September 28, 2018) - AR$ 574 billion (average value for September 2018) - AR$1,343 billion (average value for February 2019) - 79,000 million pesos in 2019 (limit on amount of pension fund assets recognized as revenue; equivalent to 0.4 percent of 2019 GDP) - 59,400 million pesos in 2019 (cap on social spending adjustor) - 39,600 million pesos in 2019 (cap on adjustor for external financing projects) - AR$ millions (program baseline cumulative from January 1 of each year): - end-March 2019: 33,201 - end-June 2019: 68,568 - end-September 2019: 110,172 - end-December 2019: 163,211 ### Quantitative performance criteria and fiscal monitoring (selected definitions) - For program purposes, all foreign currency-related assets, liabilities and flows will be evaluated at “program exchange rates” (those prevailing on September 28, 2018), except items affecting government fiscal balances which are measured at current exchange rates. 2/ - Any variable not explicitly defined for monitoring a PC or IT is defined in accordance with the Fund's standard statistical methodology (e.g., Government Finance Statistics). 3/ - Inflation expectations for the program are based on the BCRA monthly survey Relevamiento de Expectativas de Mercado (REM); program references to inflation expectations refer to the median of the REM forecasts. 4/ - The Federal government (Sector Público Nacional No Financiero) for the program includes the central administration, social security institutions, decentralized institutions (Administración Nacional), PAMI, fiduciary funds, and other entities and enterprises of the federal government. 5. - The primary balance of the Federal government is defined according to the monthly and annual reporting of the “Esquema IMIG” (total revenues minus primary spending), with revenues recorded on a cash basis and excluding certain transfers and proceeds as specified in the TMU. 6–7. - The primary balance will be measured at each test date as the cumulative value starting from the beginning of each calendar year. 12. ### Fiscal adjustors and special treatments - Pension assets seized in 2008 will be spread over time as revenue. The amount to be recognized in 2019 is capped at 79,000 million pesos (equivalent to 0.4 percent of 2019 GDP) and at 0.4 percent of GDP per year afterwards. 8. - Adjustor to the primary balance for social spending: the floor on the primary balance will be adjusted downward by the excess of social expenditures (cash basis) over programmed values for specified programs. The value of the adjustor is capped at 59,400 million pesos in 2019 and at the equivalent of 0.3 percent of GDP in each successive calendar year. 14. - Adjustor for external financing projects: the floor on the primary balance will be adjusted up (down) by the shortfall (excess) in expenditure financed by disbursements of external project loans versus budgeted capital expenditures. The value of the adjustor is capped at cumulative 39,600 million pesos in 2019 and 0.2 percent of GDP in each successive calendar year. 15. ### Structural benchmarks and timelines (selected items) - Publish a regulation to introduce a foreign exchange auction for BCRA intervention in the spot and forward markets. Timing: Jun-2018. Status: Met. - Establish a senior-level debt management coordinating committee between Treasury-Finance-BCRA. Timing: Sep-2018. Status: Not met. Implemented with one day delay. - Present a three-year budget document to Congress with transparent medium-term objectives. Timing: Oct-2018. Status: Not met. Implemented with delay. - Congress will pass the 2019 Budget targeting a zero primary balance. Timing: Nov-2018. Status: Met. - Congress will pass revenue legislation underpinning the 2019 fiscal plan, including the increase in rate and base of the wealth tax (Impuesto sobre los Bienes Personales). Timing: Nov-2018. Status: Not met. Implemented with delay. - Publish a debt management strategy to increase predictability, pricing, and liquidity of treasury issuances. Timing: Dec-2018. Status: Met. - Provide sufficient resources to the newly created CBO (Oficina de Presupuesto del Congreso). Timing: Dec-2018. Status: Met. - Limit the BCRA’s counterparties for sale of LEBACs, open market operations and repos to domestic banks. Timing: Mar-2019. Status: Met. - Submit to Congress a new charter for the central bank to ensure operational autonomy and strengthen the BCRA’s mandate. Timing: Mar-2019. - Design a compliance improvement plan and risk mitigation strategies around taxpayer segments and core taxes. Timing: Jun-2019. - Finalize a time‐bound plan for transferring the Treasury Single Account (TSA) from Banco Nacion to the BCRA in June 2020; plan to include operational details and a deleveraging plan for Banco Nacion. Timing: Sep-2019. Status: Proposed. - Recapitalize the central bank to ensure adequate capital level as percent of the monetary base plus outstanding stock of LEBACs. Timing: Dec-2019. - Implement an integrated auditing action plan for the Simplified Taxpayer Regime (Monotributo), covering 20 percent of taxpayers under this regime. Timing: Dec-2019. Status: Proposed. *Source: 1argea2019003 - 11. Change in monthly average monetary base (ceiling) 12/ (IMF PDF content unit).* ### 16. Definition: Social spending for the purpose of the program is computed as the sum of ### 16. Definition: Social spending for the purpose of the program is computed as the sum of ### Definition of Social Spending - Social spending for the purpose of the program is computed as the sum of all federal government spending (both recurrent and capital) on a cash basis on the following social protection programs: - Asignaciones Familiares Activos, under the jurisdiction of the Social Security Admnistration (ANSES) which includes the Asignación Prenatal, por Adopción, por Hijo, por Hijo Discapacitado, por Maternidad, por Matrimonio, por Nacimiento, and the Ayuda Escolar Anual. - Asignaciones Familiares Pasivos, under the jurisdiction of the Social Security Admnistration (ANSES) which includes the Asignación Prenatal, por Cónyuge, por Hijo, por Hijo Discapacitado, and the Ayuda Escolar Anual. - Asignaciones Familiares Sector Público Nacional, under the jurisdiction of the Social Security Admnistration (ANSES) which includes the Asignación Prenatal, por Hijo, por Hijo Discapacitado, por Maternidad, and the Ayuda Escolar Anual. - Asignación Universal para Protección Social, under the jurisdiction of the Social Security Admnistration (ANSES) which includes the following sub-programs: Asignación Universal por Hijo, Asignación por Embarazo, and Ayuda Escolar Anual. - Hacemos Futuro, under the jurisdiction of the Ministry of Health and Social Development, Secretary of Social Development (Program 38, activity 40, Hacemos Futuro Juntas, and 41, Hacemos Futuro). - Proyectos Productivos Comunitarios, under the jurisdiction of the Ministry of Health and Social Development, Secretary of Social Development (Program 50). - Políticas Alimentarias, under the jurisdiction of the Ministry of Health and Social Development, Secretary of Social Development (Program 26). - Prevención y Control de Enfermedades Inmunoprevenibles, under the jurisdiction of the Ministry of Health and Social Development, Secretary of Health (Program 20). - Cobertura Universal de Salud, Medicamentos, under the jurisdiction of the Ministry of Health and Social Development, Secretary of Health (Program 29). - Hogares con Garrafas, under the jurisdiction of the Ministry of the Treasury, secretary of Energy (Program 73, Subprogram 02, activity 40). ### Monitoring of Social Spending - Data will be provided to the Fund with a lag of no more than 25 calendar days after the end of each month. - Note: The floor on social spending in end-June 2018 was met, using an accrual basis. The TMU has been updated to clarify that going forward, this is to be measured on a cash basis. ### Social Spending Cumulative Targets (AR$ millions, cumulative from January 1 of each year) - end-March 2019: 10,000 - end-June 2019: 14,700 - end-September 2019: 21,000 - end-December 2019: 29,417 ### Ceiling on Federal Government Accumulation of Domestic Arrears - Definition: Domestic arrears = floating debt = difference between primary spending recorded on an accrual basis (gasto devengado, from the SIDIF system) and primary spending recorded on a cash basis (base caja, from the Treasury). Excludes transferencias figurativas and includes gasto en personal, bienes y servicios, servicios no profesionales, bienes de uso, and transferencias. - Measurement: Arrears are measured daily. The program will cap the average of arrears during the three months prior and up to a test date at 0.5 percent of GDP, according to the path set in Table 2. - Monitoring: Data recorded at daily frequency will be provided to the Fund with a lag of no more than 25 calendar days after the end of each month. ### Federal Government Non-Accumulation of External Debt Payments Arrears - Definition of debt: External debt determined by residency criterion; “debt” means a current liability created under a contractual arrangement requiring payment in assets or services at future dates. - Forms of debt include: - Loans (including deposits, bonds, debentures, commercial loans, buyers’ credits, repurchase agreements, official swap arrangements). - Suppliers’ credits. - Leases (debt = present value at inception of all lease payments expected during the agreement, excluding payments for operation, repair or maintenance). - Definition of external arrears: External debt payment arrears are obligations (principal and interest) falling due after May 30, 2018 that have not been paid, considering contractual grace periods. Arrears, penalties and judicially awarded damages arising from failure to make payment under a contractual obligation that constitutes debt are debt. - Coverage: This performance criterion covers the federal government. Exclusions: (i) arrears on trade credits, (ii) arrears on debt subject to renegotiation or restructuring, and (iii) arrears resulting from nonpayment of commercial claims that are the subject of any litigation initiated prior to May 30, 2018. - Monitoring: This PC will be monitored on a continuous basis. ### Floor on the Change in Non-Borrowed Net International Reserves (NIR) - Definitions: - NIR of the BCRA = balance of payments concept of NIR = U.S. dollar value of gross official reserves of the BCRA minus gross official liabilities as defined below. Non-U.S. dollar denominated foreign assets and liabilities converted at program exchange rates. - Foreign exchange auction: BCRA sells US dollars to banks in exchange for pesos. Bids allotted based on rate proposed; auction weighted average rate, marginal rate, total bid amount, and final allotment published within one hour after allotment. - Gross official reserves (BPM6-consistent): include monetary claims, free gold, holdings of SDRs, reserve position in the IMF, and holdings of fixed income instruments. Excludes pledged/encumbered assets, claims on residents, derivative claims, precious metals other than gold, assets in nonconvertible currencies and illiquid assets. - Gross official liabilities in foreign currencies include: all borrowed reserves (foreign currency swaps, loans, repo operations), other foreign currency liabilities including deposits of financial institutions, use of Fund resources for Balance of Payments support in the exceptional financing package, deliverable forward FX liabilities on a net basis undertaken by the BCRA or on its behalf. Federal government’s FX deposits at the BCRA are not considered gross foreign liabilities of the BCRA. - Measurement: Change in non-borrowed NIR from September 28, 2018 baseline, which stood at US$15.680 billion. - Monitoring: Foreign exchange asset and liability data will be provided to the Fund at daily frequency within one day. ### Adjustors to NIR Targets - Adjustor for Multilateral loans: NIR targets adjusted by surplus (shortfall) in disbursements from the IMF and other multilateral institutions (IBRD, IDB, CDB) and grants, relative to baseline projection reported in Table 4. Budget support disbursements = external loan disbursements usable for financing general government (excluding project financing). - Adjustor for FX intervention: - NIR targets adjusted downward by total US dollars sold via foreign exchange auctions executed according to intervention rule. - Definition of Intervention: official foreign currency sales and purchases by BCRA only. State-owned banks not allowed to engage in official FX sales on behalf of the government. - Exchange Rate: AR$/US$ rate for intervention rule = Mercado Abierto Electrónico (MAE) rate (continuous updates and daily fixing). - Intervention rule: BCRA may sell US dollars only if the peso depreciates beyond the upper limit of the non-intervention zone published on the BCRA website. Beyond these limits, BCRA could decide (but is not obligated) to sell or buy up to US$150 million per day as long as the exchange rate remains outside this band. All FX sales and purchases expected to be unsterilized; decrease (increase) in NIR matched by decrease (increase) in monetary base equal to peso equivalent of FX sales, with stock of sterilization instruments unchanged. - Monitoring: Daily data on amount and rate of transactions between the BCRA and each counterparty provided to the Fund at the end of each day. - Adjustor for FX debt issuance: NIR targets adjusted upward by surplus in proceeds from gross issuances of FX-denominated debt relative to baseline projection reported in Table 5. - Monitoring: Data on debt issuances and rollovers, by currency and counterparty, provided to the Fund after each issuance, with a lag of no more than two days. - Adjustor for Treasury FX sales: NIR targets adjusted downward by total amount of dollars sold by the Treasury to the market to meet peso obligations of the government. FX sales implemented by the BCRA on behalf of Treasury starting on April 15 via an auction each business day. Daily amounts constant at US$60 million per day and auctions continue until end-November. This adjustor capped at US$9.6 billion for 2019. ### Table 4 — Budget Support Disbursements (Cumulative flows from end-September 2018, In millions of US$) - Budget support disbursements from IMF: - end-January 2019: 13,469 - end-February 2019: 13,469 - end-March 2019: 24,412 - end-April 2019: 24,412 - end-May 2019: 24,412 - end-June 2019: 29,884 - end-July 2019: 29,884 - end-August 2019: 29,884 - end-September 2019: 35,356 - Budget support loans from other multilateral sources: - end-January 2019: 1,550 - end-February 2019: 1,550 - end-March 2019: 1,550 - end-April 2019: 1,550 - end-May 2019: 1,550 - end-June 2019: 2,950 - end-July 2019: 2,950 - end-August 2019: 2,950 - end-September 2019: 3,650 ### Table 5 — Proceeds from FX Debt Issuances (Baseline Projection, Cumulative flows from end-September 2018, In millions of US$) - end-January 2019: 5,805 - end-February 2019: 6,770 - end-March 2019: 8,063 - end-April 2019: 11,054 - end-May 2019: 12,983 - end-June 2019: 13,795 - end-July 2019: 14,092 - end-August 2019: 15,051 - end-September 2019: 15,889 ### Ceiling on the Change in the BCRA’s Stock of Non-Deliverable Forwards (NDF) - Definition: Stock of NDF = net of the U.S. dollar notional value of all long and short position contracts entered by the BCRA involving the Argentine peso, directly or through any institution used as financial agent. - Monitoring: PC monitored quarterly, with monthly indicative targets. Data provided to the Fund at the end of each day. - Measurement: Change in stock of NDFs measured relative to stock on September 28, 2018, which stood at US$3.6 billion. ### Continuous Stop to BCRA’s Financing of the Government - Definitions: BCRA financing to the government includes overdraft transfers (Adelantos Transitorios), advance distribution of unrealized profits, and acquisition of government debt on the primary market or by purchase from public institutions. BCRA will extend zero net financing to the government for the duration of the program. - Monitoring: Daily data provided to the Fund within two days. Monitored on a continuous basis. ### Ceiling on the Change in the Monetary Base (MB) - Definition: MB = currency in circulation (cash held by public, cash in bank vaults, settlement checks) + current account balances of banks at the BCRA; measured in peso and consistent with BCRA Daily Monetary Report. - The ceiling applies to the monthly average of MB. The change calculated with respect to the average of the month of February 2019 which was AR$1,343 billion. Ceilings consistent with MB targets adopted by the BCRA in line with their monetary framework and communicated publicly on the BCRA website in the biweekly Report on Monetary Base Target, plus (less) any adjustments outlined below. - Monitoring: Data provided to the Fund on a daily basis with a lag of no more than 2 days. - Adjustor for FX sales and purchases: MB target adjusted downward (upward) by FX sales (purchases) when the peso is outside the non-intervention zone; such FX operations are unsterilized. - Change in reserve requirements: BCRA will reach agreement with IMF staff prior to making any changes to levels or structure of reserve requirements. ### Ceiling on Central Bank Credit to the Government - Definition: BCRA credit to the government = stock of government securities held by the BCRA (Títulos Públicos) + overdraft transfers (Adelantos Transitorios). Any decrease in claim reflects cash payments by the Treasury to the BCRA; exchange rate/accounting valuation changes excluded. - Monitoring: Daily data provided to the Fund within two days. - Measurement: Change in stock of net credit to government measured relative to the stock on September 28, 2018, which stood at AR$ 2,592.86 billion. ### Quantitative Indicative Targets: Definition of Variables — Cumulative Floor on Primary Balance of the General Government - General government = federal government + aggregate position of provincial governments (23 provinces + Autonomous City of Buenos Aires). - Primary balance: Includes primary balance of the federal government (including adjustors) plus revenues of provincial governments (including transfers from the federal government) less cash expenditures of provincial governments. - Provincial expenditures include wages, goods and services, transfers and subsidies, capital spending and transfers to municipalities from the provincial government. Expenditures of municipalities and municipal revenues are excluded. - Result for provincial governments measured above-the-line, with expenditure defined according to information provided by the Secretaría de Hacienda. *Source: Excerpt from IMF TMU section on definitions, monitoring, targets, and adjustors in program documentation.* ### 47. Adjustor to the primary balance for social spending: The floor on the primary balance ### 1argea2019003 - 47. Adjustor to the primary balance for social spending: The floor on the primary balance ### Adjustor to the primary balance for social spending - The floor on the primary balance of the general government (cumulative since the beginning of the year) will be adjusted downward by an amount equivalent to the amount that expenditures, measured on a cash basis, exceed the programmed values defined in Table 2 for the following programs: - Asignación Universal para Protección Social, ANSES (program 19, subprogram 03). - Hacemos Futuro, Ministry of Health and Social Development, Secretary of Social Development (Program 38, activity 40, Hacemos Futuro Juntas, and 41, Hacemos Futuro). - Proyectos Productivos Comunitarios, Ministry of Health and Social Development, Secretary of Social Development (Program 50). - Políticas Alimentarias, Ministry of Health and Social Development, Secretary of Social Development (Program 26). - Prevención y Control de Enfermedades Inmunoprevenibles, Ministry of Health and Social Development, Secretary of Health (Program 20). - Cobertura Universal de Salud, Medicamentos, Ministry of Health and Social Development, Secretary of Health (Program 29). - Hogares con Garrafas, Ministry of the Treasury, secretary of Energy (Program 73, Subprogram 02, activity 40). - Caps on the adjustor: - The value of the adjustor will be capped at 59,400 million pesos. - The value of the adjustor will be capped at the equivalent of 0.3 percent of GDP in each successive calendar year. ### Adjustor for external financing projects - The floor on the primary balance of the general government (cumulative since the beginning of the year) will be adjusted up (down) by the shortfall (excess) in the expenditure, measured on a cash basis, financed by disbursements of external project loans by International Financial Institutions and bilateral partners, compared to the capital expenditures settled in the budget (Table 3). - Caps and benchmark: - The value of the adjustor would be capped at cumulative 38,000 million pesos in 2019, and 0.2 percent of GDP in each successive calendar year. - Starting in 2019 the benchmark will be the expenditure financed by disbursements of external project loans by IFIs and bilateral partners, as stated in the budget. ### Reporting and timelines - Data, as available to the Consejo Federal de Responsabilidad Fiscal, will be provided to the Fund with a lag of no more than 60 calendar days after the end of each quarter. - Estimates will be provided for the provinces of La Pampa and San Luis. ### Performance criterion on multiple currency practices (MCP) - The performance criterion on the introduction or modification of multiple currency practices (MCP) excludes multiple currency practices arising from any modification to the multiple-price foreign exchange auction system introduced in June 2018. ### Other information requirements — Data to be provided (frequency and items) - Daily: - Nominal exchange rates; interest rates on domestic debt instruments including LETES (at different maturities), LEBAC (at different maturities), LELIQs, and BOTES; total currency issued by the BCRA; deposits held by financial institutions at the BCRA; required reserves of the banking sector in local and foreign currency; total liquidity assistance to banks through normal BCRA operations, including overdrafts; interest rates on overnight deposits and on 7-day repurchase and reverse repurchase agreements. - Individual banks’ gross foreign exchange positions by currencies. - Individual banks’ foreign currency accounts with the BCRA. - Individual banks’ reserve positions at the BCRA. - The BCRA’s outstanding stock of non-deliverable forwards (long and short positions). - Weekly: - BCRA balance sheet. - Daily balances of all bank accounts of the national treasury. - Analysis on the use of IMF budget support in accordance with the Memorandum of Understanding between the Treasury and the BCRA. - FX operations of Banco Nación on a weekly basis. - Monthly: - Federal government operations including monthly cash flow from the beginning to the end of the current fiscal year (and backward revisions as necessary), with a lag of no more than 25 days after the closing of each month, according to both the format of the Informe Mensual de Ingresos y Gastos (IMIG) and to the format of the Cuenta Ahorro Inversion Financiamiento (AIF). - Expected monthly federal government and provincial government debt amortization and repayments (local currency and FX bonds, treasury bills, Eurobonds, domestic loans, external commercial and external official loans), including both direct and guaranteed debt. In the case of issuance of government guaranteed debt, include the name of the guaranteed individual/institution. - Federal government and provincial government debt stock by currency, as at end month, including by (i) creditor (official, commercial domestic, commercial external); (ii) instrument (local currency and FX denominated bonds, treasury bills, Eurobonds, domestic loans, external commercial and external official loans); and (iii) direct and guaranteed. - Balances of the (federal) government at the central bank and in the commercial banking system needed to determine the cash position of the (federal) government. - Deposits in the banking system: current accounts, savings and time deposits within six weeks after month end. Average monthly interest rates on loans and deposits within two weeks of month end; weighted average deposit and loan rates within six weeks after month end. - Balance sheets of other financial corporations (non-deposit taking), including holdings of federal and provincial debt and of the BCRA instruments within one month after month end. - Data on the total loans value of all new federal government-funded public private partnerships. ### Supplementary information (selected economic developments and program indicators) - Economic activity: - Monthly proxy GDP increased 0.6 percent (m/m sa) in January, above staff’s forecast of 0.2 percent. In y/y terms, the economy contracted by 5.7 percent in January, compared to a 6.6 percent contraction in December. - External sector and trade: - Current account balance posted a US$2.3 billion deficit in 2018Q4, down from a US$7.5 billion deficit in the previous quarter and a US$9.4 billion deficit in 2017Q4. - The current account deficit for 2018 closed at 5.2 percent of GDP (slightly below staff’s 5.4 percent of GDP forecast). - In February, the trade balance recorded another surplus (the sixth in a row), as imports continued to contract (by about 22 percent y/y). - In February, private capital outflows were 51 percent lower compared to a month earlier. - Poverty and social indicators: - The share of the population living in poverty rose to 32 percent (from 27.3 percent in 2018H1). - The share of the population living in extreme poverty rose to 6.7 percent from 4.9 percent in 2018H1. - Monetary and financial indicators: - The BCRA announced a floor on LELIQ rates of 62.5 percent for the month of April. - Since the circulation of the Staff Report, LELIQ rates have risen slightly, to around 68 percent. - End-March NIR was US$21.2 billion, US$1.1 billion above the adjusted program target. - The NDA outturn was AR$362 billion, AR$58.1 billion above target. - The stock of net NDF position decreased by US$3.3 billion relative to end-September level, meeting the target. - BCRA governance reform: - The government has submitted the draft BCRA charter to Congress (meeting the structural benchmark). The draft law, inter alia: - establishes price stability as the priority mandate of the BCRA; - prohibits any forms of monetary financing of the government by the BCRA; - allows for remuneration of commercial banks’ accounts that are held at the BCRA; - strengthens the appointment procedure of the BCRA president and members of the Board; - improves the decision-making structure of the central bank by establishing an Oversight Board with an Audit Committee; - provides the legal basis for establishing IFRS as the accounting standard for the BCRA. - Fiscal revenues and legal developments: - In March, tax revenue increased by 37.3 percent (y/y), a 10 percent contraction in real terms. - There was an AR$10 billion gap relative to staff projections, mainly reflecting lower revenues from export taxes; income taxes, property tax, and fuel taxes were also modestly below staff forecasts. - On March 26 the Supreme Court ruled that levying income tax on a claimant’s pension constitutes an unfair tax burden on a vulnerable person and is unconstitutional; the court asked Congress to pass legislation to extend the same exemption for all pensioners who are in vulnerable conditions. - In the event all taxable pensioners were to be exempted, the fiscal cost could be about 0.04 percent of GDP per year and possibly more if extended retroactively. *Source: 1argea2019003 - 47. Adjustor to the primary balance for social spending: The floor on the primary balance* --- _Source: https://www.imf.org/-/media/files/publications/cr/2019/1argea2019003.pdf_