## 1argea2019004 ## Source details **Canonical URL:** [1argea2019004](https://www.imf.org/-/media/files/publications/cr/2019/1argea2019004.pdf) ## Other formats - [Markdown version](/-/media/files/publications/cr/2019/1argea2019004.pdf.md) - [Structured JSON version](/-/media/files/publications/cr/2019/1argea2019004.pdf.json) --- ### Transmission of short-term interest rates to bank time deposits - Model and assumptions: - Banks set their 30-day deposit rate as a fixed mark-up over the compounded short-term (7-day LELIQ) rate expected for the coming month, accounting for an average 17 percent unremunerated reserve requirement on deposits. - Spread expressed as: 푟푟푡푡푑푑 − 푟푟푡푡퐿퐿 = 훼훼 + 훽훽(1 − 푢푢푟푟푟푟) E푡푡 푟푟푡푡+30퐿퐿 − 푟푟푡푡퐿퐿 + 푒푒′푡푡. - Time deposits subject to a 5 percent reserve requirement met by holding BOTES and a further 13 percent met by holding LELIQs. - Empirical fit and findings: - Estimated model (data until end-May) links changes in deposit rates to backward-looking changes in LELIQ expectations and to LELIQ volatility in April; model fits the observed spread behavior. - Normal lags in pass-through: around 10 days for 50 percent pass through from short-term rates to time deposit rates. - Out-of-sample forecasts for June indicate spread reacting with normal lags. - Competition-improving measures estimated to have increased deposit rates by about 3.4 percentage points (dummy for period after measures). ### Trade and external sector developments - Key outcomes (first half/early 2019): - Trade surplus in the first four months of 2019 was US$4.5 billion (compared to a deficit of the same magnitude in the same period last year). - Imports down 29 percent in the first 5 months of 2019 relative to the same period last year. - Private sector capital outflows in first five months of 2019 were 30 percent lower than same period in 2018. - Current account deficit fell to 3.4 percent of GDP in the 12 months ending in 2019Q1 (from 5.9 percent of GDP in 2018Q3). - Real exchange rate appreciated 13 percent between end-September and end-May. - Peso judged around 10 percent weaker than level consistent with medium-term fundamentals for 2018 as a whole (subject to uncertainty). ### Outlook, headline forecasts, and risks - Growth and inflation forecasts: - 2019 growth forecast revised to - 1.3 percent. - 2020 growth revised from 2.2 to 1.1 percent. - Inflation expected to end the year at around 40 percent (well above the 30.5 percent forecast at third review). - Debt and fiscal outlook: - Medium-term debt levels raised to exactly 60 percent of GDP by 2024 due to higher interest rates and lower growth. - Main program downside risk: protracted shift away from Argentine assets → increased dollarization, depreciation pressures, higher inflation, increased debt-GDP ratio, greater loss of FX reserves. - Risk of reluctance to roll over peso and FX debt could create a budgetary financing gap and deepen liquidity/solvency concerns. - Shortening of maturities increased short-term financing needs and rollover risks in run-up to election. - Social and distributional risks: - High persistent inflation or delayed recovery could worsen social outcomes, increase poverty, and erode public support for program. ### Program implementation, performance criteria, and fiscal management - Performance and recent outcomes: - All end-March performance criteria and the end-June criteria for which data available have been met. - End-June money base: AR$1,342 billion, AR$1 billion below target. - Net international reserves overperformed end-June target by US$3.3 billion. - Stock of non-deliverable forwards at US$3.6 billion, about US$6,6 billion above target (as reported). - Social spending exceeded floor by AR$12 billion; social spending overperformance noted later as AR$25.6 billion (end-June at AR$157.6 billion). - Primary balance in Q1 was AR$10.3 billion, meeting program target of AR$6 billion. - Fiscal projections and adjustors: - 2019 primary deficit expected to be 0.3 percent of GDP after adjustors. - Policy measures in first four months add 0.2 percent of GDP to spending. - Weaker tax collection likely to lower revenues by around 1 percent of GDP (Income taxes down 0.3 percent of GDP; VAT down 0.2 percent of GDP; Financial transaction taxes down 0.1 percent of GDP). - Reinstatement of higher VAT rate on imports and higher import tariffs boost revenues by around 0.1 percent of GDP in 2019. - Higher inflation will erode wages and pension spending by around 0.2 and 0.5 percent of GDP, respectively (after accounting for 30 percent wage increase phased June 2019–June 2020). - Existing buffer in capital spending can offset unexpected revenue weakness or higher current spending. ### Social programs and gender-equity measures - Programs and expansions (costs < 0.1 percent of GDP accommodated within social adjustor): - Expand Primera Infancia (childcare centers for children aged 0-3). - Increase unemployment insurance, scholarship programs for low-income students, programs to support gender equity, comprehensive support programs for mothers, children, and teens. - Policy actions: - Authorities requested expansion of the social spending floor and adjustor to incorporate these programs. - Medium-term work with World Bank on household survey improvements and roll out of a time-use survey. - Congressional approval sought for legislation to increase paternity leave and eliminate tax disincentives for female labor force participation. ### Monetary and exchange rate framework - Framework and operations: - Monetary policy framework introduced last October led short-term rates to respond flexibly to peso asset demand. - BCRA stance: if shift away from peso leads to disorderly currency movements, BCRA would sell FX → contract money supply, raise interest rates; if demand for peso increases, BCRA could purchase up to US$150 million per day and expand money supply. - Maintain minimum rate for LELIQs until end-July adjusted with inflation expectations to keep ex-ante real rates close to high levels. - Stock of central bank liabilities (LELIQs) risen above AR$1,000 billion but remains well below Q1 2018 peak as share of GDP or monetary base. - Over medium-term, LELIQs expected to grow broadly in line with nominal GDP. - Specific policy settings: - Monetary base maintained at AR$1,343 billion (average February 2019) then targeted to AR$1,298 billion by October via planned reductions. - In July, URR reduced to address seasonal currency demand; reversal of this seasonality accounted for in later months. ### Debt management and financing strategy - Issuance and maturities: - Government prioritizing longer maturities but issued mostly shorter maturities in April/May (LECAPS 3 months; LETES 2–3 months) to maximize rollovers and build cash buffers. - Rollover rate needed for rest of year raised to 75 percent (from 65/70 percent at third review). - Authorities intend to place at least 50 percent of issuances into bonds maturing in 2020 while targeting cash buffer build-up before elections. - On June 25, allotment strategy changed to allocate new issuances first to longer-term securities. - Market measures: - Market-maker program rolled out to improve secondary market liquidity and bolster demand for domestic-law instruments. - Treasury expected to institute securities-lending facility to support market functioning. - Staff engagements on mini-tenders and refinancing mechanisms to smooth coupon/amortization spikes (e.g., DUO in May). - Financing assumptions: - Program remains fully financed under higher rollover assumptions; Fund continues to play key financing role in 2019. ### Tax reform, energy, and structural priorities - Tax reform priorities: - Phase out distortionary taxes (notably financial transaction tax and reliance on export taxes), broaden personal income tax coverage, scale back VAT exemptions and reduced rates, increase consumption-tax revenues. - Energy sector developments and recommendations: - Conventional oil and gas declining until 2018; now growing rapidly. - 2018 unconventional production increased by 48 percent year-on-year; unconventional now 17 percent (oil) and 40 percent (natural gas) of total production. - Renewables expected to account for 12 percent of electricity consumption by year-end. - Energy trade balance moved from sizable deficit to close to balance. - Policy recommendations: improve regulatory/legal framework, ensure tariffs reflect international prices, boost upstream/downstream infrastructure investment. ### Governance, transparency, and AML/CFT measures - National Anti-Corruption Plan: - Executive order approved 2019-2023 Plan in April 2019; advisory committee to monitor implementation. - Ethics and asset declarations: - Amendments to Ethics in Public Service Law submitted; e-declaration system trial approved in April 2019. - Company registry and AML: - Implementation and verification of company registry underway; online information provided for incorporated companies. - Amendments to Anti-Money Laundering Law to be submitted by end-September 2019 to enable FIU asset-freezing powers when linked to money laundering, terrorism financing, or corruption. ### Debt sustainability analysis, shocks, and stress-test outcomes - Stock and composition (end-2018 / end-April 2019): - Gross federal government debt end-December 2018: AR$12,560 billion (US$332 billion). - Federal government debt rose from AR$6,030 billion (US$321 billion) end-2017 to AR$12,560 billion (US$332 billion) end-2018. - Federal government debt rose from 58 percent of GDP in 2017 to 86 percent of GDP by end-2018. - FX-denominated share increased from around 68 percent at end-2017 to about 76 percent at end-2018. - Stock of short-term treasury bills in private hands ~ US$23 billion, 42 percent FX denominated. - Average weighted maturity of federal public debt end-2018: 9.0 years; among privately held debt weighted average maturity: 12.9 years. - By end-April 2019 gross federal government debt broadly constant at around US$334 billion. - Baseline projections and financing assumptions: - Debt expected to decline to around 77 percent of GDP in 2019 and to 60 percent of GDP by 2024. - GFN expected to breach 15 percent of GDP in 2019 but remain below threshold thereafter. - Growth projections: 2019 -1.3 percent; 2020 1.1 percent; 2023 and 2024 3.6 percent. - Rollover rates for remainder of 2019 assumed at 75 percent. - No international bond issuance expected until 2020; IMF plays key financing role in 2019. - Stress-test results (selected scenarios): - Exchange rate shock (50 percent real depreciation with 0.25 pass-through) → debt could jump above 115 percent of GDP. - Growth shock → debt could rise to nearly 80 percent of GDP. - Fiscal slip (primary balance unchanged at 2018 level) → debt largely flat at 84 percent of GDP by 2024. - Combined macro-fiscal shock → debt could peak at 160 percent of GDP and GFN reach 36 percent of GDP. - DSA indicators and numeric findings (selected): - Public gross financing needs series: 5.0 13.3 13.5 15.8 12.6 11.6 12.9 12.6 (by year as presented). - Nominal gross public debt series: 47.3 57.1 86.1 76.9 70.1 64.6 62.6 61.3 60.0. - EMBIG (bp): 811. - 5Y CDS (bp): 971. - Real GDP growth (percent): 1.5 2.7 -2.5 -1.3 1.1 2.6 3.4 3.6. - Inflation (GDP deflator, percent): 26.4 25.8 41.3 46.8 34.5 24.5 13.6 8.0 5.0. - Change in gross public sector debt (cumulative): -1.0 4.1 28.9 -9.2 -6.7 -5.5 -2.0 -1.3 -1.2 -26.0. - Residual, including asset changes: 6.6 2.9 3.8 13.3 9.9 4.9 2.6 1.2 0.1 32.0. - Assessment: - Staff assessment: Argentina’s debt is sustainable, but not with a high probability. - Downside risks important: election-related market turbulence, high FX-denominated debt share, elevated financing needs, contingent liabilities. ### Structural benchmarks, safeguards, and program conditionality - Selected structural benchmarks (timing and status): - Publish regulation for FX auction — Jun-2018 — Met. - Establish senior-level debt management coordinating committee — Sep-2018 — Not met (implemented with one day delay). - Present three-year budget document to Congress — Oct-2018 — Not met (implemented with delay). - Congress pass 2019 Budget (zero primary balance) — Nov-2018 — Met. - Publish debt management strategy — Dec-2018 — Met. - Submit new BCRA charter to Congress — Mar-2019 — Met. - Design compliance improvement plan for taxpayer segments — Jun-2019 — Met. - Finalize time-bound TSA transfer plan (Banco Nación → BCRA) — Sep-2019 — timing indicated. - Recapitalize central bank — Dec-2019 — timing indicated. - Implement integrated auditing for Monotributo covering 20 percent of taxpayers — Dec-2019 — timing indicated. - Safeguards and reporting: - Authorities begun submitting weekly analysis of IMF budget support use and preparing BCRA recapitalization assessment. - Staff following up on safeguards recommendations to strengthen internal audit and controls on monetary data compilation. - Plan to transfer Treasury Single Account to BCRA by June 2020 (structural benchmark). ### Multiple currency practice (MCP), arrears, and creditor engagement - MCP: - Staff supports authorities’ request for temporary approval (additional 12 months) for retention of multiple currency price auction (introduced June 2018) which staff assessed gives rise to MCP; staff assesses conditions for approval are met. - Arrears resolution: - Authorities continue good faith efforts to resolve US$1.2 billion in principal (or US$3.2 billion including accrued interest) outstanding arrears to external private creditors. - Payments continue under agreements; payment to Japanese intermediary banks on holdouts agreement eliminated Japanese claims. - Authorities working to resolve official arrears to French export credit agency (~US$30 million principal). ### Staff appraisal and recommended policy actions - Staff appraisal highlights: - Authorities implementing policy program; fiscal targets met; central bank adhered to zero growth in base money target. - Breaking inflation inertia will take time; consistent implementation essential. - Economic activity expected to start renewed growth in second quarter, but recovery likely protracted. - Recommended policy actions: - Continue adherence to program through election period and beyond to normalize market conditions. - Seek opportunities to increase rollover rates and lengthen average maturity of government debt, even if temporarily incurring higher cost. - Improve structure of local sovereign debt markets; strengthen market makers to improve liquidity. - Prioritize and expand social programs to protect vulnerable while improving efficiency and coverage (expand social spending floor; protect adults without children and low-income working mothers). - Continue data work with World Bank/IDB (household and time-use surveys) and pursue congressional approval for paternity leave and elimination of tax disincentives to female labor force participation. ### TMU definitions, adjustors, and reporting requirements (selected items) - Program exchange rates (as of September 28, 2018): - ARS/USD 41.25; ARS/SDR 57.55; ARS/EUR 47.90; ARS/CAD 31.91; ARS/GBP 53.79; ARS/CNY 6.01. - Gold price (US$/ounce): 1,190.88. - Federal government primary balance (scope and measurement): - Federal government = central administration, social security institutions, decentralized institutions (Administración Nacional), PAMI, fiduciary funds, and other federal entities. - Primary balance measured on cash basis; cumulative from Jan 1 each year. - Adjustors and caps: - Social spending adjustor capped at 63,900 million pesos in 2019 and at equivalent of 0.3 percent of GDP in successive years. - Adjustor for external financing projects capped at cumulative 42,500 million pesos in 2019 and at 0.2 percent of GDP in successive years. - Treasury FX sales adjustor capped at US$9.6 billion for 2019 (US$60 million per day auctions until end-November). - NIR and FX intervention: - Change in non-borrowed NIR measured relative to US$15.680 billion (stock on September 28, 2018). - Intervention rule: if exchange rate exceeds AR$51.5 per US$ the BCRA may sell up to US$250 million (may undertake additional interventions to counter excessive volatility). - Cumulative budget support disbursements and other multilateral flows provided in tables (selected cumulative US$ flows listed in source). - Ceilings and monitoring: - Ceiling on change in BCRA stock of non-deliverable forwards measured relative to US$3.6 billion (stock on September 28, 2018). - Ceiling on change in monetary base measured relative to AR$1,343 billion (average February 2019). - Continuous monitoring and high-frequency reporting required (daily, weekly, monthly data schedules specified in TMU). - Reporting and recent performance: - All end-June fiscal performance criteria were met; primary balance closed at AR$30.2 billion (AR$10 billion over unadjusted June target AR$20 billion). - Daily and monthly reporting timetables defined (e.g., fiscal data lag no more than 25 calendar days). ### Selected quantitative projections and key indicators (from Tables 1–7, selected rows) - National accounts and prices (GDP at constant prices, percent or AR$ nominal GDP where noted): - GDP at constant prices: 2015 2.7; 2016 -2.1; 2017 2.7; 2018 -2.5; 2019 -1.2; 2020 2.2; 2021 -1.3; 2022 1.1; 2023 2.6; 2024 3.4; 2025 3.6; 2026 3.6. - Nominal GDP (billions of Argentine pesos): 2015 5,955; 2016 8,228; 2017 10,645; 2018 14,606; 2019 20,175; 2020 25,458; 2021 21,232; 2022 28,841; 2023 36,874; 2024 43,304; 2025 48,497; 2026 52,825. - Output gap (percent): 2015 0.8; 2016 -1.6; 2017 -0.2; 2018 -4.2; 2019 -7.0; 2020 -6.7; 2021 -7.1; 2022 -7.8; 2023 -7.3; 2024 -6.0; 2025 -4.5; 2026 -3.0. - CPI inflation (eop, y/y percent change) series presented as: 24.8 47.6 30.5 21.2 40.2 32.1 19.2 10.1 7.0 5.0. - External and reserves: - Current account (percent of GDP): 2015 -2.7; 2016 -2.7; 2017 -4.9; 2018 -5.2; 2019 -2.0; 2020 -2.5; 2021 -1.8; 2022 -1.6; 2023 -1.8; 2024 -2.0; 2025 -2.1; 2026 -2.4. - Gross international reserves (billions of U.S. dollars): 2015 25.6; 2016 39.3; 2017 55.1; 2018 65.8; 2019 62.2; 2020 68.3; 2021 59.7; 2022 72.1; 2023 77.6; 2024 83.7; 2025 90.0; 2026 90.0 (projections). - Public sector and debt (selected): - Primary balance (incl. adjustors, percent of GDP): 2015 -4.4; 2016 -4.8; 2017 -4.2; 2018 -2.2; 2019 0.0; 2020 1.1; 2021 -0.4; 2022 1.4; 2023 1.4; 2024 1.6; 2025 1.7; 2026 1.8. - Overall balance (incl. adjustors, percent of GDP): 2015 -6.0; 2016 -6.7; 2017 -6.7; 2018 -5.2; 2019 -2.7; 2020 -1.5; 2021 -3.5; 2022 -2.1; 2023 -1.9; 2024 -1.8; 2025 -1.5; 2026 -1.3. - Total public debt (federal, % GDP): 2015 52.6; 2016 53.1; 2017 57.1; 2018 86.1; 2019 75.9; 2020 69.0; 2021 76.9; 2022 70.1; 2023 64.6; 2024 62.6; 2025 61.3; 2026 60.0. - Gross federal debt (billions of Argentine pesos): 2015 3,130; 2016 4,366; 2017 6,079; 2018 12,569; 2019 15,313; 2020 17,577; 2021 16,320; 2022 20,230; 2023 23,828; 2024 27,113; 2025 29,710; 2026 31,720. *Source: IMF staff report content as presented in the provided PDF chapter/section.* ### 1. The Transmission of Short-Term Interest Rates to Rates on Bank Time Deposit ________________ 7 ### 1. The Transmission of Short-Term Interest Rates to Rates on Bank Time Deposit ### Model specification and assumptions - Banks set their 30-day deposit rate as a fixed mark-up over the compounded short-term (7-day LELIQ) rate expected for the coming month, taking into account an average 17 percent unremunerated reserve requirement on deposits. - The spread between deposit (푟푟푡푡푑푑) and LELIQ rates (푟푟푡푡퐿퐿) is expressed as: 푟푟푡푡푑푑 − 푟푟푡푡퐿퐿 = 훼훼 + 훽훽(1 − 푢푢푟푟푟푟) E푡푡 푟푟푡푡+30퐿퐿 − 푟푟푡푡퐿퐿 + 푒푒′푡푡 - E푡푡 푟푟푡푡+30퐿퐿 denotes the compounded LELIQ rate expected for the following 30 days. - Time deposits are also subject to a 5 percent reserve requirement that can be met by holding BOTES and a further 13 percent met by holding LELIQs. ### Empirical estimation and fit - The estimated model (based on data until end-May) links changes in deposit rates to changes in LELIQ expectations (formed in a backward-looking manner) and to the volatility of LELIQ rates in April. - The model fits well the actual behavior of the spread between time deposit and LELIQ rates. ### Key empirical findings - Normal lags in pass-through: around 10 days for 50 percent pass through from short-term rates to time deposit rates. - Out-of-sample forecasts for June indicate the spread is reacting with the normal lags to changes in the LELIQ rate. - Recent measures to improve competition among banks are estimated to have increased deposit rates by about 3.4 percentage points (based on introducing a dummy in the estimated model for the period after the competition measures were introduced). ### Implications for monetary transmission - The current transmission of monetary policy is behaving as it has since the BCRA shifted to a base money targeting framework: short-term LELIQ movements transmit to 30-day time deposit rates with measurable lags and magnitudes as estimated above. - The model highlights the role of unremunerated reserve requirements (average 17 percent) and the degree to which reserve composition (5 percent via BOTES and 13 percent via LELIQs) affects the effective pass-through. *Source: Box 1, "The Transmission of Short-Term Interest Rates to Rates on Bank Time Deposits," IMF country report content.* ### 15. The trade surplus in the first four months of 2019 was US$4.5 billion (compared to a ### 1argea2019004 - 15. ### Trade and external sector - Trade surplus in the first four months of 2019 was US$4.5 billion (compared to a deficit of the same magnitude in the same period last year). - Shift in the trade balance driven by falling imports (down 29 percent in the first 5 months of 2019 relative to the same period last year). - Exports have responded little to last year’s depreciation in the real exchange rate (stronger commodity exports have been offset by lower overseas sales of manufacturing goods). - Private sector capital outflows persisted in the first five months of the year but are 30 percent lower than in the same period in 2018. - Current account deficit fell to 3.4 percent of GDP in the 12 months ending in 2019Q1 (from 5.9 percent of GDP in 2018Q3). - Real exchange rate appreciated 13 percent between end-September and end-May. - For 2018 as a whole the peso is judged to be around 10 percent weaker than the level consistent with medium-term fundamentals and desired policies (in line with the end-2018 EBA assessment), although this estimate is subject to significant uncertainty. ### Outlook and risks - 2019 growth forecast revised to - 1.3 percent, reflecting weak domestic demand and imports in Q1 and downward revisions to regional trading partners. - Recovery of agricultural production and gradual rebuilding of salaries’ real purchasing power should support a return to positive sequential growth beginning in the second quarter. - Revision to 2020 growth: from 2.2 to 1.1 percent due to more persistent inflation requiring real interest rates to remain higher for longer, affecting domestic demand and imports. - Medium-term debt levels raised to exactly 60 percent of GDP by 2024 due to higher interest rates and lower growth. - Inflation expected to end the year at around 40 percent (well above the 30.5 percent forecast at the time of the third review). - Higher taxes on imports expected to more-than-offset the inflationary impact of the freeze on utility tariffs and expansion of the precios cuidados program; end-year inflation revised up from 30.5 percent. - Continued monetary and fiscal restraint, lower exchange rate volatility, and better anchoring of exchange rate expectations expected to contribute to a gradual decline in month-on-month inflation going forward. - Higher interest costs and extended maturities have generated higher interest costs and somewhat increased debt levels. - Main program downside risk: protracted shift in portfolio preferences away from Argentine assets leading to increased dollarization, depreciation pressures, higher inflation, increased debt-GDP ratio, and greater loss of FX reserves than projected. - Risk of reluctance to roll over peso and FX debt could create a budgetary financing gap and deepen concerns over liquidity and possibly solvency of the sovereign. - Shortening of maturities has increased short-term financing needs and exacerbated rollover risks in the run-up to the election. - Continued implementation of the debt management strategy as market conditions allow will help mitigate risks in the election period. - Over the medium term, debt sustainability remains highly vulnerable to shocks, particularly negative growth surprises. - Risk of high persistent inflation or delayed recovery could worsen social outcomes, increase poverty, and erode public support for the policy program. ### Program implementation and performance criteria - All end-March performance criteria and the end-June performance criteria for which data is available have been met. - End-June money base ended at AR$1,342 billion, AR$1 billion below the target. - Net international reserves overperformed the end-June target by US$3.3 billion. - Non-deliverable forwards was at US$3.6 billion about US$6,6 billion above the target. - Social spending exceeded the floor by AR$12 billion. - Primary balance in Q1 was AR$10.3 billion, meeting the program target of AR$6 billion. - Indicative target for the primary balance of the general government was exceeded. - End-June structural benchmark was met: tax compliance improvement plan for 2019 based on the tax administration’s Strategic Plan for 2019-2023 and Action Plan for 2019. - Priorities include reducing the VAT gap; lowering taxpayer compliance costs; undertaking risk-based tax audits; reducing scope for abuse of the simplified tax regime. - Detailed compliance improvement programs being deployed for large taxpayers, high net wealth individuals, and small taxpayers. ### Maintaining fiscal discipline and fiscal outlook - 2019 primary deficit expected to be 0.3 percent of GDP, within the program target after adjustors for social and capital spending are applied. - Policy measures announced in the first four months of the year add 0.2 percent of GDP to spending. - Weaker tax collection in real terms likely to lower revenues by around 1 percent of GDP: - Income taxes down 0.3 percent of GDP. - VAT down 0.2 percent of GDP. - Financial transaction taxes down 0.1 percent of GDP. - Reinstatement of a higher rate of VAT on imports and higher import tariffs boost revenues by around 0.1 percent of GDP in 2019. - Higher inflation will erode wages and pension spending by around 0.2 and 0.5 percent of GDP, respectively (even after accounting for the 30 percent wage increase phased in from June 2019-June 2020). - Federal government primary deficit target remains subject to risks from the recession’s toll on income and consumption tax receipts and tentative recovery in export taxes. - Decisions to freeze utility tariffs until end-2019 and provide generous tax incentives to SMEs create additional fiscal uncertainties. - Existing buffer in capital spending can offset unexpected revenue weakness or higher-than-expected current spending. ### Social programs and gender equity measures - Authorities expanding funding for certain social programs expected to cost less than 0.1 percent of GDP and accommodated within the headroom provided by the social spending adjustor. - Programs include: - Expanding the Primera Infancia program supporting low income and vulnerable families through childcare centers for children aged 0-3 years. - Increasing spending on unemployment insurance, scholarship programs for students from low-income families, programs to support gender equity, and comprehensive support programs for mothers, children, and teens. - Authorities requested expansion of the definition of the floor and the adjustor on social spending under the program to incorporate these additional programs. - Medium-term work with the World Bank on improving data gathering (e.g. household survey and roll out of a time-use survey). - Congressional approval of legislation to increase paternity leave and legal changes to eliminate tax disincentives for female labor force participation identified as key to level the playing field for women. ### Recent court rulings and fiscal obligations - Court ruling: province of San Luis should be compensated by the federal government for insufficiently sharing “co-participated” fiscal revenues between 2006 and 2010; similar ruling pending for Santa Fe. - Combined cost to the federal government from these court decisions expected to be around 0.3-0.5 percent of GDP but payments likely distributed across several years, starting in 2020. - March 2019 Supreme Court ruling: unconstitutional for vulnerable retirees to pay income tax; appears to have no immediate fiscal implication but extension to all retirees could cost about 0.04 percent of GDP per year. - Significant tax exemptions for software, biotechnology, and other sectors recently passed by Congress create important risks to medium-term fiscal objectives. ### Monetary and exchange rate policies - Monetary policy framework introduced last October has led short-term interest rates to respond flexibly to changing demand for peso assets. - If shift away from the peso leads to disorderly currency movements, BCRA would respond with sales of FX which would contract money supply, raise interest rates, and create conditions for system to self-equilibrate. - If demand for the peso increases, the central bank would be able to purchase up to US$150 million per day in FX (if needed) and expand money supply. - Sustained implementation of BCRA’s targets on the monetary base intended to provide a robust nominal anchor and help rebuild central bank credibility. - Reduction of URR in July appropriate to address seasonal increase for money demand in that month; reduction in monetary base target in August, September and October fully accounts for the reversal of this seasonality. - Changes linking reserve requirement to deposits of the previous month align with best international practices and facilitate banks’ liquidity management. - Maintenance of a minimum rate for the LELIQs until end-July adjusted in line with inflation expectations will ensure ex-ante real interest rates remain close to currently high levels. - Stock of central bank liabilities (LELIQs) has risen above AR$1,000 billion but remains well below its Q1 2018 peak as a share of either GDP or the monetary base. - Over the medium-term, stock of LELIQs expected to grow broadly in line with nominal GDP, even as real interest rates remain at high levels for a protracted period. ### Debt management - Government prioritizing longer maturities. - In April and May authorities issued mostly shorter maturities (LECAPS at 3 months and LETES at 2 to 3 months) to maximize rollovers and build cash buffers. - Needed rollover rate for rest of the year increased to 75 percent (from 65/70 percent in Q3/Q4 at the time of the third review). - Authorities intend to place at least 50 percent of issuances into bonds that mature in 2020 while targeting build-up of a cash buffer before the elections, market conditions permitting. - On June 25, allotment strategy changed to allocate new issuances first to longer-term securities and meet demand for shorter-maturity bonds only in event of shortfall in demand for longer duration bonds. - Authorities have placed longer term debt at higher interest rates (spread between 3 and 6-month FX debt rising by 70 bps over the past two weeks). - Market-maker program rolled out to improve secondary market liquidity and bolster demand for domestic law instruments, particularly from mutual funds. - Treasury expected to institute a new securities-lending facility to support market functioning and secondary market liquidity. - Staff engagements ongoing on mini-tenders of existing instruments based on reverse inquiries and refinancing mechanisms to smooth spikes in coupons or amortizations (as was done with the DUO in May). ### Boosting growth and trade policy - Reducing trade restrictions identified as key for reigniting growth. - Recent trade agreement between Mercosur and the European Union and modifications to the free trade agreement with Chile are important steps forward. - Mercosur membership limits Argentina’s capacity to unilaterally lower tariffs, but significant scope remains to continue lowering non-tariff barriers. - Despite reductions in use of non-automatic import licenses (such as intermediate goods in automotive and agricultural sectors), room for improvement remains. - Authorities continue to examine improvements to Mercosur’s common external tariff and work within Mercosur to negotiate free-trade agreements with Canada and the European Free Trade Association. - There is scope to unilaterally reduce tariffs on goods not subject to the common external tariffs and to eliminate FDI restrictions. *Sources: IMF staff calculations and estimates.* ### 31. A holistic reform of the tax system is needed to reduce distortions and improve ### 31. A holistic reform of the tax system is needed to reduce distortions and improve ### Tax reform: needs and priorities - The 2017 tax reform and the 2018 Fiscal Pact: - Reduced the tax burden on enterprises. - Provided relief to low-income workers. - Lessened provincial-level turnover taxes. - Remaining issues: - Several distortionary taxes remain (e.g., notably the financial transaction tax and reliance on export taxes). - Combined taxation of labor income remains high by international comparison. - Recommended comprehensive overhaul actions: - Phase out distortionary taxes. - Broaden coverage of the personal income tax. - Scale back VAT exemptions and reduced rates. - Increase revenues from consumption taxes. ### Energy sector: recent developments and policy implications - Production trends: - After a substantial decline between 2003 and 2018, conventional oil and gas is now growing rapidly. - In 2018, unconventional (shale) production of both oil and natural gas increased by 48 percent from the previous year. - Unconventional production now constitutes 17 percent (oil) and 40 percent (natural gas) of total production. - Renewables: - Renewables' share in electricity production has increased markedly and is expected to account for 12 percent of total consumption by year-end. - Trade and policy effects: - Combined effects have increased the energy trade balance from a sizable deficit to close to balance. - Government instituted an electronic auction system to increase transparency and competition in the market for natural gas. - Policy recommendations to boost investment and growth: - Further improvements in the regulatory and legal framework for energy investments. - Ensure that tariffs fully reflect international energy prices. - Boost investments in upstream and downstream infrastructure to make the energy sector an important contributor to growth and job creation. ### Governance, transparency, and anti-corruption measures - National Anti-Corruption Plan: - An executive order launched and approved the 2019-2023 National Anti-Corruption Plan in April 2019. - Plan priorities: institutional strengthening, modernization of the state, improving transparency, integrity, and investigations/sanctions. - An advisory committee composed of civil society, private sector, and other experts will be established to monitor implementation. - Ethics and declarations: - Authorities submitted amendments to the Ethics in Public Service Law to strengthen the Office of Anti-corruption’s authority, powers, roles, responsibilities, and sanctions. - In April 2019, the Minister of Justice approved implementation of the e-declaration system on a trial basis; full implementation will enhance transparency and support the AML/CFT regime and criminal investigations. - Company registry: - Authorities have begun implementing and verifying the company registry, making information available on-line for all companies established and incorporated in Argentina. - AML legislation: - By end-September 2019, amendments to the Anti-Money Laundering Law will be submitted to Congress to include a process for the Financial Intelligence Unit to freeze funds and other assets when there are suspicions of money laundering, terrorism financing, or links to corruption or other crimes. ### Program financing, reserves, and repayment capacity - Program financing status: - The program remains fully financed and Argentina’s capacity to repay remains adequate, albeit subject to heightened risks. - Financing assumptions revised to account for shortening of maturities; at a higher average rollover rate, the program remains fully financed. - Fund exposure and debt service: - Fund debt service peaking at nearly 25 percent of exports (versus 23.7 percent before). - Outstanding credit to the Fund as percent of GDP has increased by 2022. - Reserves and external financing: - International reserves boosted by FX purchases, the augmented China swap, and building of Treasury cash buffers, projected to remain adequate. - Financing from other multilateral sources disbursing broadly in line with original program assumptions. - Policy implication: - 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 from Fund financial support. ### Debt sustainability, vulnerabilities, and projections - Key metrics and risks: - Public debt stood at 87 percent of GDP at end-2018, following a large upward revision at the third review. - 2019 gross financing needs exceed 15 percent of GDP. - Large share of foreign currency-denominated debt, relatively low export-to-GDP ratio, and comparably small domestic banking system imply debt vulnerabilities. - Political uncertainty ahead of elections demonstrated by market sell-off in late April which increased sovereign spreads above levels prevailing at the time of the third review. - Recent market developments: - Peso depreciation and decline in rollover rates unwound in May and June, showing ability to rebound from temporary erosion in confidence. - Debt trajectory projections: - Public debt-to-GDP is expected to decline to 77 percent by end-2020. - Public debt-to-GDP is projected to fall to 60 percent in the medium-term, reflecting programmed fiscal consolidation. - Trajectory subject to downside risks related to the exchange rate, interest rates, economic growth, and contingent liabilities. - Assessment: - Higher gross financing needs from recent shortening of maturities pose liquidity risk in the coming months. - Argentina’s debt is assessed as sustainable but not with a high probability. ### Safeguards and fiscal operations - Safeguards steps: - Authorities begun submitting a weekly analysis of the use of IMF budget support and initiated preparations to assess BCRA recapitalization needs. - Congressional passage of the recently-submitted charter for the central bank expected only after national elections. - Staff following up on implementation of safeguards recommendations to strengthen internal audit and controls on monetary data compilation. - Fiscal safeguards: - Preparations underway for a plan to transfer the Treasury Single Account from Banco Nación (BN) to the BCRA (an end-September structural benchmark). - Authorities committed to concluding the transfer by June 2020. ### Program conditionality and quantitative adjustments requested - Requested modifications to program targets: - Increase end-September ceiling for non-deliverable forwards from US$1 to US$3.6 billion. - Increase end-September performance criterion for the primary balance of the federal government from AR$60 billion to AR$70 billion. - Lower end-September performance criterion for Base Money target to AR$1,311 billion from AR$1,343 billion to reflect reversal of changes in URR in July to accommodate a seasonal increase in currency demand. - Expand definition of the social assistance adjustor to the primary balance and the floor on social spending and increase the end-September social spending floor to account for this new definition. - Introduce an adjustor to the NIR target to incorporate changes to the BCRA’s policy for potential FX sales to counter disorderly market conditions. - New quantitative performance criteria proposed for end-December. ### Multiple currency practice and arrears resolution - Multiple currency practice: - Staff supports authorities’ request for Executive Board to grant temporary approval (an additional 12 months) for retention of the multiple currency price auction put in place in June 2018 that staff assessed gives rise to the multiple currency practice. - Staff assesses conditions for approval are met: measure maintained for non-balance of payment reasons; temporary; does not harm interests of other members; does not discriminate between Fund members. - Arrears and creditor engagement: - Authorities continue good faith efforts to resolve US$1.2 billion in principal (or US$3.2 billion including accrued interest) in outstanding arrears to external private creditors. - Payments continue under agreements executed; payment to Japanese intermediary banks on holdouts agreement eliminated Japanese claims on Argentina. - Authorities working on potential agreement to eliminate official arrears to the French export credit agency (approximately US$30 million in principal) related to construction of a gas pipeline in late 1970s. ### Exceptional access criteria (staff findings) - Criterion 1: - Argentina experiencing or has potential to experience exceptional balance of payments pressures; sizable external financing needs largely driven by interest and amortization obligations of the federal government cannot be met within normal access limits. - Criterion 2: - Rigorous analysis indicates debt is sustainable but not with a high probability; exceptional access justified as non-Fund financing improves debt sustainability and safeguards. - Of the outstanding stock of the federal government’s foreign currency debt held by the private sector (US$117 billion), only about one quarter is expected to mature by June 2021 (the expiry of the SBA). - Criterion 3: - Staff judges member has prospects of regaining access to private capital markets within a timeframe and scale enabling meeting obligations to the Fund; access to domestic and external issuance continues, including a successful 10-year global bond by the state-owned oil and gas company. - Criterion 4: - Staff judges policy program provides a reasonably strong prospect of success; authorities implementing policy plan supported by the Stand-By Arrangement, central bank implemented monetary policy framework, passage of the BCRA charter will help; opposition expresses support for program objectives though may seek renegotiation of details if elected. ### Staff appraisal, risks, and policy recommendations - Staff appraisal: - Authorities steadfastly implementing policy program. - Fiscal targets met and central bank adhered to zero growth in base money target. - Breaking inflation inertia will take time; consistent implementation needed. - Economic activity expected to start renewed growth in the second quarter, but recovery likely protracted. - Key risks: - High risks with the challenging election period ahead. - Market volatility could raise sovereign spreads, complicate fiscal financing, and affect debt sustainability. - Shift away from peso assets could pressure the exchange rate and deplete reserves. - Recommended policy actions: - Continue adherence to program through the election period and beyond to normalize market conditions. - Seek opportunities to increase rollover rates and lengthen average maturity of government debt, even if temporarily incurring higher cost, to reduce gross financing needs and avoid bunching of maturities. - Improve structure of local sovereign debt markets, including strengthening functioning of market makers to improve market liquidity and lessen financing costs. - Prioritize and expand social programs to protect the vulnerable while improving efficiency and coverage: - Expand social spending floor to additional programs, protect adults without children and low-income working mothers. - Continue efforts with the World Bank and IDB on data gathering (including household survey improvements and roll out of time-use survey) and improved childcare provision. - Pursue congressional approval of legislation to increase paternity leave and legal changes to eliminate tax disincentives for female labor force participation. *ARGENTINA — INTERNATIONAL MONETARY FUND* ### 49. Authorities should continue with their efforts to open Argentina to international trade ### 49. Authorities should continue with their efforts to open Argentina to international trade ### Trade openness and ongoing initiatives - Authorities should continue with their efforts to open Argentina to international trade and should reinvigorate their plans for structural reforms. - The authorities’ measures to continue improving the supportive environment for SMEs and trade facilitation are important ongoing initiatives. - In particular, the MERCOSUR-EU trade agreement should help remove the remaining barriers to trade and obstacles to investment. ### Need for additional reform impetus - The sustained improvement in the living standards for Argentina’s population will need a new impetus in other areas, including by putting in place a less distortionary tax system; increasing competition in domestic product markets; strengthening the financial position of the public pension system, and deepening efforts to strengthen governance and confront corruption. *Source: https://www.imf.org/-/media/files/publications/cr/2019/1argea2019004.pdf* ### 50. Steadfast implementation of the authorities’ economic plan will be essential to ### 1argea2019004 - 50. Steadfast implementation of the authorities’ economic plan will be essential to ### IMF staff recommendation and program decisions - Staff supports the authorities’ request for: - completion of the Fourth Review under the Stand-By Arrangement; - the modifications of the performance criteria under the program; - waivers of applicability; - the completion of the financing assurances review. - Staff also supports the authorities’ request for the temporary approval, for another twelve months, of the retention of the measure that gives rise to the multiple currency practice. ### Recent market developments (Figure 1 highlights) - Credit/default and sovereign risk: - 1-year CDS spreads have fallen from the peak in April. - Sovereign spreads fell at end June but remain high. - Yield curves and rates: - FX debt yield curve remains strongly inverted. - Peso yield curve continues to shift downward (Argentina Sovereign Curve — AR$ denominated bonds maturities plotted for 27-May-19, 21-Jun-19, 28-Jun-19). - Portfolio flows: - Bond country inflows: ETFs/Mutual Funds (Mil. US$) shown for Latin America and Argentina (RHS) with data series May-15 through May-19 and Jun-19 (source: EPFR). - Equity markets: - The stock market (Merval Stock Index) has recovered the losses since February (Bloomberg series May-18 through Jun-19). ### Real sector developments (Figure 2 highlights) - Activity and components: - As of 2019Q1, most GDP components are around their 2014 levels. - Growth in 2019Q1 likely weaker than expected; starting in 2019Q2 activity will be supported by a recovery in the agricultural sector (Agro Harvest and Value: Production (mn tonnes) and Harvest Value (US$ bn) for Soy / Corn / Wheat across 2015/16–2018/19). - High-frequency indicators: - Construction, Monthly Activity, and Manufacturing Production (3 m, MA, SAAR) series show large negative swings through May-19 (source: INDEC). - Inflation dynamics: - Inflation has receded from the 2019 peak. - Inflation moderation is explained in part by the freeze in utility tariffs and lower volatility in the nominal exchange rate. - Inflation composition (CPI, m/m percent): Food, Regulated, Non-food non-regulated and Total shown monthly through May-19 (sources: INDEC and IMF staff calculations). - Real GDP components index (2014 average = 100) shows GDP, Private consumption, Public consumption, Exports, Imports, Investment through Mar-19. ### FX and monetary developments (Figure 3 highlights) - Exchange rate and volatility: - Exchange rate volatility fell in June. - Markets have not yet validated the new reference zone; futures-implied depreciation declined in June (implicit depreciation from futures on AR$/US$ — Percent, annualized rate — 3 months and 6 months). - Deposits and dollarization: - There has been some dollarization pressure on deposits so far in 2019 (Ratio of dollar to peso deposits series and Exchange rate (RHS) shown). - Credit and interest rates: - Shrinking of private sector credit has accelerated, consistent with rising lending rates. - Lending and deposit rates (in percent): Spread of lending to deposit rate, Lending rates to individuals, Lending rate to SMEs, Deposit rates plotted through May-19. ### Fiscal and financing (Figure 4 highlights) - Recent fiscal performance: - The fiscal accounts have been in surplus for five months, relying largely on expenditure restraint to compensate for soft revenues (Federal Government Revenues Jan-May 2019 and Primary Expenditures Jan-May 2019 differences with 2018, ppts of GDP shown). - Cumulative Primary Balance Jan-May (percent of GDP) shown for 2018 and 2019 with decomposition: Revenues, Current Spending, Capital Spending, Primary Balance (RHS). - Market effects on financing: - Market volatility in April negatively affected rollover rates and led to shortening of maturities. - Nonetheless, maturities remain relatively manageable in the second half of the year (Average Maturity of New Issuances (months) series Sep-18 through Jun-19; Upcoming Amortizations of Public Debt Held by the Private Sector (Static, US$mn at constant AR$/US$44.7) as of June 14). ### External sector (Figure 5 highlights) - Real effective exchange rate: - The REER appreciated since October 2018 but remains below its long-run average (CPI based index; long-run average 1998-2019). - Trade and external adjustment: - External adjustment continued in May for goods and services; contraction in imports largest for capital goods. - Strong agricultural production boosted exports (contribution to export growth — Primary, Manufacture agricultural, Manufacture industrial, Fuel and energy). - Capital flows and reserves: - Dollarization picked up during March-May and portfolio investors continued to wind down peso asset positions. - Capital flows (currency basis, Millions of U.S. dollars, 12m rolling sum) show Portfolio, FDI, dollarization (capital flight by residents), Private sector and provinces financing, Federal govt financing, IMF/IFI/swap and Change in reserves (rhs) through May-19. ### Key quantitative indicators and projections (selected from Tables 1–7) - National accounts and prices (Table 1, selected rows): - GDP at constant prices: 2015 2.7; 2016 -2.1; 2017 2.7; 2018 -2.5; 2019 -1.2; 2020 2.2; 2021 -1.3; 2022 1.1; 2023 2.6; 2024 3.4; 2025 3.6; 2026 3.6. - Nominal GDP (billions of Argentine pesos): 2015 5,955; 2016 8,228; 2017 10,645; 2018 14,606; 2019 20,175; 2020 25,458; 2021 21,232; 2022 28,841; 2023 36,874; 2024 43,304; 2025 48,497; 2026 52,825. - Output gap (percent): 2015 0.8; 2016 -1.6; 2017 -0.2; 2018 -4.2; 2019 -7.0; 2020 -6.7; 2021 -7.1; 2022 -7.8; 2023 -7.3; 2024 -6.0; 2025 -4.5; 2026 -3.0. - CPI inflation (eop, y/y percent change) entries in the table series: 24.8 47.6 30.5 21.2 40.2 32.1 19.2 10.1 7.0 5.0 (presented in the source as a contiguous sequence). - External and reserves (Table 2, selected rows): - Current account (percent of GDP): 2015 -2.7; 2016 -2.7; 2017 -4.9; 2018 -5.2; 2019 -2.0; 2020 -2.5; 2021 -1.8; 2022 -1.6; 2023 -1.8; 2024 -2.0; 2025 -2.1; 2026 -2.4. - Gross international reserves (billions of U.S. dollars): 2015 25.6; 2016 39.3; 2017 55.1; 2018 65.8; 2019 62.2; 2020 68.3; 2021 59.7; 2022 72.1; 2023 77.6; 2024 83.7; 2025 90.0; 2026 (projection) 90.0 (table gives series up to 2024; source lines display values through projections). - Public sector and debt (Tables 3–7, selected rows): - Primary balance (incl. adjustors, percent of GDP): 2015 -4.4; 2016 -4.8; 2017 -4.2; 2018 -2.2; 2019 0.0; 2020 1.1; 2021 -0.4; 2022 1.4; 2023 1.4; 2024 1.6; 2025 1.7; 2026 1.8. - Overall balance (incl. adjustors, percent of GDP): 2015 -6.0; 2016 -6.7; 2017 -6.7; 2018 -5.2; 2019 -2.7; 2020 -1.5; 2021 -3.5; 2022 -2.1; 2023 -1.9; 2024 -1.8; 2025 -1.5; 2026 -1.3. - Total public debt (federal, % GDP): 2015 52.6; 2016 53.1; 2017 57.1; 2018 86.1; 2019 75.9; 2020 69.0; 2021 76.9; 2022 70.1; 2023 64.6; 2024 62.6; 2025 61.3; 2026 60.0. - Total external debt (gross; includes holdouts, Billions of U.S. dollars): 2015 178.9; 2016 189.6; 2017 237.3; 2018 280.7; 2019 285.5; projections through 2024 shown in Table 6. - Gross federal debt (Billions of Argentine pesos): 2015 3,130; 2016 4,366; 2017 6,079; 2018 12,569; 2019 15,313; 2020 17,577; 2021 16,320; 2022 20,230; 2023 23,828; 2024 27,113; 2025 29,710; 2026 31,720. ### Financing and liquidity tables (selected highlights) - Table 8 (Federal Government Gross Financing Needs and Sources) and Table 9 (External Gross Financing Needs and Sources) document: - Monthly and quarterly needs, amortizations, and sources for 2019–2021 across FX and AR$ instruments, IFIs, private issuance, and deposit changes. - Total Needs and Total Sources series for 2019 and projections; reported Total Gap entries show periods with residual financing gaps requiring IMF disbursements or other financing (e.g., IMF Disbursements line in Table 8: an IMF disbursement of 10,920 in the quarter noted, plus additional scheduled disbursements shown across the year). - Table 10 (Schedule of Reviews and Purchases) lists IMF availability and scheduled reviews/purchases with SDR amounts and percent of quota; total listed 40,714 SDR millions (1277%) across scheduled dates. ### Policy implications and priorities (drawn from staff conclusions and figures) - Steadfast implementation of the authorities’ economic plan is essential to: - reassure financial markets; - solidify Argentina’s return to macroeconomic stability. - Key policy priorities implicit in the data: - Maintain fiscal restraint to preserve recent multi-month surplus performance while supporting revenues recovery. - Ensure financing assurances and rollover strategies to manage upcoming amortizations and avoid disruptive short-term financing gaps. - Support monetary and FX policy consistency to sustain lower exchange rate volatility and reduce inflation momentum. - Address deposit dollarization pressures and support credit intermediation to limit credit contraction and sharp lending-rate increases. - Preserve structural measures under the program and meet performance criteria to unlock scheduled IMF resources and market confidence. *Source: IMF staff report content as presented in the provided PDF chapter/section.* ### 1. Primary balance of the federal government (floor) 3/ 9/6.06.010.5n.a.n.a.n.a.n.a.20.0n.a.n.a.n.a.60.070.0n.a.n.a.0.0 ### 1argea2019004 - 1. Primary balance of the federal government (floor) 3/ 9/6.06.010.5n.a.n.a.n.a.n.a.20.0n.a.n.a.n.a.60.070.0n.a.n.a.0.0 ### Debt sustainability — Background (stock, composition, maturity, holders) - By end-December 2018, gross federal government debt (including intra-public-sector holdings) stood at an estimated AR$12,560 billion (US$332 billion). - Gross federal government debt increased from AR$6,030 billion (US$321 billion) at end-2017 to AR$12,560 billion (US$332 billion) at end-2018. - Federal government debt rose from 58 percent of GDP in 2017 to 86 percent of GDP by end-2018. - Over two-thirds of the 2018 increase was driven by the depreciation of the peso (AR$37.8/US$ at end-2018 versus AR$18.8/US$ at end-2017). - Preliminary debt estimates for end-April 2019 point to gross federal government debt having remained broadly constant in the first 4 months of the year (at around US$334 billion). - FX-denominated portion of debt increased from around 68 percent at end-2017 to about 76 percent at end-2018. - Drivers include: (i) the US$9 billion external bond placement in January 2018, (ii) about US$28 billion in IMF disbursements, and (iii) currency depreciation. - The stock of short-term treasury bills in private hands is around US$23 billion, 42 percent of which are FX denominated. - Average weighted maturity of federal public debt at end-2018: 9.0 years. - Among privately held debt, weighted average maturity: 12.9 years. - About 35 percent of the federal government’s debt is held by other public-sector entities and provinces; nearly 70 percent of this intra-public-sector debt is denominated in US$. - Debt to IFIs and bilateral creditors increased from about 9 percent of total debt to 17 percent of total debt. - Between end-2018 and end-April 2019, debt held by the private sector remained broadly constant at US$146 billion. ### Baseline scenario — projections and financing assumptions - Debt trajectory: - Debt is expected to decline to around 77 percent of GDP in 2019. - Debt is expected to decline gradually to 60 percent of GDP by 2024. - Gross financing needs (GFN): - GFN are expected to breach 15 percent of GDP in 2019 but remain below the threshold during the rest of the projection period. - Key macro assumptions and projections: - Growth in 2019: -1.3 percent. - Growth in 2020: 1.1 percent. - Growth by 2023 and 2024: 3.6 percent (remain there in 2024). - Inflation: expected to continue to erode the real value of long-maturity, peso-denominated debt (qualitative). - Exchange rate: projected real peso appreciation in 2019 will improve debt dynamics; real depreciation in 2018 expected to unwind during the program period. - Fiscal policy: - Fiscal consolidation throughout the period will help reduce the accumulation of debt. - Financing assumptions and adjustments: - Rollover rates for the remainder of 2019 have been raised to 75 percent under the baseline assumptions. - Continued rollover of intra-public-sector financing is assumed, together with the capitalization of interest payments by non-financial public sector. - Statutory advances from the BCRA are zero. - No international bond issuance is expected until 2020. - The IMF will continue to play a key role in financing the federal government in 2019. - Shortening of maturities (higher than expected rollovers in Q4 2018 and Q1 2019 at less than 1-year maturities; recent shortening in April/May with LECAPS at 3 months and LETES at 2 to 3 months) has increased financing needs for 2019 and 2020. ### Shocks and stress tests — solvency and liquidity risks - Exchange rate shock: - Standard DSA stress test (50 percent real depreciation with 0.25 pass-through) shows debt could jump to above 115 percent of GDP. - Growth shock: - A growth shock could raise debt to nearly 80 percent of GDP. - Fiscal slip: - If the primary balance remained unchanged at its 2018 level, debt would remain largely flat, at 84 percent of GDP by 2024. - Combined macro-fiscal shock: - A ‘combined macro-fiscal’ shock would cause debt to peak at 160 percent of GDP. - In such a scenario, GFN would reach 36 percent of GDP, creating severe liquidity risks and making market financing on favorable terms unlikely. - Overall assessment of risks: - Important downside risks include: economic and financial conditions not improving as envisaged; increased possibility of market turbulence in the pre-election period; structurally high share of foreign currency denominated debt; elevated fiscal and external financing needs; and potential contingent liabilities. ### Overall assessment and policy implications - Staff assessment: Argentina’s debt is sustainable, but not with a high probability. - Under the baseline (fiscal adjustment, economic recovery, and lower real interest rates as central bank credibility is established), public debt-to-GDP is expected to follow a steady downward trajectory from 2019 onwards, falling to 60 percent of GDP by end-2024. - Fiscal consolidation remains critical to stabilize and reduce the debt level; deviations from planned consolidation or adverse macro shocks could substantially worsen debt dynamics. ### Structural benchmarks and implementation status (selected program actions) - 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 that would meet weekly and coordinate activities linked to sterilization and debt issuance plans. - Timing: Sep-2018 — Status: Not met. Implemented with one day delay. - Present a three-year budget document to Congress, with transparent medium-term objectives for the primary balance, consistent with the program. - 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 the 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 mandates. - Timing: Mar-2019 — Status: Met - Design a compliance improvement plan and risk mitigation strategies around taxpayer segments and core taxes. - Timing: Jun-2019 — Status: Met - 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, timeline, and deleveraging plan for Banco Nacion). - Timing: Sep-2019 — Status: (timing indicated; implementation status not provided) - Recapitalize the central bank to ensure adequate capital as percent of the monetary base plus outstanding stock of LEBACs. - Timing: Dec-2019 — Status: (timing indicated; implementation status not provided) - Implement an integrated auditing action plan for the Simplified Taxpayer Regime (Monotributo), covering 20 percent of taxpayers under this regime. - Timing: Dec-2019 — Status: (timing indicated; implementation status not provided) *Source: Excerpt from the IMF staff report (Argentina: Third Review Under the Stand-By Arrangement), Annex I and related tables included in the supplied content.* ### 8. There are significant risks to debt sustainability. The most evident near-term risks are ### 1argea2019004 - 8. There are significant risks to debt sustainability. The most evident near-term risks are ### Near-term risks to debt sustainability - The size of the gross financing needs under a stressed scenario, which have increased in the short term due to the shortening of maturities in April and May. - The possibility of bouts of market turbulence in the pre-election period which could translate into higher sovereign spreads and a depreciation of the peso. - The large share of foreign currency debt (which makes Argentina’s debt dynamics sensitive to real exchange rate movements). - The large external financing needs of the economy, which in past emerging market crises has shown to be 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 so could understate the sustainability of general government debt; most provinces are running close to a balanced budget and provincial debt at end-2017 was projected to be around 6 percent of GDP. - Contingent liabilities faced by the national government: needing to recapitalize the central bank and unfunded pensions; contingent liabilities from court settlements with provinces in the context of the Fiscal Pact (potentially around 0.2 percent of GDP). ### Mitigating factors identified - High share of federal government debt is held by classes of investors—including domestic financial institutions, retail investors and other public-sector entities—who are expected to continue investing in Argentina debt even amid stressed conditions. - Relatively long maturity of dollar-denominated debt issued on international markets. - Argentina’s demonstrated ability to recover from temporary shifts in market confidence, as evidenced by the rebound in rollover rates and maturities in June, after the market tantrum in April. ### DSA indicators and key numeric findings - Public gross financing needs: 5.0, 13.3, 13.5, 15.8, 12.6, 11.6, 12.9, 12.6 (by year as presented under "Public gross financing needs5.0 13.3 13.5 15.8 12.6 11.6 12.9 12.6"). - Nominal gross public debt: 47.3; projected path includes 57.1, 86.1, 76.9, 70.1, 64.6, 62.6, 61.3, 60.0 (as listed under "Nominal gross public debt47.3 57.1 86.1 76.9 70.1 64.6 62.6 61.3 60.0"). - EMBIG (bp): 811 (listed under "EMBIG (bp) 811"). - 5Y CDS (bp): 971 (listed under "5Y CDS (bp) 971"). - Real GDP growth (in percent): 1.5, 2.7, -2.5, -1.3, 1.1, 2.6, 3.4, 3.6 (as listed under "Real GDP growth (in percent)1.5 2.7 -2.5 -1.3 1.1 2.6 3.4 3.6"). - Inflation (GDP deflator, in percent): 26.4, 25.8, 41.3, 46.8, 34.5, 24.5, 13.6, 8.0, 5.0 (as presented). - Nominal GDP growth (in percent): 28.2, 29.4, 37.2, 45.4, 35.8, 27.9, 17.4, 12.0, 8.9 (as presented). - Effective interest rate (in percent): 4.5, 8.9, 10.8, 5.5, 8.3, 10.6, 10.9, 9.3, 8.8 (as presented). - Change in gross public sector debt (cumulative): -1.0, 4.1, 28.9, -9.2, -6.7, -5.5, -2.0, -1.3, -1.2, -26.0 (as presented under "Change in gross public sector debt-1.0 4.1 28.9 -9.2 -6.7 -5.5 -2.0 -1.3 -1.2 -26.0"). - Identified debt-creating flows: -7.6, 1.1, 25.1, -22.5, -16.6, -10.5, -4.6, -2.6, -1.3, -58.0 (as presented). - Primary deficit contributions: -3.8, 3.8, 2.7, 0.3, -1.0, -1.0, -1.0, -1.0, -1.4, -5.0 (as presented). - Primary revenue and grants: 26.0, 25.9, 25.2, 25.4, 26.6, 26.3, 26.6, 26.4, 26.6, 157.9 (as presented). - Primary (noninterest) expenditure: 22.2, 29.7, 27.8, 25.7, 25.6, 25.3, 25.6, 25.4, 25.3, 152.8 (as presented). - Automatic debt dynamics contribution: -3.8, -2.7, 18.1, -23.4, -15.6, -9.5, -3.6, -1.5, 0.0, -53.5 (as presented). - Interest rate/growth differential contributions: -8.8, -8.3, -12.4, -23.4, -15.6, -9.5, -3.6, -1.5, 0.0, -53.5 (as presented). - Real interest rate contribution: -8.2, -7.2, -13.4, -24.2, -15.0, -8.0, -1.7, 0.5, 2.1, -46.3 (as presented). - Real GDP growth contribution: -0.6, -1.1, 1.0, 0.8, -0.6, -1.4, -1.9, -2.0, -2.0, -7.2 (as presented). - Exchange rate depreciation contribution: 5.0, 5.6, 30.5 (as partially presented under "Exchange rate depreciation 5.0 5.6 30.5 ..."). - Contingent liabilities (identified flows): 0.0, 0.0, 2.5, 0.6, 0.0, 0.0, 0.0, 0.0, 0.6 (as presented). - Residual, including asset changes: 6.6, 2.9, 3.8, 13.3, 9.9, 4.9, 2.6, 1.2, 0.1, 32.0 (as presented). ### Stress tests, scenarios, and realism checks - The stress test suite includes: Primary Balance Shock; Real GDP Growth Shock; Real Interest Rate Shock; Real Exchange Rate Shock; Combined Macro-Fiscal Shock; and Additional Stress Tests. - Alternative scenario assumptions (selected): - Baseline: Real GDP growth -1.3, 1.1, 2.6, 3.4, 3.6, 3.6; Inflation 46.8, 34.5, 24.5, 13.6, 8.0, 5.0; Primary Balance -0.3, 1.0, 1.0, 1.0, 1.0, 1.4; Effective interest rate 5.5, 8.3, 10.6, 10.9, 9.3, 8.8. - Historical Scenario: Real GDP growth -1.3, 1.0, 1.0, 1.0, 1.0, 1.0; Inflation 46.8, 34.5, 24.5, 13.6, 8.0, 5.0; Primary Balance -0.3, 1.8, 1.8, 1.8, 1.8, 1.8; Effective interest rate 5.5, 8.4, 9.1, 8.7, 6.1, 5.0. - Constant 2018 Primary Balance Scenario: Primary Balance -2.7 for years shown; Effective interest rate 5.5, 8.7, 11.6, 11.9, 10.0, 9.3. - Stress-test parameter benchmarks noted in the DSA: 200 and 600 basis points for bond spreads; 5 and 15 percent of GDP for external financing requirement; 0.5 and 1 percent for change in the share of short-term debt; 15 and 45 percent for public debt held by non-residents; 20 and 60 percent for share of foreign-currency denominated debt. ### Observations from forecast track record and realism assessment - Real GDP growth forecast errors: Argentina forecast error median -1.10, percentile rank 22% (Argentina median forecast error, 2009-2017: distribution shown). - Primary Balance forecast errors: Argentina forecast error median -1.21, percentile rank 22% (Argentina median forecast error, 2009-2017: distribution shown). - Inflation (Deflator) forecast errors: Argentina forecast error median 3.51, percentile rank 98% (Argentina median forecast error, 2009-2017: distribution shown). - Assessing realism of projected fiscal adjustment: 3-year CAPB adjustment and 3-year average CAPB level indicators show Argentina 3-year CAPB adjustment greater than 3 percent of GDP is in approximately top quartile; 3-year average CAPB level has a percentile rank of 63%. ### Policy context and program references (from attached MEFP excerpts) - Recent policy measures described: changes to the monetary policy framework including freezing the rate of the crawl of the reference zone, committing not to purchase FX when the peso appreciates outside of the zone, a new FX intervention strategy allowing BCRA to sell FX in disorderly market conditions even with peso inside reference zone, and increased size of FX intervention to lean against depreciation outside the reference zone. - Fiscal performance and targets: primary federal fiscal balance has been in surplus for the first five months of 2019; program’s fiscal and monetary targets have been over-complied so far in 2019; external imbalance continues to undergo a significant correction. - Requests to IMF noted: waivers of applicability for end-June 2019 performance criteria on the primary balance of the federal government, domestic arrears, and social assistance spending (final data not available at time of Executive Board consideration); requested changes to end-September quantitative performance criteria for (i) social spending floor, (ii) non-deliverable forwards, (iii) monetary base, and (iv) the primary balance target; request to set end-December quantitative performance criteria and temporary approval for another twelve months retention of the measure that gives rise to the multiple currency practice. *Source: IMF staff (Argentina Public DSA and associated MEFP excerpts as provided).* ### 2. Nonetheless, monthly inflation remained stubbornly high, reflecting the impact of the ### 1argea2019004 - 2. Nonetheless, monthly inflation remained stubbornly high, reflecting the impact of the ### Inflation and Monetary Policy - Monthly inflation remained "stubbornly high", reflecting the impact of tariff increases implemented earlier in the year and the peso depreciation experienced in March. - After a better-than-expected fall of inflation in April, authorities remain confident that inflation will continue to decelerate in the next few months, consistent with market expectations. - Monetary policy stance: - Maintain the level of monetary base constant since February 2019 until end-July at AR$ 1343 billion and lower it gradually to reach a level of AR$ 1298 billion in October. - In July, unremunerated reserve requirements were lowered to accommodate seasonal demand for currency in circulation. - A floor on nominal rates for July of 58 percent was introduced; the impact of lower reserve requirements will be reversed during August to October. - Commitment to a floating exchange rate with BCRA intervention limited to avoid excessive day-to-day volatility. - Announced maintenance of limits of the reference zone unchanged until end-year and a commitment not to purchase FX at least until end-July 2019. - Draft of a new BCRA charter submitted to Congress in March to: - enshrine central bank autonomy, - establish price stability as the first and fundamental mandate, - restrict monetary financing of the public deficit, - enhance decision-making structures, - buttress transparency and accountability. - Work to achieve an adequate level of capital for the BCRA by end-December 2019. ### Fiscal Policy and Public Financial Management - Fiscal performance: - Sustained five months of accumulated primary surpluses so far in 2019, for the first time in 8 years. - Comfortably met fiscal target for 2019Q1. - Budget and adjustors: - Strong commitment to implementing the 2019 Budget and achieving fiscal targets without jeopardizing social and growth-enhancing capital spending. - Expect to make full use of the ½ percent of GDP in adjustors built into the program to accommodate high-priority expenditures. - Higher-than-expected inflation has bolstered revenues; revenue measures on imports introduced to safeguard fiscal targets. - Higher interest revenues and dividend income provide space for growth-enhancing capital spending, to be used conservatively. - Revision of targets: - Requested upward revision of the end-September target for the primary balance of the federal government to AR$70 billion (from AR$60 billion). - Tax administration and compliance: - Intend to improve efficiency of tax collection and ensure equitable tax burden distribution. - Enhance VAT collection 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. - Finalized a compliance improvement plan and risk mitigation strategies in line with the end-June structural benchmark. - By December 2019, implement an integrated auditing action plan for the Simplified Taxpayer Regime, covering 20 percent of taxpayers under this regime. - Public Financial Management (PFM) reforms: - Strengthen macro-fiscal unit at the Ministry of Finance and improve coordination among units assessing macroeconomic and fiscal impact of new policy measures. - Request IMF technical support for a fiscal transparency evaluation in 2020. - Committed to move the Treasury Single Account (TSA) from Banco Nación to the BCRA by June 2020 and have started work on a detailed transfer and deleveraging plan. ### Debt Management and Use of Fund Resources - Domestic debt market development: - Expand issuance of peso-denominated government securities from a low base to develop domestic debt markets. - Newly unveiled market makers program to increase local market liquidity. - Introduced a securities lending facility to support market makers. - Continue strengthening medium-term debt management procedures for predictable budget financing operations. - Active debt management during volatility: - Focused on maximizing rollover volumes in April to safeguard the financial program and rebuild market confidence. - Committed to extending maturities of government debt and building liquidity buffers as market conditions permit. - Proactively smoothed liquidity impact of bulky amortizations, e.g., successfully rolled-over the full amount of the June maturity of the dual currency bond. - Use of Fund disbursements and FX operations: - Fund’s budget support will be used solely to meet primary balance needs and the interest and amortization payments on Treasury debt. - Commitment 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 through pre-announced daily auctions. - On April 15, the BCRA commenced conversion of IMF budget support from FX into pesos, on behalf of the Treasury, through transparent and predictable pre-announced daily FX auctions: - The daily amounts have been and will remain constant at US$60 million per day. - Auctions will take place daily until end-November at the 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. - Peso proceeds from these auctions will be maintained at the BCRA until their use to ensure traceability. ### Social Safety Net - Protection measures: - Committed to protecting the most vulnerable during current economic conditions. - Front-loading in March of all increases in AUH benefits implied by the indexation formula for 2019 provided shelter from erosion in purchasing power. - Expansion of the social spending adjustor at the third review has supported provision of medicines in public health centers, continued food support, and active labor market programs. - Proposed additions to social spending adjustor and social protection floor: - Include unemployment insurance, scholarship programs for students from low-income families and researchers, public policy programs to support gender equity, and comprehensive support programs for mothers, children, and teens. - Propose adding Primera Infancia (childcare centers for low-income and vulnerable women) to the social spending adjustor and the social protection floor. - With IDB support, continue to improve quality and availability of childcare centers, including expanding hours to better fit working parents’ schedules. - Commitment to achieve passage of legislation to increase the duration of paternity leave. - Roll-out of a time-use survey across Argentina by 2020 to better understand women’s care duties and support higher female labor force participation. ### Growth-Enhancing Structural Reforms and Trade - SME support measures: - Measures to support Small and Medium Enterprises include more favorable payment plans for tax debt, regulatory improvements for banking services, and elimination of export taxes for some small exporters. - Trade liberalization: - Landmark MERCOSUR–EU trade deal: - Will bring together almost a quarter of the world’s GDP and more than US$110 billion in trade of goods and services. - Once finalized and ratified (expected in the next two years), the agreement will phase-in elimination of tariffs on 93 percent of Mercosur exports to the EU and give preferential treatment to the remainder 7 percent. - The EU will eliminate tariffs on 82 percent of agricultural imports from Mercosur and give preferential treatment and quotas on most of the remaining products. - Reducing barriers and administrative costs: - Continue efforts to lower barriers to trade and foreign investment. - Simplify and reduce import and export administrative costs through the single window (VUCE) program. - Improve domestic competition and ease of doing business by simplifying entry regulations and reducing administrative burden on firms. - Continue to reduce administrative burden of paying taxes and aim to reduce the current time needed significantly in the next five years. ### Tackling Corruption and Transparency Measures - National Anti-Corruption Plan: - Executive order launched and approved the 2019-2023 National Anti-Corruption Plan in April 2019. - Implementation phase will include core pillars described in the Plan. - Executive Order mandates creation of an advisory Committee (Consejo Asesor) composed of civil society, private sector, and experts to monitor implementation; Committee expected to be established later this year. - Asset declarations and registries: - In April 2019, Minister of Justice approved conducting implementation of the e-declaration system for assets and interests by high-ranking Executive branch officials on a trial basis; implementation to be under Ministerio de Modernización and monitored by Office of Anti-Corruption. - Implementation of company registry (Registro Nacional de Sociedades, Concursos y Quiebras) is underway; AFIP assistance provides on-line information for all companies established in Argentina; process to verify accuracy and update of registry information will continue. - Legislative measures: - March 2019 submission to Congress of amendments to the Ethics in Public Service Law to strengthen Office of Anti-corruption’s authority, powers, roles, responsibilities, and sanctions; monitoring progress with respect to discussion and/or approval of this law by end-August 2019. - Anticipate submitting amendments to the AML Law by end-September 2019, including provisional measures with safeguards for freezing funds and assets by the Financial Intelligence Unit when linked to corruption or other crimes. ### Program Reviews, Targets, and Conditionality (selected figures and milestones) - IMF program schedule and amounts (Table 1 highlights): - Available on or after June 20, 2018: 10,613.71 SDR millions (333% Quota) — Approval of Arrangement. - October 26, 2018: 4,100.00 SDR millions (129%) — First Review. - December 15, 2018: 5,500.00 SDR millions (173%) — Second Review. - March 15, 2019: 7,800.00 SDR millions (245%) — Third Review. - June 15, 2019: 3,900.00 SDR millions (122%) — Fourth Review. - September 15, 2019: 3,900.00 SDR millions (122%) — Fifth Review. - Subsequent scheduled purchases mostly of 700.04 SDR millions (22%) through June 1, 2021; Total: 40,714 SDR millions (1277%). - Quantitative performance criteria and indicative targets (Table 2 — selected entries, values in Argentine pesos unless otherwise stated): - Performance Criterion 1 — Primary balance of the federal government (floor): proposed revised PC end-Sep AR$70.0 (revised from AR$60.0). - Performance Criterion 4 — Social assistance spending (floor): various cumulative flow values including 60.0, 72.7, 132.0, 205.0, 223.5, 325.0. - Monetary performance indicator: change in monthly average monetary base measured against average value for February 2019, which was AR$1,343 billion. - Change in non-borrowed net international reserves measured against value on September 28, 2018 which stood at US$3.6 billion. - Structural benchmarks and conditionality (Table 3 — selected items and statuses): - Publish regulation to introduce a foreign exchange auction for BCRA intervention in spot and forward markets — Jun-2018 — Met. - Establish senior-level debt management coordinating committee between Treasury-Finance-BCRA — Sep-2018 — Not met. Implemented with one day delay. - Present a three-year budget document to Congress — Oct-2018 — Not met. Implemented with delay. - Congress to pass the 2019 Budget targeting a zero primary balance — Nov-2018 — Met. - Publish a debt management strategy to increase predictability, pricing, and liquidity of treasury issuances — Dec-2018 — Met. - Submit new charter for the central bank to Congress — Mar-2019 — Met. - Design a compliance improvement plan and risk mitigation strategies around taxpayer segments and core taxes — Jun-2019 — Met. - Finalize time-bound plan for transferring TSA from Banco Nacion to BCRA in June 2020 — Sep-2019 (timing indicated in structural benchmarks). - Recapitalize central bank to adequate level of capital as percent of monetary base plus outstanding LEBACs — Dec-2019 (timing indicated). - Implement integrated auditing action plan for Monotributo covering 20 percent of taxpayers — Dec-2019 (timing indicated). *Source: https://www.imf.org/-/media/files/publications/cr/2019/1argea2019004.pdf* ### 1. This Technical Memorandum of Understanding (TMU) sets out the understandings ### 1argea2019004 - 1. This Technical Memorandum of Understanding (TMU) sets out the understandings ### Overview - Purpose: Sets out understandings regarding definitions of performance criteria (PCs), indicative targets (ITs), and consultation clauses under the Stand-by Arrangement as specified in the Memorandum of Economic and Financial Policies (MEFP, Update) and its attached tables. - Also describes methods for assessing program performance and information requirements to ensure adequate monitoring of targets. ### Program exchange rates and gold price (program exchange rates as of September 28, 2018) - 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 - Notes: - 1/ Rate published by the BCRA as of September 28, 2018. - 2/ Spot price published by Bloomberg as of September 28, 2018. ### Definitions and standard methodologies - Any variable mentioned for monitoring a PC or IT that is not explicitly defined is defined in accordance with the Fund's standard statistical methodology (e.g., Government Finance Statistics). - Authorities of Argentina shall consult with Fund staff for any omitted but relevant variables/definitions to reach an understanding based on Fund standard statistical methodology. - Inflation expectations: monitored using the Relevamiento de Expectativas de Mercado (REM) by the BCRA; unless otherwise indicated, program references to inflation expectations use the median of forecasts in the REM. ### Federal government: scope and primary balance - Definition of Federal government (Sector Público Nacional No Financiero): central administration, social security institutions, decentralized institutions (Administración Nacional), PAMI, fiduciary funds, and other entities and enterprises of the federal government. - Cumulative Floor of the Federal Government Primary Balance: - Primary balance defined per monthly and annual “Esquema IMIG”: total revenues (ingresos totales) minus primary spending (gastos primarios). - Revenues recorded on a cash basis and include: tax revenues (ingresos tributarios), revenue income (rentas de la propiedad), other current revenues (otros ingresos corrientes), capital revenues (ingresos de capital), and imputed revenues associated with the 2008 nationalization of private pension assets. - Revenues exclude: financial transfers from the Central Bank (Adelantos Transitorios), interest income from intra-public sector holdings, and proceeds from sale of other financial assets. Profit transfers from the central bank are regarded as revenues for program purposes. - Primary expenditure recorded on a cash basis and includes: social protection (prestaciones sociales), economic subsidies (subsidios económicos), operational expenses (gastos de funcionamiento), current transfers to provinces (transferencias corrientes a provincias), other current spending (otros gastos corrientes), and capital spending (gastos de capital), including capital transfers to provinces. - Measurement: The Federal government’s primary balance is measured at each test date as the cumulative value starting from the beginning of each calendar year. - Monitoring timetable: All fiscal data needed for program monitoring will be provided to the Fund with a lag of no more than 25 calendar days after the end of each month. ### Treatment of 2008 pension fund nationalization (FGS) - Accounting issue: Revenues capitalized in nationalized pension assets available in 2008 were not reported previously; budget reported increased pension spending but not the corresponding capitalized revenues. - Agreement: IMF technical assistance mission by June-2019 to collect information and advise on record keeping consistent with IMF Government Finance Statistics. - Interim treatment: - Value of pension fund assets seized in 2008 will be spread over time as revenue to partially offset future pension spending. - Specifics: amount divided by average life expectancy of contributors to those schemes at 2018, that is 20 years. - Limits: Recognized revenue capped at 80,000 million pesos in 2019 (equivalent to 0.4 percent of 2019 GDP) and 0.4 percent of GDP per year afterwards. - If mission recommendations change measurement of the budget balance, additional policy measures would be discussed to achieve the agreed fiscal targets. ### Public-private partnerships and divestment/liquidation costs - Government-funded PPPs: Treated as traditional public procurements; federal government obligations recorded transparently in budget data and measured as part of the Federal government deficit as they occur (cash basis). - Divestment or liquidation costs (e.g., cancellation of contracts, severance) allocated to current and capital expenditures accordingly. ### Non-cash settlements and exclusions - All primary expenditures directly settled with bonds or other non-cash liabilities recorded above-the-line and contribute to decrease in the primary balance. - Exclusions from above-the-line treatment: - Settlement of pension liabilities (cash or non-cash) towards people enrolled in the federal pension system incurred in the past and related to existing and pending court rulings. - Payments to provinces of Mendoza, San Luis and Santa Fe related to Supreme Court cases that became definite before June 19, 2018, but where amounts/terms were undetermined. - Payments of arrears per ICSID or similar arbitration rulings. - Starting in 2019, repayment of liabilities incurred under Plan Gas as determined by Resolution 97/2018 of the former Ministry of Energy and Mining. - For program purposes, the economic transaction that gave rise to these latter liabilities will be recognized above the line in 2017. ### Adjustor to the primary balance for social spending - Floor on the primary balance (cumulative since beginning of year) will be adjusted downward by the amount that cash-based expenditures exceed programmed values (Table 2) in specified programs. - Programs included (selected list as specified): - Asignación Universal para Protección Social (ANSES, program 19, subprogram 03) - Proyectos Productivos Comunitarios (Ministry of Health and Social Development, Program 50) - Políticas Alimentarias (Ministry of Health and Social Development, Program 26) - Prevención y Control de Enfermedades Inmunoprevenibles (Ministry of Health and Social Development, Program 20) - Cobertura Universal de Salud, Medicamentos (Ministry of Health and Social Development, Program 29) - Hogares con Garrafas (Ministry of the Treasury, Program 73, Subprogram 02, activity 40) - Apoyo al Empleo (Ministry of Health and Social Development, Program 38) - Formulación e implementación de políticas públicas de la mujer (National Women’s Institute, Program 17) - Promoción y asistencia a espacios de primera infancia; Acciones para la Promoción y Protección Integral de los Derechos de Niños, Niñas y Adolescentes; Atención de la Madre y el Niño; Desarrollo de la Salud Sexual y la Procreación Responsable (Ministry of Health and Social Development, Programs 47, 44, 17, and 25) - Formación de recursos humanos (National Council for Scientific and Technical Innovations, Program 16) - Gestión y Asignación de Becas a Estudiantes (Act. 40- PROGRESAR) (Ministry of Education, Culture, Science and Technology, program 49, activity 40) - Seguro de desempleo (ANSES, program 18) - Caps: - Adjustor capped at 63,900 million pesos in 2019. - Adjustor capped at the equivalent of 0.3 percent of GDP in each successive calendar year. ### Adjustor for external financing projects (multilateral/bilateral funded capital spending) - Floor on primary balance will be adjusted up (down) by shortfall (excess) in cash-based expenditure financed by disbursements of external project loans by IFIs and bilateral partners, compared to capital expenditures settled in the budget (Table 3). - AR$ millions 1/ (cumulative from January 1 of each year) program baseline: - end-March 2019 33,201 - end-June 2019 68,568 - end-September 2019 133,988 - end-December 2019 198,586 - Caps: - Adjustor capped at cumulative 42,500 million pesos in 2019. - Adjustor capped at 0.2 percent of GDP in each successive calendar year. - Starting in 2019 the benchmark is expenditure financed by disbursements of external project loans by IFIs and bilateral partners as stated in the budget. ### Floor on Federal Government Spending on Social Assistance Programs (floor values, 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 - Definition: Social spending computed as sum of all federal government spending (recurrent and capital, cash basis) on specified social protection programs (full list provided in text, including various Asignaciones Familiares categories, Asignación Universal para Protección Social, Proyectos Productivos Comunitarios, Políticas Alimentarias, health programs, Hogares con Garrafas, Apoyo al Empleo, programs for women, early childhood programs, Formación de recursos humanos, PROGRESAR, Seguro de desempleo). - Note: The floor on social spending in end-June 2018 was met using an accrual basis; TMU clarifies going forward this is measured on a cash basis. - Monitoring: Data to be provided to the Fund with a lag of no more than 25 calendar days after the end of each month. ### Ceiling on Federal Government Accumulation of Domestic Arrears - Definition: Domestic arrears = floating debt = difference between primary spending recorded on an accrual basis (gasto devengado, SIDIF) and primary spending recorded on a cash basis (base caja, Treasury). Excludes intra-public transfers (transferencias figurativas) and includes spending for personnel, acquisition of goods and services, non-professional services, capital expenditures, and transfers. - Measurement: Arrears measured daily. - Limit: Program caps 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: Daily-frequency data provided 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: Determined by residency criterion; encompasses nonresident holdings of Argentine law peso and foreign currency debt. - “Debt” understood as a current (not contingent) liability created under a contractual arrangement requiring future payments in assets or services; primary forms include: - i. Loans (including deposits, bonds, debentures, commercial loans, buyers’ credits, repurchase agreements, official swap arrangements). - ii. Suppliers’ credits (deferred payments for goods/services). - iii. Leases (debt is present value at lease inception of all expected lease payments excluding payments for operation, repair or maintenance). - External arrears: Defined as external debt 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 exclusions: This PC covers the federal government and does not cover (i) arrears on trade credits, (ii) arrears on debt subject to renegotiation or restructuring, and (iii) arrears resulting from nonpayment of commercial claims subject to litigation initiated prior to May 30, 2018. - Monitoring: PC monitored on a continuous basis. ### Floor on the Change in Non-Borrowed Net International Reserves (NIR) - Definition: Non-borrowed 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 in the TMU. - Non-U.S. dollar denominated foreign assets and liabilities converted into U.S. dollar at the program exchange rates. *Technical Memorandum of Understanding (TMU), Argentina — provisions and definitions as provided in the TMU text.* ### 26. Definition: The foreign exchange auction is a mechanism through which the BCRA sells ### 1argea2019004 - 26. Definition: The foreign exchange auction is a mechanism through which the BCRA sells ### Definitions: FX auction, reserves, and liabilities - Foreign exchange auction: mechanism through which the BCRA sells US dollars to banks in exchange for Argentine pesos; all banks in Argentina can participate; bids allotted solely based on the rate proposed by counterparties, starting from highest peso per US dollar rate until the pre-announced amount is exhausted. The auction weighted average rate, marginal rate, total bid amount, and the final allotment are published within one hour after the auction allotment. - Gross official reserves (BPM6-consistent): readily available claims on nonresidents denominated in foreign convertible currencies; include (i) monetary claims, (ii) free gold, (iii) holdings of SDRs, (iv) the reserve position in the IMF, and (v) holdings of fixed income instruments. Excluded: assets pledged, collateralized or otherwise encumbered; claims on residents; claims in foreign exchange arising from derivatives vis-à-vis domestic currency (futures, forwards, swaps, options); precious metals other than gold; assets in nonconvertible currencies; illiquid assets. - Gross official liabilities in foreign currencies include: (i) all borrowed reserves (foreign currency swaps, loans, repo operations with all counterparties, regardless of maturity), (ii) other foreign currency liabilities including deposits of financial institutions, (ii) the use of Fund resources for Balance of Payments support extended in the context of the exceptional financing package, (iii) any deliverable forward foreign exchange (FX) liabilities on a net basis—defined as the long position minus the short position payable in foreign currencies directly undertaken by the BCRA or by any other financial institutions on behalf of the BCRA. The Federal government’s FX deposits at the BCRA are not considered gross foreign liabilities of the BCRA. ### Non-borrowed Net International Reserves (NIR) targets and measurement - Measurement baseline: change in non-borrowed NIR at each test date relative to the stock on September 28, 2018, which stood at US$15.680 billion. - Monitoring frequency: Foreign exchange asset and liability data will be provided to the Fund at daily frequency within one day. ### Adjustors to NIR targets - Adjustor for Multilateral loans: NIR targets adjusted upward (downward) by surplus (shortfall) in disbursements from the IMF and other multilateral institutions (IBRD, IDB, CDB) and grants, relative to baseline projection in Table 4. Budget support disbursements defined as external loan disbursements (excluding project financing disbursements) from official creditors usable for financing the general government. - Adjustor for FX sales: NIR targets adjusted downward by total amount of U.S. dollars sold via foreign exchange auctions executed in accordance with the intervention rule. This amount excludes the daily US$ 60mn sold by the BCRA on behalf of Treasury. - Definition of Intervention: official foreign currency sales and purchases; only the BCRA allowed to implement foreign exchange intervention; state-owned banks not allowed to engage in official FX sales on behalf of the government. - Exchange rate reference: AR$/US$ exchange rate for the intervention rule is the rate of the Mercado Abierto Electrónico (MAE); MAE publishes continuous updates and a daily fixing (see BCRA Communication A3500). - Intervention rule (consistent with BCRA communique of April 29th, 2019): - If exchange rate is below the upper limit of the reference zone (below $51.5) the BCRA would be prepared to sell dollars. - If exchange rate exceeds AR$51.5 per US$: the BCRA would be able to sell up to US$250 million. The BCRA may undertake additional interventions above this US$250 million limit to counteract episodes of excessive exchange rate volatility. - All foreign exchange sales and purchases are expected to be unsterilized. - Monitoring: Daily data on amount and rate of transactions between the BCRA and each counterparty will be 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 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 April 15 via an auction organized each business day at the same time. Daily amounts constant at US$60 million per day and auctions will continue until end-November. This adjustor capped at US$9.6 billion for 2019. ### Specific cumulative flow figures (from tables in text) - Budget support disbursements from IMF (Cumulative flows from end-September 2018, In millions of US$): - end-July 2019 29,884 - end-August 2019 29,884 - end-September 2019 35,356 - end-October 2019 35,356 - end-November 2019 35,356 - end-December 2019 36,338 - Budget support loans from other multilateral sources (Cumulative flows from end-September 2018, In millions of US$): - end-July 2019 2,950 - end-August 2019 2,950 - end-September 2019 3,830 - end-October 2019 3,830 - end-November 2019 3,830 - end-December 2019 4,730 - Another cumulative table (presumably proceeds from FX debt issuances) shows: - 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 14,997 - end-August 2019 16,138 - end-September 2019 18,298 - end-October 2019 19,872 - end-November 2019 21,176 - end-December 2019 22,153 ### Ceiling on Change in BCRA’s Stock of Non-Deliverable Forwards (NDF) - Definition: stock of NDF defined as net of U.S. dollar notional value of all long and short position contracts entered by the BCRA involving the Argentinian peso, either directly or through any institution used as financial agent. - Monitoring: monitored quarterly with monthly indicative targets; data provided to the Fund at the end of each day. - Measurement baseline: change measured relative to stock on September 28, 2018, which stood at US$3.6 billion. ### Continuous stop to BCRA’s financing of the government - Definition: BCRA financing includes overdraft transfers from the BCRA to the Federal Government (line Adelantos Transitorios), distribution of unrealized profits, and acquisition of government debt on the primary market or by purchase from public institutions. The 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. MB measured in peso consistent with BCRA Daily Monetary Report. - Baseline: change calculated with respect to average of month of February 2019 which was AR$1,343 billion. The ceiling applies to the monthly average of MB. - Monitoring: Data provided daily with a lag of no more than 2 days. - Adjustors for MB: - Adjustor for FX sales: base money target will decrease by peso equivalent of FX sales executed per intervention rule (see intervention rule text above). - Timing/proration rule: target reduced pro rata of remaining days in month during which intervention happened and by full amount for following month. Example: month of 30 days, if BCRA sells equivalent of AR$100 on 15th, base money target reduced by AR$50 for current month and by AR$100 for following months. - Adjustor for FX purchases: MB target adjusted upward by FX purchases (when peso below reference zone) at pro rata of remaining days in month and by full amount for following months. Same illustrative proration example given (AR$50 and AR$100). - Change in reserve requirements: BCRA will reach agreement with IMF staff prior to making any changes to levels or structure of reserve requirements. ### Ceiling on Central Bank Credit to the Government - Definition: sum of stock of government securities held by the BCRA (line Títulos Públicos) and overdraft transfers (Adelantos Transitorios). Decreases reflect cash payments in pesos by Treasury to BCRA; variations due to exchange rate or accounting practices excluded. - Monitoring: Daily data to Fund within two days. - Measurement baseline: change measured relative to stock on September 28, 2018, which stood at AR$ 2,592.86 billion. ### Quantitative indicative targets: primary balance and adjustors - General government defined as federal government plus aggregate position of 23 provinces plus Autonomous City of Buenos Aires. - Primary balance of general government includes primary balance of federal government (including adjustors) plus provincial government revenues (including transfers) less provincial cash expenditures. Municipal expenditures and revenues excluded. - Adjustor to primary balance for social spending: floor on primary balance (cumulative since beginning of year) adjusted downward by amount that expenditures (cash basis) exceed programmed values in Table 2 for specified programs (list of programs and jurisdictions in source). The value of the adjustor capped at 63,900 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: floor adjusted up (down) by shortfall (excess) in expenditure financed by disbursements of external project loans by IFIs and bilateral partners compared to capital expenditures in budget (Table 3). Capped at cumulative 42,500 million pesos in 2019, and 0.2 percent of GDP in each successive calendar year. Starting in 2019 the benchmark will be expenditure financed by disbursements of external project loans by IFIs and bilateral partners, as stated in the budget. - Reporting: 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 provided for provinces of La Pampa and San Luis. ### Performance criterion on Multiple Currency Practices (MCP) - The PC on introduction or modification of MCP excludes multiple currency practices arising from any modification to the multiple-price foreign exchange auction system introduced in June 2018. ### Other information and reporting requirements - Daily (provided within specified short lags): nominal exchange rates; interest rates on domestic debt instruments including LETES, LEBAC, 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; 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 use of IMF budget support per Memorandum of Understanding between the Treasury and the BCRA; FX operations of Banco Nación on a weekly basis. - Monthly (with specified lags): federal government operations including monthly cash flow from beginning to end of current fiscal year (lag no more than 25 days after month close), expected monthly federal and provincial government debt amortization and repayments (local currency and FX bonds, treasury bills, Eurobonds, domestic loans, external commercial and external official loans), federal and provincial government debt stock by currency as at end month (by creditor, instrument, direct and guaranteed), balances of government at the central bank and in commercial banking system to determine cash position, deposits in banking system 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 within one month after month end, reserve position of public and private banks on a bank-by-bank basis, data on total loans value of all new federal government-funded public private partnerships. ### Supplementary information and recent performance highlights - Statement provides additional information since Staff Report (EBS/19/69) circulated July 3, 2019; does not alter thrust of staff appraisal. - All end-June fiscal performance criteria were met. - Primary balance closed at AR$30.2 billion, AR$10 billion over the unadjusted target for June (AR$20 billion) and AR$47.5 billion above the target adjusted for additional social and capital spending (AR$-17.3 billion). - Overperformance mainly reflects AR$40 billion overperformance in non-tax revenues due to earlier-than-expected sale of a power plant. - Expenditures contracted vis-à-vis 2018, particularly wages and pensions (4.9 percent of GDP during 2019H1 versus 5.4 percent of GDP in same period of 2018). - Social spending overperformed the floor by AR$25.6 billion, closing end-June at AR$157.6 billion. - Domestic arrears were below their ceiling by AR$32 billion. - Given PCs on primary balance, social spending and domestic arrears have been met, waivers of applicability for these targets are no longer needed. - Inflation expectations (June): BCRA Survey of Market Expectation (REM) showed slightly lower average monthly inflation expectations in June and July (2.6 and 2.4 percent, respectively, versus 2.7 and 2.5 percent in May survey). On average markets expect inflation to be 40.2 percent (y/y) at end-December 2019. Markets expect the LELIQ rate to reach the same level in December as in the previous survey (about 55 percent). *Source: 1argea2019004 - 26. Definition: The foreign exchange auction is a mechanism through which the BCRA sells (PDF chapter/section).* ### 4. Market conditions continued to be favorable in the first week of July. As ### 1argea2019004 - 4. Market conditions continued to be favorable in the first week of July. As ### Market conditions (first week of July) - As of July 8, the peso has appreciated by 1.4 percent since end-June. - LELIQ rates declined by 279 bps since end-June and stood at 59.9 percent on Wednesday July 8th which (together with the new REM inflation expectations) correspond to a real annualized ex-ante interest rate of 38 percent. - Sovereign spreads fell to 805 on July 8, with CDS spreads remaining relatively stable since end June. ### Table 1 — Argentina: Quantitative Performance Criteria and Indicative Targets (selected entries) - Table title: Argentina: Quantitative Performance Criteria and Indicative Targets 1/ 2/ (in billions of Argentine pesos, unless otherwise stated) - Fiscal targets — Performance Criteria - 1. Primary balance of the federal government (floor) 3/ 9/6.06.010.5n.a.n.a.n.a.n.a.20.0-17.330.2Metn.a.n.a.60.070.0n.a.n.a.0.0 - 2. Federal government accumulation of external debt payment arrears (ceiling) 4/0.00.00.00.00.00.00.00.0Met0.00.00.00.00.00.00.0 - 3. Federal government accumulation of domestic arrears (ceiling) 5/30.05.6n.a.n.a.n.a.n.a.45.013.0Metn.a.n.a.53.253.2n.a.n.a.58.5 - 4. Social assistance spending (floor) 3/60.072.7n.a.n.a.n.a.n.a.132.0157.6Metn.a.n.a.205.0223.5n.a.n.a.325.0 - Indicative targets - 5. Primary balance of the general government (floor) 3/ 9/-14.0-14.078.0n.a.n.a.n.a.n.a.10.0n.a.n.a.n.a.80.095.0n.a.n.a.30.0 - Monetary targets — Performance Criteria - 6. Change in non-borrowed net international reserves (floor) 6/ 9/ 10/ - 12.54.45.59.010.56.23.89.00.74.0Met8.48.213.113.111.510.59.8 - 7. Change in stock of non-deliverable FX forwards (ceiling) 6/-1.0-3.3-1.2-2.6-1.5-5.2-1.7-6.6Met0.00.0-2.60.00.00.00.0 - 8. Change in central bank credit to government (ceiling) 7/0.00.00.00.00.00.00.00.0Met0.00.00.00.00.00.00.0 - 9. Central bank financing of the government (ceiling) 4/0.00.00.00.00.00.00.00.0Met0.00.00.00.00.00.00.0 - 10. Change in net domestic assets of the central bank (ceiling) 8/ 9/ - -185.6-154.5-212.6-------------- - 11. Change in monthly average monetary base (ceiling) 11/ - ---0.0-18.40.0-0.60.0-1.1Met0.0-18.00.0-33.0-45.0-45.038.0 - Footnotes and measurement bases (as listed) - 1/ Targets as defined in the Technical Memorandum of Understanding (TMU). - 2/ Based on program exchange rates defined in the TMU. - 3/ Cumulative flows from January 1 through December 31. - 4/ Continuous performance criterion. - 5/ The accumulation is measured against the average during Q4 2017, which stood at 45.6 billion pesos. - 6/ In billions of U.S. dollars. The change is measured against the value on September 28, 2018 which stood at US$3.6 billion. - 7/ The change is measured against the value on September 28, 2018, which stood at 2,592.86 billion pesos. - 8/ The change is measured against the average value for September 2018, which was AR$ 574 billion. - 9/ Targets subject to adjustors as defined in the TMU. - 10/ Increases reflect IMF disbursements, which increase NIR. - 11/ The change is measured against the average value for February 2019, which was AR$1,343 billion. ### Fiscal update and formal notification (July 11, 2019) - The authorities report they now have fiscal data as of end-June, showing that they have met the end-June PCs for the primary balance and the social spending. - Consequence reported: Therefore, the authorities are no longer requesting waivers of applicability for these PCs. - Formal signatories: - /s/ Nicolas Dujovne, Minister of Finance - /s/ Guido Sandleris, President, Central Bank of Argentina - Date of letter: July 11, 2019 *Supplement to the Letter of Intent, Acting Managing Director, International Monetary Fund, Washington, D.C. 20431* --- _Source: https://www.imf.org/-/media/files/publications/cr/2019/1argea2019004.pdf_