## 1argea2024001

## Source details

**Canonical URL:** [1argea2024001](https://www.imf.org/-/media/files/publications/cr/2024/english/1argea2024001.pdf)

## Other formats

- [Markdown version](/-/media/files/publications/cr/2024/english/1argea2024001.pdf.md)
- [Structured JSON version](/-/media/files/publications/cr/2024/english/1argea2024001.pdf.json)

---

### Context and political mandate
- Since completion of the fifth and sixth reviews, Argentina’s imbalances and distortions "have become dangerously acute" and "the program has gone significantly off-track."
- New administration initial actions "are starting to bear fruit" but face a "divided Congress and a fragile social situation."
- Electoral and political facts:
  - President Milei won "about 56 percent of the vote and 21 out of 24 provinces (including the city of Buenos Aires)."
  - La Libertad Avanza holds "37 out of 257 deputies" and "7 out of 72 senators."

### Key economic and social indicators (inheritance)
- Activity and labor:
  - Real GDP growth stronger than anticipated through Q3:2023; unemployment "5.7 percent in Q3."
  - High-frequency indicators decelerating since October 2023.
- Inflation and expectations:
  - Monthly inflation "12.8 percent in November (over 320 percent annualized)."
  - Inflation expectations (12-months ahead) "around 230 percent in late-November."
  - Monthly inflation rose "25.5 percent m/m in December" (up from around 13 percent m/m in November); projected to remain above 25 percent m/m in January.
- Real wages and informality:
  - Average real wages contracted "1.5 percent y/y in October."
  - Real wages for informal sector workers fell "18.6 percent."
  - Real wages are "now 23 percent below 2016 levels."
- Poverty and social conditions:
  - Poverty rates rose "above 40 percent in S1:2023."
  - Extreme poverty exceeded "9 percent."
  - "Over 55 percent of children" living below the poverty line.
  - World Bank–based preliminary estimates suggest overall poverty "around 45 percent" more recently.
- External sector and reserves:
  - Goods trade deficit cumulative "US$8.0 billion through November" (vs. surplus "US$5.8 billion" same period in 2022).
  - Services deficit "US$6.5 billion."
  - Net international reserves reached negative "US$11.2 billion through December 7."
  - Gross international reserves fell to multi-year lows; near zero reserve coverage (excluding swap lines).
  - Importers’ commercial debt stock "around US$30 billion above the historical norm"; total importers’ debt near "US$60 billion" by September (with "US$21 billion" registered as of January 10).
  - FX gap ranged "between 150–200 percent"; narrowed to around "40–50 percent" after initial actions.
  - Real exchange rate by December 10 estimated "35–40 percent above medium-term fundamentals" and "15–20 percent more appreciated than before the August step devaluation."
  - PBOC swap line of "US$4.9 billion" helped in 2023; obligations fall due in 2024.
- Fiscal situation:
  - Cumulative primary deficit rose to "1.8 percent of GDP through November" 2023 (other texts report cumulative primary deficit reached "2.9 percent of GDP in 2023").
  - New arrears stock estimated "1.5 percent of GDP by early December."
  - Direct central bank transfers capped at around "0.9 percent of GDP"; central bank purchases of government securities accelerated to "3.9 percent of GDP through early December."
  - Previous administration ran down reserves by "US$21 billion through end-November" and increased import financing by "US$18 billion."
- Banking and monetary conditions:
  - Banks capitalized: "31 percent of risk-weighted assets"; liquidity "56 percent of total assets"; non-performing loans "3 percent of loans"; return on assets "around 3 percent."
  - Real private credit contraction "16.5 percent y/y as of November."
  - Private sector peso deposits fell real terms "about 20 percent y/y"; fixed-term deposits down "30 percent y/y."
  - BCRA securities stock close to "9 percent of annualized GDP" as of end-November; over "80 percent" of BCRA’s assets in government paper.
  - Ledivs reached "US$5 billion in early-December"; BCRA NDF exposure previously peaked at "US$6.7 billion."
  - Central bank sold close to "US$4 billion in the parallel exchange market in 2023."
  - Surcharge on credit card purchases abroad rose to "155 percent" (composition: 30 percent impuesto país; 100 percent withholding income tax; 25 percent withholding wealth tax).

### Program derailment and performance
- Key performance criteria (fiscal primary balance, net international reserves) "were missed by large margins."
- Central bank interventions intensified; reliance on FX distortions, MCPs, and exchange restrictions increased.
- Structural agenda progress "halted."
- Since the November elections, sovereign spreads fell "around 500 basis points (to around 1900 bps)"; asset prices of Argentine firms abroad rose "over 40 percent on average."

### Stabilization plan — objectives and baseline macro outlook
- Core objectives:
  - Large upfront adjustment of "around 5 percentage points of GDP" to establish a strong fiscal anchor and aim for a primary surplus of "2 percent of GDP this year."
  - Rebuild reserves, boost trade balance to achieve twin surpluses, correct relative price misalignments, strengthen the central bank balance sheet, and create a "simpler, rules-based, and market-oriented economy."
  - Scale up social assistance to protect the most vulnerable.
- Baseline macro projections and near-term dynamics:
  - Real GDP contracting by "about 2¾ percent this year" (other texts specify "contract by about 2.8 percent in 2024" and real GDP estimated to have shrunk "1.1 percent in 2023").
  - Non-agriculture contraction "around 5.2 percent in 2024."
  - Monthly inflation projected to reach single-digit levels during the second quarter of 2024 conditional on fiscal and monetary tightening; annual (end-of-period) inflation projected to decline from around "150 percent this year" to single digits over the next five years (SRDSF gives detailed path: eop inflation "215 percent in 2023", "149 percent in 2024"; average inflation "exceed 250 percent in 2024"; decline to "around under 60 percent in 2025"; single digits in "2029").
  - Current account expected to "move into surplus (strengthening by over 4 percentage points of GDP this year)"; specific projection: swing from deficit "3.5 percent of GDP (US$20 billion) in 2023" to surplus "0.9 percent of GDP (US$5.5 billion) in 2024."
  - Net international reserves expected to rise by "about US$10 billion between when the new administration took office in December 2023 and end-2024" (other texts project NIR accumulation "about US$7 billion during 2024" and reserve coverage reaching 100 percent of ARA metric by "2029").
  - Economy to begin recovery in late 2024; rebound to around "5 percent in the year after 2024" (e.g., "2025") with output returning to trend by "2028"/"2029" in different sections.
  - Potential growth over medium term: "around 2.3 percent."
- Financing strategy:
  - Authorities will "not seek any form of net financing for the government."
  - Domestic strategy: extend maturities and reduce reliance on FX-indexed instruments.
  - Program "fully financed for its remaining duration"; access to external markets expected in timeframe commensurate with debt refinancing needs (re-access projected "late 2025").

### Fiscal policy — composition and measures
- Objective: achieve a primary surplus of "2 percent of GDP this year" consistent with overall balance; frontloaded consolidation "about 5 percent of GDP" with an initial expenditure adjustment of about "3 percent of GDP."
- Near-term expenditure measures:
  - Reductions in inefficient energy subsidies; electricity increases "over 200 percent" and gas increases "over 150 percent" tariffs effective February (prior action) and continued urban transport fare increases (except for social assistance recipients).
  - Compression of operating costs via national administration reorganization.
  - Release of workers hired in 2023 and containment of wage adjustments.
  - Strict prioritization of capital spending; cuts in transfers to provinces and SOEs.
- Revenue-side measures (temporary and some needing Congress):
  - Unwinding drought expected to add about "0.8 percent of GDP" to revenues.
  - Increase impuesto pais on most goods and services imports to "17.5 percent" (from average "7.5 percent" in late 2023).
  - Proposed increase in export taxes for all non-agricultural exports to "15 percent" (from average "7 percent").
  - Reverse previous PIT threshold raise such that "only 1 percent of formal sector workers would pay taxes" on wage income is reversed.
- Social protection scaling:
  - Doubling the universal child allowance (AUH).
  - "50 percent increase in the food stamp program (Tarjeta)."
  - Discretionary bonuses to retirees and social allowance recipients to preserve purchasing power; commitment to preserve pension real value at end-2023 levels.
  - Targeting improvements and database integration (proposed end-September 2024, SB).

### Fiscal consolidation numerical breakdown (presented)
- Required Fiscal Consolidation: 5.0 (percent of GDP)
- 1. Revenue Measures: 1.7
  - Import taxes: 0.8
  - Export taxes: 0.5*
  - Unwind PIT exemptions: 0.4*
- 2. Expenditure Measures: 2.9
  - Reduction in subsidies: 0.7
  - Phase out workfare program: 0.4
  - Wage bill and administrative reforms: 0.5
  - Capital spending: 0.7
  - Pension reform 1/: 0.1*
  - Lower transfers to SOEs/Provinces: 0.5
- 3. Boost Direct Cash Transfers (-): -0.7
- 4. Unwinding Drought: 0.8
- 5. Additional Measures 2/: 0.3
  - Notes: */ Requires congressional approval. 1/ Freeze indexation formula. 2/ Additional measures later in the year to compensate unwinding of export taxes.

### Exchange rate, FX policy, and trade normalization
- Large step devaluation in mid-December: nominal official exchange rate moved from "360 ARS/USD to 800 ARS/USD" (devaluation roughly "120 percent"); de facto import effective rate initially "around 940 ARS/USD."
- Official crawl rate after devaluation set at "2 percent per month."
- Authorities commit to exchange rate policy consistent with reserve accumulation goals and "a market-based regime avoiding the previous approach of managing the parallel and futures FX markets."
- Import and commercial debt measures:
  - Replaced SIRA/SIRASE with SEDI, a rules-based import access system (average delay "45 days" vs. "90–160 days" previously).
  - New BCRA FX-denominated instrument (BOPREAL) with maturities up to 4 years; indicative cap "US$5 billion" on first series; subscription reached "US$1.3 billion" (and other passages list "US$4.1 billion" or "US$4.6 billion" of subscriptions/purchases in different dates).
  - Holders of initial longer-dated instruments can apply "70 percent" to settle tax liabilities; window for initial US$5 billion closes end-February.
- Commitments on MCPs and exchange restrictions:
  - Authorities committed to "continue to eliminate all exchange restrictions and MCPs in the near term and to develop a roadmap to this end" (SB reset: roadmap end-March 2024 reset to end-June 2024).
  - Staff supports waivers and a 12-month extension of Board approval for temporary MCPs/exchange measures given balance of payments reasons.

### Monetary policy, BCRA operations, and balance sheet strengthening
- Operational changes:
  - Ceased auctions of 28-day LELIQ; overnight Pases Pasivos designated new policy rate.
  - Overnight rate set at "100 percent y/y in nominal terms (171 percent y/y in effective annual terms)" or equivalent "8.7 percent m/m," vs. an expected monthly inflation "27 percent in January."
- Objectives and actions:
  - Eliminate all direct and indirect monetary financing of the fiscal deficit; net financing cap set to zero in 2024.
  - Prohibit profit distributions; boost reserves; improve asset quality; adopt international accounting standards; set a target equity range for BCRA.
  - BCRA securities and operations: stock of BCRA securities near "9 percent of annualized GDP" end-November; Ledivs and other FX-linked securities significant.
- Banking regulation and transmission:
  - Gradual removal of credit incentive schemes (e.g., Ahora 12, LFIP).
  - Review of commercial interest rate floors/caps and lending quotas; streamlining deductions on reserve requirements.
  - Expected outcomes: improved monetary transmission, credit allocation, and support for demand compression.

### External sector, reserves, and energy/mining upside
- Reserve and current account:
  - Gross international reserves reached "US$23 billion in 2023" (lowest since 2004); net international reserves negative "US$9.2 billion" (Annex) or negative "US$10.3 billion" in other passages.
  - Program baseline projects NIR accumulation of "about US$7 billion during 2024" and other passages project "about US$10 billion" between December 2023 and end-2024.
  - Current account: deficit "3.5 percent of GDP in 2023" projected to a surplus "0.9 percent of GDP in 2024"; medium-term norm "around 1.5 percent of GDP."
- Energy and mining (Box 5) — baseline and upside:
  - 2023 energy balance: deficit "US$0.6 billion."
  - 2024 energy balance baseline: surplus "US$3.3 billion."
  - Domestic gas transport capacity 2023: "11 million cubic meters per day"; expected 2024: "22 million cubic meters per day."
  - Reduction in LNG imports expected in 2024: "US$3.5 billion"; further reduction post-mid-2025: "US$0.7 billion per year."
  - Crude oil exports: "around 100 kbbl/d in 2023" to "900 kbbl/d by 2030" (assessment-based); potential extra exports revenue by 2030: "US$14 billion."
  - Estimated medium-term investment gap to realize upside potential: "US$40 billion."
  - Mining potential: near five-fold export increase; lithium "US$12 billion" and copper "US$5 billion" shares.
  - Mining investments announced to date: "US$17 billion"; "6 projects already under construction and more than 70 at advanced stages."

### Debt, sustainability, and contingent liabilities
- Exceptional access and EA criteria:
  - Staff finds EA criteria satisfied subject to pending actions; debt sustainable "but not with high probability."
- Public debt dynamics under active baseline:
  - Primary fiscal balance moves from deficit "3 percent of GDP" to surplus "2 percent this year."
  - Steady-state primary surplus "2.5 percent of GDP from 2025 onwards" (vs. previous commitment "1.3 percent").
  - Gross public debt projected fall from "86 percent of GDP in 2024" to below "42 percent of GDP by 2030" (other DSA figures show actual 2023 public debt "154.5" percent of GDP due to valuation effects, then 2024 "86.2", 2025 "79.5", ... 2033 "26.4").
  - Gross financing needs averaging "10 percent of GDP" during the period; external debt service averaging "US$21 billion during 2026–29."
- Contingent liability shock scenario:
  - One-off debt materialization equal to "6 percent of GDP" simulated.
  - Under scenario: public debt spikes around "154 percent of GDP"; "90 percent of GDP by end-2024"; falls back to "50 percent of GDP by 2028"; GFNs around "14 percent of GDP by 2029."
- SRDSF macro assumptions and key points:
  - Real GDP contraction "2.8 percent in 2024"; medium-term growth "2.3 percent"; potential growth "2.3."
  - REER misalignment estimate "around 30 percent" prior to step devaluation.
  - Inflation (eop) path: "95 percent in 2022"; "215 percent in 2023"; "149 percent in 2024"; average inflation "exceed 250 percent in 2024"; decline to "around under 60 percent in 2025"; single digits in "2029."
  - Reserve loss in 2023: "US$ 22 billion."
  - BCRA transfers: "0.9 percent of GDP in 2023" projected zero from "2024 onwards."
  - Return to international markets: "late 2025."
  - Real rates expected to reach "4½ percent by 2028."
- Debt consolidation baseline table highlights (percent of GDP selected):
  - Public debt: Actual 2023: "154.5"; 2024: "86.2"; 2025: "79.5"; 2026: "69.5"; 2027: "59.8"; 2028: "53.5"; 2029: "47.9"; 2030: "41.9".
  - Gross financing needs (selected): 2023 "9.1"; 2024 "5.2"; 2025 "23.4"; 2026 "4.9"; 2027 "15.2".
  - Memo: Real GDP growth: 2023 "-1.1"; 2024 "-2.8"; 2025 "5.0"; 2026 "4.5".
  - Memo: Inflation (GDP deflator; percent): 2023 "135.6"; 2024 "253.1"; 2025 "58.4".

### Program modalities, prior actions, and conditionality
- Seventh review and financing:
  - Purchases under the seventh review proposed at "SDR 3.5 billion."
  - Rephasing: modest frontloading of "SDR 1 billion" of pending purchases under the EFF (totaling SDR 4.914 billion) proposed; rephasing of remaining three reviews with revised test dates and extension of arrangement expiration to "December 31, 2024."
- Prior actions (examples):
  - Develop and begin implementing strategy to orderly solve external commercial debt stock.
  - Rebuild cash buffers and buy back government debt held by the central bank to maintain net zero credit to government, including puts.
  - Complete public hearings and initial tariff adjustments for electricity and gas (initial adjustment in February) to reduce energy subsidies by "0.5 percent of GDP in 2024."
- Structural benchmarks (new and reset; selected with deadlines):
  - Monetary policy framework refinement: end-April 2024 (SB).
  - Develop and publish tariff segmentation reform: end-May 2024 (SB).
  - Eliminate preferential export scheme: end-June 2024 (SB).
  - Integration of administrative databases for social assistance: end-September 2024 (SB).
  - Submission of Draft 2025 Budget consistent with overall balance: September 15, 2024 (SB).
  - Roadmap for gradual easing of FX controls reset to end-June 2024 (SB).
- Quantitative target adjustments and monitoring:
  - New quarterly PCs through end-June 2024 and ITs through end-September 2024 aligned with stabilization plan.
  - NIR accumulation target from December 10, 2023, to end-September 2024 set to support realization of "US$7.6 billion."
  - Tighter ceiling on domestic spending arrears based on daily average of final two weeks of each quarter (cap "0.8 percent of GDP" = ARS 5,264,553 million).
  - Cap on BCRA net financing to government set to zero for 2024.

### Risks, contingencies, and mitigation
- Main risks:
  - Political: fragmented Congress may delay or block reform legislation.
  - Social: falling real wages, high poverty, potential for unrest.
  - Economic: severe imbalances and policy uncertainties may prevent package from delivering intended results.
  - External: weaker trading partner demand, lower commodity prices, tighter global financial conditions.
  - Litigation: potential large judgments (including YPF, GDP‑linked warrants ~ "US$17 billion") could spike public debt.
- Mitigating factors:
  - Authorities’ strong ownership and electoral mandate to eliminate fiscal deficits and address impediments.
  - Initial corrective actions reduced near-term arrears risk and improved reserve dynamics.
- Contingency actions if implementation falls short:
  - Redouble cash and expenditure controls.
  - Improve tax compliance and streamline tax expenditures.
  - Adjust FX policy nimbly to achieve reserve accumulation goals.
  - Expand targeted social assistance as needed.
- Fund enterprise and staff judgement:
  - Staff assesses EA criteria met and supports completion of seventh review, waivers, and extension given corrective actions and commitments, while noting finely balanced judgements given high implementation risks.

### Data reporting, safeguards, and governance
- Extensive reporting requirements for monitoring: daily, weekly, fortnightly, monthly and quarterly datasets (exchange rates, BCRA operations, debt stocks and servicing, arrears, BOPREAL data, central bank positions, fiscal cash flows) with specified lags (many at "no more than 25 calendar days" or daily/within two days).
- Safeguards: progress on 2022 safeguards assessment recommendations; outstanding needs include emergency liquidity framework, IT security policy, external review of internal audit, reform of BCRA legal framework, full adoption of IFRS.

_Italic: Source: IMF staff summary of Argentina program content (1argea2024001) — content unit provided above._

### EXECUTIVE SUMMARY

### 1argea2024001 - EXECUTIVE SUMMARY

### Context
- Since completion of the fifth and sixth reviews, Argentina’s imbalances and distortions "have become dangerously acute" and "the program has gone significantly off-track," reflecting highly expansionary and inconsistent policies of the previous administration.
- The new administration has begun taking bold actions to restore macroeconomic stability; initial actions "are starting to bear fruit," but implementation faces a "divided Congress and a fragile social situation."
- Political mandate and constraints:
  - President Milei won "about 56 percent of the vote and 21 out of 24 provinces (including the city of Buenos Aires)."
  - La Libertad Avanza holds "37 out of 257 deputies" and "7 out of 72 senators."

### A difficult inheritance — key economic and social indicators
- Activity and labor:
  - Real GDP growth was stronger than anticipated through Q3:2023, with unemployment at "5.7 percent in Q3."
  - High-frequency indicators point to deceleration since October 2023.
- Inflation and expectations:
  - Monthly inflation accelerated to "12.8 percent in November (over 320 percent annualized)."
  - Inflation expectations (12-months ahead) reached "around 230 percent in late-November."
- Real wages and informality:
  - Average real wages contracted "1.5 percent y/y in October."
  - Real wages for informal sector workers fell "18.6 percent."
  - Real wages are "now 23 percent below 2016 levels."
- Poverty and social conditions:
  - Poverty rates rose "above 40 percent in S1:2023."
  - Extreme poverty exceeded "9 percent."
  - "Over 55 percent of children" living below the poverty line.
- External sector and reserves:
  - Goods trade deficit: cumulative "US$8.0 billion through November" (compared to a surplus of "US$5.8 billion" same period in 2022).
  - Services deficit remained elevated at "US$6.5 billion."
  - Net international reserves reached negative "US$11.2 billion through December 7."
  - Gross international reserves fell to multi-year lows, with close to zero reserve coverage (excluding swap lines).
  - Importers’ commercial debt stock reached "around US$30 billion above the historical norm."
  - FX gap ranged "between 150–200 percent."
  - Real exchange rate by December 10 estimated "35–40 percent above medium-term fundamentals" and "15–20 percent more appreciated than before the August step devaluation."
  - PBOC swap line of "US$4.9 billion" helped in 2023; obligations fall due in 2024.
- Fiscal situation:
  - Cumulative primary deficit rose to "1.8 percent of GDP through November" 2023.
  - Accumulation of new arrears took the stock to an estimated "1.5 percent of GDP by early December."
  - Recent measures included freezing energy and transport prices, extending temporary bonuses, and raising the PIT floor such that "only 1 percent of formal sector workers would pay taxes" on wage income.

### Program performance
- Key performance criteria, including the fiscal primary balance and net international reserves, "were missed by large margins" due to policy setbacks.
- Central bank interventions intensified; reliance on FX distortions, multiple currency practices (MCPs), and exchange restrictions increased.
- Progress on the previously limited structural agenda "halted."

### The stabilization plan — objectives and expected near-term dynamics
- Overall design:
  - The plan centers on establishing a strong fiscal anchor consistent with "a large upfront adjustment of around 5 percentage points of GDP," rebuilding reserves, boosting the trade balance (to achieve twin surpluses), correcting large and extensive relative price misalignments, strengthening the central bank’s balance sheet, and creating a "simpler, rules-based, and market-oriented economy."
  - The plan envisages scaling up social assistance to protect the most vulnerable.
  - An Emergency Decree has been issued and an Omnibus bill submitted to Congress.
- Program baseline macro outlook:
  - Tight fiscal policies and initial FX correction are expected to weigh on domestic demand, with "real GDP contracting by about 2¾ percent this year."
  - Inflation will accelerate in the near term as price controls are unwound, with disinflation expected to begin shortly thereafter under tight policies.
  - The current account is expected to "move into surplus (strengthening by over 4 percentage points of GDP this year)," supported by a rebound in agricultural exports, improvements in the energy balance, and sharp import compression.
  - The economy would begin to recover in late 2024 as initial headwinds fade and distortions are lifted, conditional on continued tight policies to preserve current account surpluses and support reserve buildup.
- Fiscal policy:
  - Authorities intend to achieve a primary surplus of "2 percent of GDP this year," consistent with overall balance.
  - Measures include temporary (trade-related) taxes and reductions in administrative costs, energy and transport subsidies, discretionary transfers to provinces and state-owned enterprises, and infrastructure spending.
  - Program supports efficiency improvements in tax and expenditure systems, some requiring Congressional support.
- Social protection:
  - Social assistance reinforced through the child allowance and food stamp programs; moving away from programs distributed through intermediaries; preserving the real value of pensions via discretionary bonuses.
  - Further expansion of assistance may be necessary as conditions evolve.
- FX policy and reserves:
  - Following a large step devaluation in mid-December, authorities commit to exchange rate policy consistent with reserve accumulation goals and "a market-based regime avoiding the previous approach of managing the parallel and futures FX markets."
  - A simpler rules-based system of import access has been created and a process established to address the large commercial debt overhang by offering a limited amount of USD instruments to importers that properly register their commercial debts.
  - Authorities, having introduced temporary measures that contravene Article VIII, are committed to "continue to eliminate all exchange restrictions and MCPs in the near term and to develop a roadmap to this end."
  - These policies are expected to lead to a buildup in reserves through end-2024 of "US$10 billion," and create conditions for a return to reserve adequacy over the medium term.
- Monetary policy:
  - In the context of tight capital controls, the central bank eased the monetary policy stance and streamlined the operational framework.
  - Monetary policy is expected to evolve to support money demand and disinflation, including through the establishment of a nominal anchor.
  - Actions will continue to reduce the large peso overhang, gradually strengthen the central bank’s balance sheet, and streamline commercial bank regulations.
- Financing strategy:
  - Authorities will "not seek any form of net financing for the government."
  - Domestic strategy: extend maturities while reducing reliance on FX-indexed instruments.
  - The program is "fully financed for its remaining duration" and is expected to facilitate return to external markets in a timeframe commensurate with debt refinancing needs.
- Structural policy:
  - Authorities aim to address long-standing impediments to growth, employment, and exports, and to boost energy and mining potential.
  - Recent regulatory and legislative initiatives are steps in this direction; the program will ensure proper sequencing and prioritization.

### Program modalities, financing, and conditionality
- Given large near-term BOP needs and strong efforts underway, "purchases under the seventh review are proposed at SDR 3.5 billion."
- Program targets are being strengthened, including to "prohibit central bank credit to the government."
- An extension of the arrangement (and corresponding rephasing) through "December 31, 2024," is requested to allow completion of the remaining three reviews and to ensure restoration of medium-term external viability.

### Program and enterprise risks
- Mitigating factors:
  - Authorities’ strong ownership and electoral mandate to eliminate fiscal deficits and address long-standing impediments mitigate implementation risks.
- Remaining risks:
  - Elevated implementation risks due to a difficult inheritance and complex political and social backdrop: fragmented Congress, falling real wages, and high poverty.
  - Risk that the policy package may not initially deliver on objectives, requiring agile policymaking, contingency planning, and possible further expansion of social assistance.
  - Even if ambitious goals are not fully met, important corrective steps would be taken; enterprise risks remain significant, but potential for large near-term arrears has "significantly declined."
- Staff judgment on access and timing reflects these risks and authorities’ strong efforts.

_Italic: EXECUTIVE SUMMARY (1argea2024001) — Source document content provided above._

### 1.3 percent of GDP in 2023, but this would be carried over to 2024 if not reversed (¶25).

### 1argea2024001 - 1.3 percent of GDP in 2023, but this would be carried over to 2024 if not reversed (¶25).

### Fiscal developments and financing
- Fiscal slippages and uncertainties fueled domestic financing difficulties.
- Direct central bank transfers were capped at around 0.9 percent of GDP.
- Central bank purchases of government securities from the secondary market accelerated to 3.9 percent of GDP through early December.
- Budget support and project financing disbursements from multilateral creditors and development banks: US$2 billion through Q3:2023.
- Project financing from bilateral creditors (large hydropower plant) was delayed.
- Cash deficit understates underlying fiscal deterioration as domestic arrears grew significantly during Q4, exceeding end-December targets.
- The previous administration ran down reserves by US$21 billion through end-November and encouraged a large increase in import financing of US$18 billion.
- End-December net international reserve accumulation was missed by about US$15 billion at the end of the previous administration.

### Central bank balance sheet and monetary operations
- Central bank expanded issuance of securities to sterilize liquidity associated with purchases of government securities and their carrying costs.
- Stock of BCRA securities stood at close to 9 percent of annualized GDP as of end-November.
- Over 80 percent of BCRA’s assets were in the form of government paper, a good portion non-marketable and low- or non-interest-bearing.
- Net international reserves were exhausted.
- Share of FX-linked securities (Ledivs) rose; issuances of new Ledivs were halted (Ledivs reached US$5 billion in early-December).
- BCRA fully unwound its exposure in the non-deliverable futures market, which peaked at US$6.7 billion earlier in 2023.
- In reaction to FX pressures, the central bank sold close to US$4 billion in the parallel exchange market in 2023.
- The surcharge on credit card purchases abroad rose to 155 percent, including: (i) a 30 percent tax on FX access (impuesto país); (ii) a 100 percent withholding income tax (up from 45 percent); and (iii) a 25 percent withholding wealth tax.

### Banking system and deposit dynamics
- Commercial banks remained highly capitalized: 31 percent of risk-weighted assets.
- Liquidity: 56 percent of total assets.
- Non-performing loans: 3 percent of loans.
- Return on assets: around 3 percent.
- Banks’ exposure to the public sector: close to 50 percent of assets.
- Real private credit contraction: down 16.5 percent y/y as of November.
- Private sector peso deposits fell in real terms by about 20 percent y/y; fixed-term deposits down 30 percent y/y.
- Banks shifted from 28-day securities (Leliqs) to overnight securities (Pases Pasivos) as depositors moved to demand deposits.
- BCRA’s put options are sold ahead of primary auctions with a penal rate of 0.3 percent.

### Program performance and missed targets
- Primary fiscal balance target through end-September was missed; end-December target estimated missed by an even larger margin.
- Reserves: end-December net international reserve accumulation missed by a large margin (about US$15 billion).
- Reserves run-down: US$21 billion through end-November; import financing increase: US$18 billion.
- Monetary: direct central bank financing target through end-December missed; heavy interventions in secondary government bond market continued.
- Structural: many SBs not met, including:
  - Issuance of a new resolution updating electricity prices (end-August, 2023, SB) — not met.
  - Publication of enhanced quarterly report for public corporations and trust funds (reset to end-October, 2023, SB) — not met.
  - Completion of study of tax expenditures (end-November, 2023, SB) — not met.
  - Development of a strategy to durably improve the BCRA balance sheet (reset to end-October, 2023, SB) — not met.
- Since the November elections sovereign spreads fell by around 500 basis points (to around 1900 bps); asset prices of Argentine firms trading abroad have risen by over 40 percent on average.

### The stabilization plan and macro outlook (Active Policy Baseline)
- Plan anchors on almost unprecedented fiscal consolidation to end all forms of central bank financing of the public sector and support a large external adjustment to achieve twin fiscal and current account surpluses.
- Supporting measures include: enhanced social spending targeted at the most vulnerable, strengthening the FX regime and efforts to eliminate MCPs and exchange restrictions, strengthening monetary policy framework and the central bank’s balance sheet, and improving domestic debt profile while reducing indebtedness.
- Initial actions by the Milei administration:
  - Cut bureaucratic costs and unwound costly tax rebates.
  - Corrected exchange rate misalignment.
  - Eliminated previous opaque system of import controls and began addressing importer debt overhang.
  - Streamlined monetary policy instruments and reduced peso debt overhang.
  - Lifted price controls and adjusted regulated prices to better reflect costs.
- Net central bank FX purchases since assuming office: exceeding US$4.5 billion.
- FX gap narrowed from 190 to around 40–50 percent.
- Inflation: 25.5 percent m/m in December (up from around 13 percent m/m in November); inflation projected to remain above 25 percent m/m in January.
- Near-term projection: stagflation as relative prices are corrected and fiscal/external flow imbalances are sharply reduced.
- Real GDP: estimated to have shrunk by 1.1 percent in 2023 (versus -2.5 percent at the fifth and sixth reviews); projected to contract by about 2.8 percent in 2024.
- Non-agriculture contraction: around 5.2 percent in 2024.
- Real GDP rebound: projected to rebound to around 5 percent in the year after 2024, with output levels returning to trend by 2028.
- Potential growth over medium term: around 2.3 percent.
- Monthly inflation path: monthly inflation projected to reach single-digit levels during the second quarter of 2024 conditional on fiscal consolidation and monetary improvements.
- Annual (end-of-period) inflation projected to decline from around 150 percent this year to single digits over the next five years.
- Current account: projected to swing from a deficit of 3.5 percent of GDP (US$20 billion) in 2023 to a surplus of about 0.9 percent of GDP (US$5.5 billion) in 2024.
- Net international reserves expected to rise by about US$10 billion between when the new administration took office in December 2023 and end-2024 (versus losses of US$17 billion in 2023).
- Additional reserve accumulation beyond 2024: projected US$5–10 billion per year over the medium term.
- Reserve coverage to reach 100 percent of ARA metric by 2029 (from around 50 percent in 2024).
- Argentina expected to re-access international capital markets by late-2025, mainly to refinance a portion of external debt liabilities.
- Public debt dynamics under active baseline:
  - Primary fiscal balance moves from a deficit of 3 percent of GDP to a surplus of around 2 percent this year.
  - Steady-state primary surplus of 2.5 percent of GDP from 2025 onwards (almost double previous commitment of a 1.3 percent of GDP surplus).
  - Gross public debt would fall from 86 percent of GDP in 2024 to below 42 percent of GDP by 2030.
  - Gross financing needs averaging 10 percent of GDP during the same period.
  - External debt service obligations averaging US$21 billion during 2026–29.

### Risks and contingencies
- Program subject to very high uncertainty with risks skewed to the downside.
- Political risk: reform legislation could face delays or not materialize, undermining stabilization.
- Social risk: risks of social unrest given delicate social situation and lag in benefits from stabilization.
- Economic risk: stabilization package may not deliver intended results due to severe imbalances and policy uncertainties.
- External risks: slowdown in key trading partners, sharply lower commodity export prices, deterioration in global financial conditions.
- Upside risks: productivity, investment, and exports could be higher if confidence is quickly restored and market reforms accelerated.
- Litigation risk: scale of final judgments in international litigation cases (including YPF) could cause public debt to spike and dampen investor confidence.

*Source: IMF staff summary of Argentina program content (data and paragraphs as provided).*

### 23.      As such, agile policymaking and communication would be essential to mitigate risks,

### 23.      As such, agile policymaking and communication would be essential to mitigate risks,

### Program risks, ownership, and communication
- Agile policymaking and communication are essential to mitigate risks and to build broader societal support; strong ownership will be critical for the plan’s success.
- Policies will almost certainly need recalibration as outcomes evolve; authorities will sustain a pragmatic approach and continue to adapt policies to changing circumstances to ensure program objectives are met.
- If congressional support for key fiscal reform legislation falls short, alternative Executive measures would need to be accelerated to secure the primary fiscal surplus targets, including:
  - redoubling efforts to control cash and manage expenditures;
  - improve tax compliance;
  - streamline tax expenditures;
  - adjust FX policy more nimbly to achieve reserve accumulation goals.
- Ensuring adequate targeted social assistance and building societal support are critical; clear communication is essential to explain the severity of the crisis while avoiding overpromising.

### Fund enterprise risks and mitigation
- Fund enterprise risks remain significant despite corrective actions and completion of the seventh review; these actions will help mitigate financial risks (including reducing the risk of arrears to the Fund) and reputational risks.
- Enterprise risks cannot be fully mitigated due to large imbalances and uncertainties that increase likelihood of missed targets and undermine program credibility.
- Key mitigation elements emphasized:
  - reinforcement of well-targeted social spending;
  - contingency planning;
  - agile policymaking.
- Restoring Argentina’s medium-term external viability and reducing Fund exposure hinge on building broad political and social support to implement the program.

### Fiscal policy — 2024 objectives and measures
- Authorities implementing a large frontloaded fiscal consolidation to achieve a primary surplus of around 2 percent of GDP in 2024, consistent with reaching an overall fiscal balance, requiring an unprecedented adjustment of about 5 percent of GDP through a balanced set of expenditure and revenue measures, while allowing for additional social assistance.
- Initial measures focused on discretionary spending cuts and unwinding prior administration slippages, including:
  - not renewing costly VAT exemptions;
  - ending expansion of subsidized loans to retirees and formal workers;
  - raising bus and rail fares in the Buenos Aires metropolitan area by 45 percent (frozen since August 2023), with further increases in line with inflation;
  - launching the formal process to adjust electricity and gas tariffs (also frozen since August 2023);
  - prohibiting extension of public hiring contracts signed in 2023.
- Social assistance scaled up (¶28).

- Initial consolidation underpinned by an expenditure adjustment of about 3 percent of GDP, including:
  - reductions in inefficient energy subsidies, with initial increases in electricity (over 200 percent) and gas (over 150 percent) tariffs effective February (prior action) and continued increases in urban transport fares (except for those receiving social assistance);
  - compression of government operating costs via reorganization of the national administration;
  - reduction in the public sector wage bill through release of workers hired in 2023 and efforts to contain wage adjustments;
  - strict prioritization of capital spending (critical pipelines and railroads, close-to-complete projects, pause on new public tenders);
  - cuts in transfers to provinces and state-owned enterprises to initiate reform and prepare for potential privatization.

- Revenue-side measures initially include a mix of temporary taxes and PIT reform; noted items:
  - unwinding of drought conditions expected to add about 0.8 percent of GDP to revenues;
  - increase in impuesto pais on most goods and services imports to a rate of 17.5 percent (from an average of 7.5 percent in late 2023);
  - proposed increase in export taxes for all non-agricultural exports to 15 percent (from an average of 7 percent);
  - intention to reverse previous administration’s increase in the PIT threshold and strengthen the PIT regime; PIT reform initiative to be sent as a separate bill to Congress.

- Social spending reinforcement (¶28):
  - doubling in the universal child allowance program (AUH);
  - 50 percent increase in the food stamp program (Tarjeta);
  - discretionary bonuses to retirees and social allowance recipients to preserve purchasing power;
  - commitment to preserve the real value of pensions at end-2023 levels through discretionary increases and to eliminate the backward-looking pension indexation formula;
  - efforts to rationalize inefficient social programs (e.g., Potenciar Trabajo), better protect informal worker households without children, and strengthen administrative database integration (proposed end-September 2024, SB).

- Fiscal plan evolution and S2:2024 measures (¶29):
  - reviewing additional high-quality measures including improving tax compliance (Fund TA requested), strengthening excises (Omnibus law contemplates tobacco excise reform), and streamlining tax expenditures (e.g., harmonizing VAT rates);
  - replacing current tariff segmentation scheme to better target subsidies toward basic energy consumption basket for vulnerable households, with details to be published by April (proposed end-May 2024, SB).

- Cash and expenditure management (¶30):
  - cleared excess domestic expenditure arrears of around 0.6 percent of GDP accumulated in S2:2023 by drawing on surplus liquidity in decentralized accounts;
  - efforts underway to strengthen spending controls over decentralized entities and improve cash management, including consideration to transfer daily balances from Banco de la Nacion to the central bank and ensure all central government entities are included in the treasury single account.

- Medium term fiscal commitment (¶31):
  - authorities committed to maintain a primary surplus of 2.5 percent of GDP (broadly overall balance) beyond 2024 while delivering structural improvements;
  - Draft 2025 Budget to be submitted consistent with overall balance goals (proposed September 15, 2024, SB);
  - commitment to fully unwind impuesto pais for imports and streamline withholding taxes on imports (set to expire end-2024);
  - main reform areas: tax system efficiency and simplicity; pension sustainability and equity; SOE rationalization and governance; public employment efficiency; social safety net coverage/targeting/efficiency; revamping fiscal framework and federal-subnational coordination.

### Fiscal consolidation numerical breakdown (as presented)
- Required Fiscal Consolidation5.0
- 1. Revenue Measures1.7
  - Import taxes0.8
  - Export taxes0.5*
  - Unwind PIT exemptions0.4*
- 2. Expenditure Measures2.9
  - Reduction in subsidies0.7
  - Phase out workfare program0.4
  - Wage bill and administrative reforms0.5
  - Capital spending0.7
  - Pension reform 1/0.1*
  - Lower transfers to SOEs/Provinces0.5
- 3. Boost Direct Cash Transfers (-)-0.7
- 4. Unwinding Drought0.8
- 5. Additional Measures 2/0.3
- Notes:
  - */ Requires congressional approval.
  - 1/ Freeze indexation formula.
  - 2/ Additional measures later in the year to compensate unwinding of export taxes.

### Financing
- No new net financing needs; authorities focused on improving domestic debt profile.
- Successful primary auctions in December 2023 and January 2024 raised around 1.6 percent of GDP in net financing, enabling cash buffer rebuilding, meeting private external debt service obligations, and buyback of government debt held by the central bank to maintain net zero credit to government, including puts (prior action).
- Shift from FX-linked toward inflation-linked bonds and move to fixed-rate securities; plan to extend maturities of a portion of domestic debt coming due this year (end-March 2024, SB).
- Commitment to stop all BCRA financing of the public sector, including through profit distributions and purchases of government debt in the secondary market; purchases related to put options by the BCRA to be fully compensated by government redemption of securities held by the BCRA (consistent with strengthened zero ceiling on monetary financing).

- Private external front:
  - Authorities met interest payments to private bondholders of US$1.5 billion and intend to continue to respect contracts.
  - Goal to re-access international capital markets (assumed for late 2025) by addressing fiscal and external imbalances to reduce sovereign spreads.
  - Omnibus bill includes proposals to modify the Law on Financial Administration (LAF) to provide more flexibility for liability management and lift limits for issuance in foreign currency and under foreign law (existing LAF requirement for borrowing ceiling in annual budget law to remain).
  - IMF TA requested to align legal framework for debt operations with international good practices.

- Official creditor support:
  - Disbursements from official creditors last year fell roughly US$430 million short of target due to delayed disbursements from non-Paris Club creditors.
  - Official creditors currently projected to provide US$1.3 billion in net financing this year.
  - Program projections assume non-Paris Club creditors revive delayed disbursements from last year and secure this year’s commitment of US$785 million.
  - Development banks considering fast-disbursing project loans to finance increased social assistance.

### Exchange rate policy and trade normalization
- Following a significant exchange rate realignment, FX policy will be calibrated to secure decisive reserve accumulation while avoiding rapid erosion of competitiveness gains; new monetary policy anchor to assume role of anchoring inflation (¶38).
- Key facts:
  - Devaluation roughly 120 percent moved nominal official exchange rate from 360 ARS/USD to 800 ARS/USD, producing an initial real overshooting that helped rebuild reserves and avert a balance of payments crisis.
  - After devaluation, initial official crawl rate set at 2 percent per month.
  - De facto devaluation was higher due to expanded/higher FX access tax and maintained export promotion scheme, resulting in an initial effective exchange rate on imports of around 940 ARS/USD.
- Trade and commercial debt measures:
  - Replaced opaque SIRA/SIRASE controls with a transparent rules-based system including automatic mechanism for payment of new imports based on priorities.
  - Developed and starting to execute a strategy for an orderly solution to commercial debt stock (prior action).
  - New BCRA FX-denominated instrument with maturities up to 2027 being auctioned to eligible importers that register and verify their commercial debt, subject to penalties for falsified information.
  - BCRA intends to limit instrument subscription based on projected FX reserves, with an indicative cap of US$5 billion on the first series; subscription has reached US$1.3 billion (deadline expiring at end-February).
  - Securities could be sold at a discount or used as collateral for loans; demand expected mainly from large firms and multinationals.

*Source: https://www.imf.org/-/media/files/publications/cr/2024/english/1argea2024001.pdf*

### 37. The authorities are committed to eliminating MCPs and exchange restrictions, while

### 1argea2024001 - 37. The authorities are committed to eliminating MCPs and exchange restrictions, while

### MCPs, exchange restrictions, and CFMs: commitments and recent actions
- Authorities committed to eliminating MCPs and exchange restrictions, while gradually unwinding CFMs as conditions permit.
- Since the fifth and sixth reviews, a large number of measures have been introduced, of which:
  - one has been assessed to constitute a modification of an existing MCP and an intensification of an exchange restriction,
  - two others have been assessed as intensifications of exchange restrictions, leading to the non-observance of the associated PCs (¶15).
- Recent measures taken by the new administration include:
  - streamlining and substantially shortening delayed FX access for imports,
  - reducing withholding taxes,
  - allowing a significant amount of FX controls to expire (see Table 1).
- Planned actions and timelines:
  - eliminate the remaining preferential export scheme by June 2024 (structural benchmark);
  - fully unwind the impuesto pais (and other withholding taxes on imports) by end-2024, or earlier as conditions permit;
  - unwind any remaining MCPs and exchange restrictions this year and develop a roadmap to this end (end-March 2024, SB; reset to end-June 2024), recognizing CFMs will be gradually unwound as conditions permit.

### Monetary policy framework and operations
- Recent operational streamlining at the BCRA:
  - ceased auctions of the 28-day LELIQ;
  - designated the overnight rate on Pases Pasivos as the new policy interest rate;
  - raised banks’ regulatory limits for holding government securities, following an emergency decree raising the issuance limit of short-term government bonds.
- Key operational rates and comparisons:
  - The overnight rate has been set at 100 percent y/y in nominal terms (171 percent y/y in effective annual terms) or the equivalent of 8.7 percent m/m, compared to an expected monthly inflation rate of 27   percent in January.
- Future monetary policy direction:
  - authorities agree monetary policy stance will need to be tightened to support money demand and disinflation;
  - commitment to develop and adopt a new monetary policy framework and operations with IMF technical assistance (proposed end-April 2024, SB) to strengthen liquidity management and the BCRA’s inflation-anchoring role.

### Strengthening the central bank balance sheet
- Ambitious plan to gradually strengthen the central bank balance sheet centered on:
  - eliminating all direct and indirect monetary financing of the fiscal deficit;
  - prohibiting all profit distributions;
  - boosting reserves (including through the FX correction);
  - encouraging a very gradual shift from BCRA securities to government securities, as conditions allow;
  - enhancing the quality of central bank assets;
  - further adopting international accounting standards to transparently lay out the BCRA’s vulnerabilities and establish a target equity range.
- Registered debts through January 10 reached US$21 billion, compared the survey-estimated overall commercial debt of about US$60 billion.

### Banking regulation, monetary transmission, and credit allocation
- Planned progressive streamlining of bank regulations:
  - review of all commercial interest rates (current deposit floors/lending caps) and lending quotas;
  - steady unwinding of credit incentive schemes (e.g., Ahora 12 and LFIP will be gradually phased out, including by reducing the generosity of payment plans);
  - streamlining of deductions on reserve requirements.
- Expected outcomes:
  - support demand compression, enhance monetary policy transmission and credit allocation, and allow banks to adjust to the evolving monetary policy framework.

### Supply-side reforms, deregulation, and governance
- Authorities committed to creating a more rules-based, market-oriented economy; identified problems:
  - relative price misalignments, market distortions, regulatory barriers favoring vested interests, discouraging investment, formal employment, and productivity.
- Emergency Decree (DNU) aims to:
  - de-regulate the economy and foster competition in airspace, healthcare, housing, pharmaceutical, transport, and tourism;
  - enhance labor market flexibility by reducing hiring and firing costs;
  - prepare for future privatization of SOEs (by changing legal status);
  - amend the custom code to liberalize exports and reinforce private contracts.
- Implementation risks:
  - DNU requires non-objection from at least one chamber of Congress; some provisions are being challenged by the Courts.
- Energy and mining:
  - measures to align retail fuel prices with international prices, eliminate domestic oil price ceiling, adopt market-based pricing of electricity and natural gas to support investment in shale oil and gas and boost energy exports.
- Transparency and governance:
  - eliminate opaque import control system, address corruption, improve public spending efficiency, seek PPPs that limit fiscal risks, strengthen public procurement;
  - strengthen AML/CFT framework by approving pending reforms to Law 25.246 and implementing mitigating measures from the 2022 National Risk Assessment.

### Program issues: rephasing, quantitative targets, and prior actions
- Program rephasing requests:
  - modest frontloading of SDR 1 billion of pending purchases under the EFF (totaling SDR 4.914 billion) proposed;
  - rephasing of access associated with the remaining three reviews to May, August, and November with end-March, end-June, and end-September test dates, respectively;
  - extension of the period of the current arrangement by shifting the expiration date from September 24, 2024 to December 31, 2024.
- Intended use of resources:
  - upon completion of the seventh review, Argentina will have access to the equivalent of SDR 3.5 billion, which Argentina plans to apply to meet near-term balance of payments needs;
  - authorities intend to reimburse CAF for the amounts associated with the December repurchases (SDR 690 million) and commit remaining SDRs to a holding account for exclusive use of meeting Fund obligations.
- Quantitative targets, waivers, and modifications:
  - Waivers requested for nonobservance of PCs on NIR accumulation, the primary deficit, domestic spending arrears, and monetary financing for end-December;
  - Waivers of continuous PCs related to imposition/intensification of exchange restrictions and introduction/modification of MCPs based on temporary nature or corrective actions;
  - New quarterly PCs proposed through end-June 2024, and ITs set through end-September 2024, adjusted to the new stabilization plan, notably:
    - primary fiscal balance target consistent with the 2 percent of GDP surplus for 2024 (versus the previous a 0.9 percent of GDP deficit);
    - the NIR accumulation target from December 10, 2023, to end-September 2024 set to support the targeted realization of US$7.6 billion;
    - all monetary financing of the treasury eliminated, with an expanded definition to include secondary market purchases of government securities;
    - a tighter ceiling on domestic spending arrears introduced, based on the average of the final two weeks of the quarter (rather than the quarterly average);
    - an updated indicative social spending floor defined to protect the most vulnerable and ensure a socially sustainable adjustment;
    - removal of the IT on central bank stock of positions in the NDF market (MEFP).
- Prior actions to underpin the program:
  - develop and begin implementing a strategy to ensure an orderly solution to the external commercial debt stock to normalize trade flows;
  - begin rebuilding cash buffers and buy back government debt held by the central bank to maintain net zero credit to government, including puts;
  - complete public hearings outlining proposals for electricity and gas tariff increases, with an initial adjustment in February and a path consistent with program targets to reduce energy subsidies by 0.5 percent of GDP in 2024.

### Structural benchmarks (new and reset)
- Six new SBs proposed:
  - publication of detailed reform of the current tariff segmentation scheme to better target subsidies on the basic energy basket for vulnerable households (end-May 2024, SB);
  - refinement of the monetary policy framework and operations with clear medium-term objectives consistent with price stability (end-April 2024, SB);
  - eliminating the existing preferential export scheme (end-June 2024, SB);
  - strengthening integration of relevant administrative databases to improve targeting and efficient delivery of social assistance, with World Bank TA (end-September 2024, SB);
  - submission to Congress of the Draft 2025 Budget consistent with overall fiscal balance objective (September 15, 2024, SB);
  - develop and execute a plan aimed at extending maturities of a portion of the domestic debt coming due this year (end-March 2024, SB).
- Reset:
  - existing SB on development and publication of a roadmap for the gradual easing of FX controls proposed to be reset from end-March 2024, SB to end-June 2024.
- Missed or superseded SBs:
  - resetting of the missed end-October 2023 SB on improving the BCRA balance sheet is not proposed;
  - missed end-August 2023 SB and end-October 2023 SB on updating electricity prices are superseded by more ambitious energy-related measures;
  - other fiscal missed SBs (enhanced quarterly reporting for public corporations and trust funds; study of tax expenditures) are not proposed to be reset at this stage.

### Financing assurances, reserve and external projections
- Official creditor commitments and projections:
  - Multilateral development banks committed to provide net financing of around US$1 billion during 2024 in the form of budget support and project loans;
  - Other bilateral creditors committed to disburse US$1.4 billion during 2024, equivalent to total annual net financing of around US$0.3 billion;
  - Revised program baseline assumes NIR accumulation of about US$7 billion during 2024;
  - projected trade (goods and services) surplus of around US$20 billion;
  - net FDI flows of US$9 billion, more than offsetting net external debt obligations.
- Role of CFMs:
  - CFMs will continue to play a supportive role in limiting capital outflows.

### Capacity to repay and medium-term outlook
- Argentina’s capacity to repay remains subject to exceptional risks and has weakened since the fifth and sixth reviews due to policy slippages and mismanagement.
- Program baseline envisages:
  - gradual improvement in reserve coverage, with accumulation of US$5–10 billion per year over the medium term;
  - rising export potential, especially in energy and mining, as upside.
- Fund obligations and debt service:
  - full implementation of the stabilization plan and completion of the EFF arrangement needed to address balance of payments needs and Fund obligations related to the 2018 SBA and current EFF, which start coming due in late-2026;
  - over the medium term, Fund debt service obligations are projected to remain very large at around 7 percent of exports, or 13 percent of gross reserves, with outstanding Fund credit only declining gradually below 6 percent of GDP by 2027;
  - steadfast implementation expected to secure resumption of market access in late 2025, ahead of repayments to the Fund in 2026.

### Jurisdictional issues and measures affecting Article VIII obligations
- Since the fifth and sixth reviews, three measures introduced:
  - restriction of access to the FX market for saving purposes for beneficiaries of SIPA receiving ANSES credit financing;
  - requirement for FX authorization for all FX transactions (removed after one day);
  - increase in the tax on purchase of foreign currency.
- Legal and program implications:
  - measures (i) and (iii) subject to Fund approval under Article VIII, Section 2(a), and 3; measure (ii) removed;
  - resulted in nonobservance of performance criteria on non-imposition/intensification of restrictions on payments and transfers for current international transactions and on non-introduction/modification of MCPs;
  - measures maintained for balance of payments reasons, are temporary, expected to be gradually eliminated over the arrangement period as conditions allow, and do not give rise to an unfair competitive advantage over other members or discriminate among members.

### Safeguards and BCRA governance
- Progress and outstanding work:
  - progress made in implementing some 2022 safeguards assessment recommendations, including periodic reporting on risk management to the Board;
  - outstanding needs include updating an emergency liquidity assistance framework, finalizing the BCRA’s IT security policy, and conducting an external quality review of the internal audit function.
- Financial and institutional autonomy:
  - further work necessary to improve BCRA’s financial and institutional autonomy, including reform of the BCRA’s legal framework and full adoption of IFRS to strengthen transparent reporting of the BCRA balance sheet.
- Staff engagement:
  - IMF staff will continue to engage with new BCRA leadership on outstanding recommendations.

*Source: IMF Country Report material in the supplied content unit.*

### 53.      Arrears policy. Under the Fund’s Lending into Arrears policy, staff assesses that the

### Arrears policy. Under the Fund’s Lending into Arrears policy, staff assesses that the

### Arrears situation and authorities’ actions
- External private creditor arrears related to creditors that did not participate in the 2005/10 debt exchange or did not settle under the terms provided in 2016, and those with debt outstanding from the 2001 default: about US$2.35 billion total.
- Mobil Exploration: negotiations remain underway on a repayment plan on principal claims of US$196 million.
- New external obligations to Bolivia related to non-payment of overdue invoices and interest in 2023: around US$200 million.
  - New Argentine authorities have resumed payments to Bolivia and are working on a payment plan to clear all inherited arrears by August 2024.
- Overdue obligations to binational Paraguayan and Argentine entity (Yacyreta) related to energy imports in 2023: around US$100 million.
  - New Argentine and new Paraguayan authorities have deepened discussions on payment arrangements.
- Two external arrears claims remain under litigation:
  - Bpifrance Assurance Export: appeal filed with the Supreme Court of Justice on December 2, 2022, after the Court of Appeal had rejected the extraordinary appeal submitted by the agency on grounds of statute of limitations.
  - Titan Consortium I, LLC: legacy claim currently under litigation on grounds of statute of limitations.
- Authorities affirmed that no other external arrears were incurred since the fifth and sixth reviews.

### Exceptional Access (EA) assessment — summary
- Staff finds all four EA criteria satisfied, subject to implementation of pending actions and noting finely balanced judgements given program challenges.
- Overall assessment underscores strong ownership by the new authorities of an ambitious stabilization plan, but emphasizes high implementation risks due to a fragmented Congress and fragile social situation.

### CRITERION 1: Exceptional balance of payments pressures
- Staff assesses this criterion as met.
- Rationale:
  - Argentina is experiencing exceptional balance of payments pressures on the financial account, worsened by policy setbacks by the previous administration.
  - Meeting very large external debt service obligations during 2024 will continue to require Fund financing beyond normal access limits and broader international support.

### CRITERION 2: Debt sustainability
- Staff assesses that debt is sustainable, but not with high probability.
- Key points:
  - Under the revised baseline and policy framework, public debt is sustainable, but not with high probability (see Annex II referenced).
  - Recent realignment and overshooting of the real exchange rate will significantly increase the public debt to GDP ratio at end-2023.
  - Projected currency normalization, consistent macroeconomic policies, and the stabilization plan are expected to improve external balance and repayment capacity from 2024 onwards.
  - Plan to extend a portion of 2024 domestic debt maturities is important to mitigate near-term rollover risks.
  - Assessment remains subject to very high risks and hinges critically on decisive policy implementation over the medium term.
  - Safeguards: in the event of adverse shocks, there would be sufficient restructurable FX debt to the private sector potentially available after the program to secure debt sustainability and enhance safeguards for Fund resources.

### CRITERION 3: Prospects for regaining private capital market access
- Staff assesses this criterion as met.
- Evidence and conditions:
  - External sovereign bond prices trade at distressed levels but have risen considerably due to new authorities’ initial actions and commitment to respect contracts.
  - Recent tapping of international capital markets by Argentine corporates is an early positive signal.
  - Lifting external and domestic distortions, implementing market reforms (product, labor, trade, governance), and strengthening regulatory frameworks—especially in energy and mining—should support competitiveness and FDI.
  - Gradual easing of CFMs would further support productivity and FDI.
  - High uncertainty remains, especially regarding legal processes tied to recent sovereign debt litigation rulings associated with YPF and GDP-linked warrants amounting to roughly US$17 billion.
  - Continued implementation of the stabilization plan is key to boost reserve coverage and allow gradual re-access to international private capital markets starting in 2025, on a scale enabling repayment to the Fund by the time payments begin falling due in late 2026.

### CRITERION 4: Prospects of program success
- Staff assesses this criterion is met, subject to delivery of pending prior actions.
- Supporting factors:
  - New administration strongly committed to restoring macroeconomic stability and addressing impediments to growth while protecting the vulnerable.
  - President Milei elected with a very strong popular mandate emphasizing rapid elimination of fiscal deficits and movement toward a more open, rules-based economy, acknowledging near-term economic and social costs.
  - Initial actions: reach an overall fiscal balance, correct relative price misalignments, strengthen the central bank balance sheet, eliminate highly distortive import control schemes, and take prior actions to reduce energy subsidies and the commercial debt overhang.
  - Political consultations suggest core support in Congress for stabilizing macroeconomy and reducing imbalances, though views diverge across the political spectrum.
- Risks and contingencies:
  - Political and social fragility, nascent relationship with Congress, and potential deterioration as adjustments take hold.
  - Authorities prepared contingency plans: further tighten spending while scaling up social assistance; mobilize revenues through tax compliance and reduced tax expenditures; adjust FX policy to deliver reserve accumulation goals.

### Staff appraisal — key findings and policy recommendations
- Background and program derailment:
  - After the fifth and sixth reviews, inconsistent policies in late 2023 pushed the economy toward a balance of payments crisis and derailed the program.
  - Expansionary pre-election policies increased the fiscal deficit, depleted reserves, and increased reliance on interventionist measures; inflation accelerated to highest levels in 30 years; public sector balance sheet deteriorated; backlog of private external commercial debt rose sharply.
- Commendation of new administration actions:
  - Staff welcomes initial bold actions and determination to implement an ambitious stabilization plan targeting twin fiscal and current account surpluses.
  - Early efforts include:
    - Eliminate the fiscal deficit.
    - Rebuild reserves via large correction of FX misalignment and streamlining FX controls.
    - Strengthen central bank balance sheet and reduce debt rollover risks.
    - Move toward a simpler, rules-based, market-oriented economy and abandon distortive interventions and controls.
  - These actions steered the economy away from a full-blown balance of payments crisis, though conditions may worsen before improving.
- Fiscal policy and social protection:
  - Program centers on addressing fiscal dominance; further efforts needed to strengthen quality and durability of consolidation.
  - Commitment to achieve a primary surplus of 2 percent of GDP this year, consistent with an adjustment of 5 percentage points of GDP, and to eliminate all forms of central bank financing of the budget.
  - Distortive measures like trade taxes should be replaced over time by higher-quality fiscal measures; need timely approval of fiscal legislation, strengthen personal income tax regime, and passage of a 2025 budget embedding pivot in fiscal measures.
  - Social assistance: initial scaling up of child allowance and food stamp programs applauded; additional support may be needed to protect the most vulnerable; preserve real value of pensions via discretionary increases while a pension indexation mechanism is developed.
- FX, monetary, and central bank policies:
  - Following FX misalignment correction, FX policy must be calibrated to support reserve accumulation and avoid rapid unwinding of competitiveness gains needed for a current account surplus.
  - Commitment to a more market-based FX regime and abandonment of interventions in parallel and non-deliverable futures FX markets welcomed.
  - Monetary policy needs to evolve to support money demand and disinflation; transition to a new monetary policy framework and operations is needed to strengthen the central bank’s anchoring role.
  - Priority to gradually strengthen the central bank’s balance sheet and mitigate domestic rollover risks: immediate elimination of monetary financing, realignment of exchange rate, rebuilding reserves, strengthen BCRA operational independence and governance, improve quality of BCRA assets, apply international accounting standards.
  - Government domestic debt: shift away from FX-linked instruments, plans to extend maturities and mitigate near-term refinancing risks.
- External financing and reforms for growth:
  - Continued decisive policy implementation critical to catalyze official support and allow gradual re-access to international capital markets starting in 2025.
  - Efforts to mobilize official financing and complete bilateral agreements with Paris Club creditors noted; continued efforts needed to mobilize non-Paris Club creditor support for key infrastructure.
  - Engagement in legal processes related to litigation cases against Argentina in international courts would help support creditworthiness.
  - Initial efforts to address impediments to growth welcomed; reforms should be prioritized and sequenced to avoid added dislocation costs while adjusting relative prices; unlocking energy and mining potential through predictable regulatory frameworks is crucial.
- Program risks and need for agility:
  - Program and enterprise risks remain significant; agile policymaking and contingency planning essential.
  - Delays in securing political support for reform legislation could complicate implementation; risks of unrest given near-term social costs.
  - Need to build societal support and provide targeted social assistance.
  - Policies likely to require recalibration; if risks materialize, additional measures (tighter spending controls, improved tax compliance, streamlining tax expenditures, nimble FX policy adjustment) will be needed.
  - Continued clear communication essential to manage expectations and maintain program support.

*Source: 1argea2024001 - 53.*

### 67.      Staff supports the authorities’ request for an extension of Board approval to maintain

### Staff supports the authorities’ request for an extension of Board approval to maintain MCPs and exchange restrictions on a temporary basis

### Board approvals, extensions, and waivers
- Authorities requested: (i) a 12-month extension of the previously approved MCPs and exchange measures; and (ii) Board approval of intensified exchange restrictions and one modified MCP.
- Authorities committed to gradually eliminate these measures over the program period as conditions allow and new stronger macroeconomic adjustment policies take effect.
- Staff supports the requested extension and new Board approvals, given that the measures are temporary and maintained for balance of payments purposes.
- Staff supports waivers of nonobservance of the PC on:
  - the non-imposition/intensification of restrictions on the making of payments and transfers for current international transactions; and
  - non-introduction/modification of MCPs.
- Staff assessment: these policies do not give rise to an unfair competitive advantage over other members or discriminate amongst members.

### Seventh review, program extension, and financing assurances
- Staff recommends completion of the seventh review and extension of the program through end-2024.
- Staff supports the requests for waivers on the basis of recently implemented corrective actions and new policy commitments.
- Staff supports the requested modification of key program targets.
- Staff recommends completion of the financing assurances review, citing Argentina’s proven commitment to remain current with the Fund and ongoing good faith efforts to resolve its external arrears.

### Structural impediments to growth (Box 1)
- Argentina has a long history of boom-bust cycles, with average real per capita growth well below EM and regional peers; underperformance especially acute since the end of the commodity boom in 2011.
- Argentina’s real per capita income has fallen by over 10 percent between 2011 and 2023, owing to sharp declines in aggregate productivity and only modest contributions from capital and labor services.
- IMF and other diagnostics indicate high regulatory and trade barriers and weak governance:
  - Argentina is among countries with the tightest product market regulations, including high trade tariffs, entry barriers in services and network sectors, administrative burdens on start-ups, and state involvement in business operations.
  - Sector-level barriers are particularly strong in air transport, e-communications, retail/distribution and professional services.
  - Labor market features cited: strict job protection laws, collective wage bargaining, and a powerful labor litigation industry that may discourage formal employment.
  - Latest governance indicators (2022) show weaknesses relative to peers and some deterioration relative to 2018: (i) weak enforcement of property rights; (ii) perception of lack of an efficient and independent justice system; (iii) inefficiencies in government operations and public procurement.
- Proposed policy directions in the Emergency Decree aim to: (i) deregulate services and network industries (e.g. real estate, pharmacies, retail, tourism, air transport); (ii) create a more flexible labor market by easing hiring and firing bottlenecks; (iii) pave the way for streamlining state-owned enterprises (SOEs).
- IMF research cited: major reform packages in EMDEs point to significant output gains (around 4 percent in two years and 8 percent in four years), especially for countries with large initial structural gaps.

### Fiscal policy from a historical perspective (Box 2)
- Argentina has a long history of fiscal dominance, with only periodic large consolidation episodes that generally proved unsustainable.
- Argentina has run primary surpluses in only 13 of the past 63 years, with over half of these supported by large terms-of-trade windfalls of the early 2000s.
- The size of the public sector increased by close to 20 percent of GDP between 2003–2016; general government primary spending currently exceeds 35 percent of GDP.
- The plan for a frontloaded adjustment of about 5 percent of GDP is large from an Argentina and cross-country perspective (above the 75th percentile of EMDEs).
- Examples of successful frontloaded consolidations referenced:
  - Turkey targeted a primary surplus of 6.5 percent of GDP during 2000–08, with privatization assisting financing needs.
- Policy emphasis: more durable fiscal adjustments were generally underpinned by expenditure-based reforms; authorities’ goals include streamlining subsidies, strengthening pension sustainability, improving targeting and governance of the social safety net, and rationalizing SOEs.
- Temporary reliance on trade-related (and other distortive) taxes is expected to be gradually unwound through reforms to improve tax efficiency and compliance.

### Reinforcing social assistance (Box 3)
- Poverty trends and drivers:
  - Latest statistics through S1:2023 suggest poverty climbed to 40 percent, with 56 percent of children below the poverty line and almost 10 percent of the population in extreme poverty.
  - Preliminary estimates (based on World Bank models) suggest that overall poverty has risen to around 45 percent more recently.
  - Drivers: price of the basic consumption basket up 190 percent y/y through November; declines in real wages of informal workers down 20 y/y in October.
- Social safety net observations:
  - Pension coverage is almost universal; pensioners represent just 4 percent of the poor, with poverty rates among the elderly at 13 percent.
  - Means-tested programs (AUH, Programa Alimentar, Progresar) benefit around one third of the poor and are generally effective and well managed.
  - Workfare (Argentina Trabaja) provides additional assistance equivalent to 0.5 percent of GDP, though concerns exist over targeting and efficiency.
  - Adult poor informal workers without children tend to be left out of the safety net.
- Recent policy actions and recommendations:
  - Following the devaluation, the administration immediately doubled AUH transfers and raised Programa Alimentar transfers by 50 percent.
  - Preserving purchasing power of AUH, Programa Alimentar, and universal pension (PUAM) benefits is emphasized during initial inflation and recession.
  - Additional temporary social support may be required for lower- and middle-class households to cope with large initial corrections in relative prices (fuel, utilities, medical insurance).
  - Timely (advance or concurrent) social support will be needed to mitigate the impact of energy price reform.
  - Over time, improve targeting by upgrading the current individual-level social database to household-level; a comprehensive diagnostic review is being conducted in collaboration with the World Bank.
  - Note: The current EFF includes an indicative floor on spending for three high-quality programs to protect the most vulnerable.

### Importers’ debt overhang and normalization of trade flows (Box 4)
- Importers’ private external commercial debt grew to an all-time high of around US$60 billion by September, roughly US$30 billion above the recent historical average, with most of the increase related to goods imports.
- As a share of imports, importers’ debt rose to around 60 percent, far above the 40 percent average during 2017–19.
- Composition and maturity:
  - About 60 percent of the debt was held by companies of the same group (in the form of FDI), with most of the rest provided by foreign exporters through trade credit.
  - New lending carries maturities of up to 3 months and is concentrated in manufacturing and trade sectors.
- Registration and unwind strategy:
  - For commercial debt accumulated before December 13, 2023, eligible importers with properly registered and verified debt can purchase new BCRA-issued FX swaps (BOPREAL), payable in USD with maturities of up to 4 years at varying interest rates.
  - As of January 10, 2024, US$21 billion of debt out of a total of near US$60 billion had been registered, of which US$16.5 billion is held by large companies, US$2.5 billion by medium-sized companies, and US$2 billion by small and micro companies.
  - Debt canceled through other mechanisms, without a transfer of currency, exceeded $2 billion.
  - Importers can use BOPREAL in collateralized borrowing, sell them in the secondary market (likely at a discount), or use them as a payment promise.
- Small firms and 2024 maturities:
  - A limited sum of BOPREAL maturing in 2024 will be issued starting February to enable small firms to pay down their FX obligations.
  - The FX swap would not be associated with any form of public debt.
  - To limit “quasi-fiscal” risks if the real exchange rate weakens significantly, issuance will be limited and the bulk will take place over the coming weeks.
  - The window for the initial US$5 billion of longer-dated instruments closes at end-February and issuance of each instrument (three series in total) will be limited, subject to projected availability of FX reserves. As of January 11, subscriptions reached US$1.2 billion.
- Import normalization measures:
  - The opaque SIRA/SIRASE system has been replaced with a more transparent, rules-based system for access to FX for imports (SEDI).
  - Under SEDI, the average delay of 45 days is much shorter than the 90–160 days under SIRA, with an automatic mechanism for payment based on clear priorities.
  - Non-automatic import licensing and associated allocation formula removed, lifting distortive and nontransparent quantitative caps on imports.
  - Strong policy anchors and improvements in reserve coverage are expected to allow prompt graduation away from FX access restrictions on imports and a normalization of the commercial debt stock (which is expected to rise in the near-term).

*Source: 1argea2024001 (IMF staff report excerpt).*

### Box 5. Energy and Mining Sector: Potential Balance of Payments Implications

### Box 5. Energy and Mining Sector: Potential Balance of Payments Implications

### Energy baseline (near term)
- The energy balance is expected to swing to a surplus of US$3.3 billion in 2024, from a deficit of US$0.6 billion in 2023, reflecting a lower energy imports bill.
- Completion of the initial stages of the gas pipeline increased domestic gas transportation capacity to 11 million cubic meters per day in 2023.
- Transport capacity is expected to double in 2024 to 22 million cubic meters per day and reduce LNG imports by a further US$3.5 billion, subject to the completion of compression plants.
- Beyond 2024, completion of the pipeline’s next phase and the North pipeline’s flow reversal, targeted for mid-2025, are projected in the program baseline to reduce imports by a further US$0.7 billion per year.

### Medium-term upside scenarios and estimates
- Crude oil exports could rise from around 100 kbbl/d in 2023 to 900 kbbl/d by 2030, based on independent assessments.
- Such an increase in crude oil exports could generate an extra US$14 billion of annual exports.
- The potential export of LNG provides additional upside but would require major infrastructure investment to construct liquefaction terminals.
- These upside scenarios are conditional on an adequate macroeconomic and regulatory framework and on meeting an estimated US$40 billion investment gap over the medium-term.

### Key statistics (as reported)
- 2023 energy balance: deficit of US$0.6 billion
- 2024 energy balance baseline: surplus of US$3.3 billion
- Domestic gas transportation capacity in 2023: 11 million cubic meters per day
- Expected domestic gas transportation capacity in 2024: 22 million cubic meters per day
- Reduction in LNG imports expected in 2024: US$3.5 billion
- Additional annual import reduction from pipeline next phase and North pipeline flow reversal (post-mid-2025): US$0.7 billion per year
- Crude oil exports: around 100 kbbl/d in 2023 and 900 kbbl/d by 2030 (assessment-based)
- Potential additional annual crude oil export revenues by 2030: US$14 billion
- Estimated medium-term investment gap to realize upside potential: US$40 billion

*Box 5. Energy and Mining Sector: Potential Balance of Payments Implications*

### Box 5. Energy and Mining Sector: Potential Balance of Payments Implications (Concluded)

### Box 5. Energy and Mining Sector: Potential Balance of Payments Implications (Concluded)

### Medium‑term export potential and composition
- The mining sector could deliver a near five-fold increase in its exports over the medium term.
- Three quarters of the potential increase could come from lithium exports (US$12 billion).
- The remainder would come mainly from copper exports (US$5 billion), where production is expected to start in 2027, alongside smaller amounts of gold and silver exports.

### Investment pipeline and FDI implications
- So far US$17 billion of mining investments have been announced.
- 6 projects already under construction and more than 70 at advanced stages according to the mining ministry.
- These dynamics are reflected in the program baseline for FDI inflows over the medium-term.

### Trade balance and balance of payments uncertainty
- The impact on the trade balance remains uncertain given the expected high imports component in the early stages of mining projects.
- Net FX gains in Argentina will depend on:
  - the agreed contracts with foreign partners, including the fiscal regime (specifying profit sharing),
  - the share of foreign goods and services in projects’ construction and operations.

### Policy, reform, and implementation conditions
- Realizing these investments will depend on securing macroeconomic stability but also crucially on planned reforms to improve the predictability of the investment regime.
- The recently submitted Omnibus bill includes a wide set of policies (including 40 amendments to the hydrocarbon law) to incentivize investment, particularly in the energy and mining sectors.
- Key elements of the bill include:
  - (i) a 30-year fiscal stability guarantee at the federal level to limit uncertainty around the tax regime going forward;
  - (ii) for enterprises with large initial capital investment needs and an extended cashflow profile (e.g., copper mining), relaxation of surrender requirements to pay foreign contractors and service providers, as well as restrictions on dividends and income distributions to foreign parent companies and contracted service providers.

### Governance, transparency, and domestic spillovers
- It will be critical to strengthen the transparency and governance of national resources, including project tendering at the federal and provincial levels.
- Clarifying the role of the state-owned company (YPF) is important.
- Ensuring the transfer of knowledge and positive spillovers to the rest of the economy is essential for maximizing domestic benefits.

### Notable institutional developments
- Argentina joined the Extractive Industries Transparency Initiative (EITI) in 2019 and launched the SIACAM Initiative in 2022 (a mining information system open to the public).

*Source: IMF staff analysis in Box 5. Energy and Mining Sector: Potential Balance of Payments Implications (Concluded).*

### Annex I. External Sector Assessment (Preliminary)

### Annex I. External Sector Assessment (Preliminary)

### Overall assessment
- The external position in 2023 was weaker than the level implied by medium-term fundamentals and desirable policies, based holistically on elevated external debt vulnerabilities, depleted international reserves, and no access to international capital markets.
- The sustained implementation of an ambitious stabilization plan will be required to:
  - strengthen the external current account (CA) and reserve coverage;
  - secure external sustainability.
- Potential policy responses:
  - upfront fiscal consolidation and a correction of the FX misalignment to bring down inflation, strengthen the trade balance, rebuild international reserves, regain market access, and safeguard fiscal and external debt sustainability;
  - structural reforms to boost Argentina’s competitiveness, export capacity and FDI;
  - as stability and confidence are reestablished, a gradual conditions-based easing of CFM measures;
  - phase out any remaining MCPs and exchange restrictions as early as possible.

### Foreign asset and liability position and trajectory
- Background:
  - By end-Q3 2023, Argentina’s external gross liabilities reached at 51.9 percent of GDP, US$29.9 billion higher than end of 2022 levels, and above the level of 50 percent of GDP at the end of 2017.
  - NIIP remained positive, reaching 13.9 percent of GDP (up 11.5 percentage points since the end of 2017), driven by continued private capital outflows and deleveraging by firms, despite tight CFM measures.
- Assessment:
  - In 2020, Argentina restructured $82 billion (21.4 percent of GDP) in domestic- and foreign-law sovereign FX debt held by the private sector, with cash flow relief of $34 billion during 2020–30.
  - Additional relief in 2021: provincial governments restructured $13 billion of foreign-law FX debt obligations, with total cash flow savings estimated at about $6.5 billion for 2021–27.
  - Gross debt and debt-service obligations remain substantial; meeting these obligations over the medium term will depend on implementing a strong economic reform plan that boosts FDI and restores market access.
- Key end-2023Q3 figures (% GDP):
  - NIIP: 13.9
  - Gross Assets: 65.9
  - Res. Assets: 4.1
  - Gross Liab.: 51.9
  - Debt Liab.: 31.8

### Current account (CA)
- Background:
  - CA reached a deficit of 3.5 percent of GDP in 2023 (est.), down from a deficit of 0.7 percent in 2022, due to sharp reductions in exports (drought) and insufficient compression in imports.
  - CA projected to reach a surplus of 0.9 percent in 2024, driven by significant demand compression following the recent exchange rate correction and fiscal consolidation.
  - Medium-term: CA expected to stabilize around 1.5 percent of GDP, reflecting tight policies and reforms to support a stronger energy and services trade balances.
- Assessment:
  - Cycl. Adj. CA estimated at a deficit of 2.2 percent of GDP in 2023, with an estimated transitory impact from the drought at about 1.5 percent of GDP.
  - EBA CA norm preliminary estimate: a surplus of 0.4 percent of GDP.
  - IMF staff near- to medium-term CA norm judged to be closer to 1.5 percent of GDP.
  - Difference implies an adjustment to the norm of 1.1 percent of GDP.
  - IMF staff assesses the CA gap to be –3.7 ±1 percent of GDP.
- Key 2023 (% GDP) values:
  - CA: –3.5
  - Cycl. Adj. CA: –2.2
  - EBA Norm: 0.4
  - EBA Gap: –2.6
  - Other Adj.: -0.4
  - Staff Gap: –3.7

### Real exchange rate (REER)
- Background:
  - Average REER depreciated by more than 35 percent between 2017 and 2019, appreciated by about 26 percent during 2020–22, and was estimated to have remained generally unchanged through early-December 2023.
  - In mid-December, authorities implemented a step devaluation of about 120 percent to correct the large exchange rate misalignment.
  - Following the decision, the REER is estimated to have moved 45 percent below the 2022 average.
- Assessment:
  - IMF staff-assessed CA gap implies a REER gap of about 30 percent in 2023 (with an estimated elasticity of 0.12 applied).
  - EBA REER index model suggests a REER gap of 25 percent.
  - EBA REER level model estimates a gap of 9.5 percent, with significant uncertainty.
  - Overall IMF staff assesses the REER gap before the step devaluation to be in the range of 30 to 35 percent.

### Capital and financial accounts: flows and policy measures
- Background:
  - Strict CFM and MCP measures introduced in late 2019 to contain capital outflows.
  - In Q3/Q4:2023 the gap between the parallel and official exchange rate rose to above 150 percent, and measures intensified, including:
    - incentives to encourage export liquidation;
    - taxes on FX access for imports of goods and services;
    - financing requirements for imports to limit short-term FX demand.
  - These measures led to an unprecedented rise in private commercial debt.
- Assessment:
  - CFMs and MCPs helped contain capital outflows but introduced serious distortions and added to external vulnerabilities.
  - CFMs are not a substitute for sound macroeconomic policies.
  - While CFMs are needed in the near term as imbalances are addressed, exchange restrictions and MCP measures should be phased out as early as possible.

### FX intervention and reserves level
- Background:
  - Gross international reserves reached $23 billion in 2023, its lowest level since 2004 and $21 billion lower relative to 2022.
  - Net international reserves, after excluding swap lines with other central banks, reserve requirements on domestic dollar deposits, and deposit insurance, reached negative $9.2 billion.
  - Despite CFMs, reserve accumulation was challenged by lack of imports adjustment amid a severe drought and continued capital flight (including import over invoicing) with extremely high devaluation expectations.
- Assessment:
  - Gross international reserves estimated to have stood at about 36 percent of the IMF’s composite metric in 2023.
  - Authorities embarked on ambitious stabilization and reform plan to boost the trade balance and improve reserve coverage, essential to pave the way for market access and easing of CFMs over the medium term.
  - New authorities eliminated the previous administrative import controls (SIRA/SIRASE), replacing them with a simpler, more transparent, and rules-based system of import access, with a delayed FX access restriction of 45 days relative to 90–180 days under the previous regime.
- Note:
  - The actual impact of the drought on exports was over 3 percent of GDP in 2023 (+cyclical contribution); however, imports did not sufficiently adjust (-cyclical contribution), suggesting a net cyclical impact closer to 1.5 percent of GDP.

### Annex II — Sovereign Risk and Debt Sustainability Framework: summary
- Overall DSA summary assessment:
  - The SRDSF tools indicate that debt is sustainable but not with high probability, although overall risks of sovereign stress are high.
  - At a medium-term horizon, staff assesses risks to be moderate, unchanged from the fifth and sixth reviews.
  - GFN module shows moderate risk, supported by the 2020 restructuring, the new administration’s more ambitious fiscal consolidation plan, and the reduction in the exchange rate misalignment.
  - Valuation effects from the exchange rate adjustment caused a sharp but temporary increase in the debt-to-GDP ratio for 2023, widening the fanchart and triggering a mechanical high-risk signal.
  - Going forward, debt-to-GDP ratios are projected to decline rapidly as the REER overshooting unwinds and fiscal consolidation accelerates.
  - Plans to extend maturities for a portion of domestic debt coming due in 2024 are assumed to reduce gross financing needs in the near term.
  - Over the longer-term, 10-year fanchart analysis points to debt sustainability (albeit with substantial risks), including a potential renewed round of sovereign stress as Argentina needs to re-enter international debt markets.
- Key messages from the DSA narrative:
  - Staff assesses Argentina’s debt remains “sustainable, but not with high probability,” based on four tools: Debt Fanchart, GFN Financeability module, crisis prediction model, and contingent liability analysis.
  - Assessment predicated on successful implementation of the stabilization plan: realign and harmonize the FX regime, frontloaded fiscal consolidation to secure twin (fiscal and current account) surpluses, strengthen the BCRA balance sheet, and extend maturities of domestic debt.
  - Primary deficits led to an increase in public debt of roughly the equivalent of over US$60 billion between end-2021 and November-2023, with US$46 billion absorbed by other public sector entities, including the BCRA.
  - For end-2023, valuation effects related to the large nominal FX correction are expected to result in a temporary sharp spike in public debt-to-GDP ratios (average nominal US$ GDP drops), including because over 90 percent of peso debt is now linked to the US$ or to inflation.
  - The GFN Financeability Module: baseline GFNs average around 11 percent of GDP over the 2024–29 period (around 7 percent of GDP for debt held by the private and official sector).
  - At end-November 2023, banks’ exposure to government debt remained moderate at around 16 percent of banking system assets; including central bank securities, public sector exposure stands at around 40 percent of total assets.
  - Argentina’s banking system assets are around 40 percent of GDP.
  - Debt fanchart: gross public debt estimated around 154 percent of GDP at end-2023 (reflecting the large nominal devaluation and revision to nominal USD GDP); projected to decline to around 48 percent of GDP by end–2029.
  - Probability of debt stabilization under the baseline continues to be high (around 90 percent).
  - Mechanical fanchart signal flashes red due to wider uncertainty from the 2023 spike; staff judges medium-term risks at moderate given expected rapid decline in debt-to-GDP as REER unwinds and fiscal consolidation accelerates.
- Risks and vulnerabilities highlighted:
  - Risks to the updated baseline are exceptionally high given the fragile initial reserve position.
  - Assessment of moderate risk of sovereign distress in the medium term hinges on steadfast implementation of macroeconomic policies by the new administration.
  - Failure to achieve rapid consolidation and shift to a fiscal surplus would imply greater near-term financing pressures and higher gross financing needs.
  - Latent structural vulnerabilities: low and undiversified export base, thin domestic capital markets, high shares of foreign currency and non-resident debt, and contingent liabilities from provinces’ FX debt and possible compensation payments from international court rulings.
  - Sustaining large and frontloaded consolidation, deepening domestic capital markets, and structural reforms to boost growth and exports are essential to mobilize domestic saving, strengthen reserves, and improve prospects of international market access.
- Staff recommendations and conditionalities implied by the DSA:
  - Full implementation of the program will help contain medium- and long-term risks.
  - Contingency planning and agile policy making remain indispensable, with additional macroeconomic policy adjustments potentially required.
  - Extend maturities of a portion of domestic debt coming due in 2024 to reduce near-term GFNs.
  - Secure twin (fiscal and current account) surpluses to tackle debt vulnerabilities and rebuild external buffers.

*Source: Fund staff.*

### 5.      Contingent liability analysis also remains consistent with moderate medium-term risks

### 5. Contingent liability analysis also remains consistent with moderate medium-term risks

### Contingent liability shock scenario and implications
- The illustrative contingent liability shock simulates a one-off debt materialization equal to "6 percent of GDP", chosen to be equivalent to the total stock of provincial debt or the combined potential compensation payments from ongoing litigation cases.
- Under this scenario:
  - Public debt would spike at around "154 percent of GDP".
  - Public debt would hover at "90 percent of GDP by end-2024".
  - Public debt would fall back to around "50 percent of GDP by 2028".
  - GFNs would remain somewhat elevated at around "14 percent of GDP by 2029".
- The team’s assessment:
  - Provincial debt is not assessed to have a high risk of becoming a contingent liability to the central government, supported by the "non-bailout approach taken during the 2020 provincial debt restructuring".
  - However, depending on the scale of final judgments in international litigation cases, investor confidence in Argentine sovereign securities could dampen, potentially impacting Argentina’s ability to regain market access in a timely fashion.
- Policy implication:
  - "Agile policymaking" and additional macroeconomic policy adjustments are necessary if risks materialize to safeguard debt sustainability in the medium term.

### Longer-term risk analysis (fan chart and medium-to-long term outlook)
- Fan chart analysis (ending in 2033):
  - Probability of debt stabilization is "close to 80 percent", indicating consistency with debt sustainability but with substantial risks.
- Key refinancing and repayment pressures:
  - Argentina will need to refinance maturing debt obligations from the "2020 debt restructuring" and Fund repurchases, likely at less favorable financing terms in the context of higher global interest rates.
  - Capacity to repay will depend on:
    - Successful implementation of "the more aggressive fiscal consolidation plan".
    - Correction of other key macroeconomic imbalances.
    - Improvement in domestic debt market conditions.
    - Adequate reserve levels.
    - Re-access to international private credit markets.
- Buffer and financing concern:
  - Federal debt (excluding debt held by the BCRA and FGS) would fall slightly above the "40 percent of GDP" threshold set in The March 2020 Technical Note.
  - GFNs for public debt not in the hands of other public entities between "2025–2032" are projected to be within the "5 percent of GDP" March Technical Note target.
  - With buffers nearly exhausted, large and sustained domestic financing will be required alongside efforts to improve the maturity structure to allow gradual conditions-based easing of capital flow measures.

### SRDSF key macroeconomic assumptions (Box 1)
- Framework:
  - The SRDSF reflects an updated program baseline aligned with the Milei administration’s intentions: a more ambitious and upfront fiscal consolidation path, elimination of monetary financing, and realignment of the exchange rate and other relative prices.
  - Successful implementation—maintaining fiscal consolidation and reserve accumulation pace—is crucial for domestic debt market development and eventual easing of CFMs and re-access to international capital markets.
- Macroeconomic assumptions:
  - Real GDP is projected to contract by "2.8 percent in 2024" due to fiscal consolidation and relative price correction.
  - Growth is expected to settle at "2.3 percent" over the medium term and the output gap to close by "2028".
  - Assumed potential growth is "2.3" (vs. "2 percent" in previous reviews).
  - The nominal FX realignment in "December 2023" resulted in a large depreciation of the REER (much larger than the estimated misalignment of around "30 percent") to rebuild reserves.
  - Inflation (eop) trajectory:
    - Increase from about "95 percent in 2022" to around "215 percent in 2023" and "149 percent in 2024".
    - Average inflation is expected to "exceed 250 percent in 2024", decline to "around under 60 percent in 2025", and reach single digits in "2029".
  - Fiscal consolidation:
    - Primary balance moving from a deficit of "3 percent of GDP in 2023" to a surplus of "2 percent of GDP in 2024 (consistent with overall balance)".
    - Steady-state primary surplus of "2.5 percent of GDP from 2025 onwards" (stronger than "1.3 percent" at the fifth and sixth reviews).

### SRDSF financing and policy assumptions (Box 1, concluded)
- Capital flow management measures (CFMs):
  - CFMs are assumed to remain in place over the near-to medium term (with targeted easing), limiting outflows and supporting the balance of payments.
  - CFMs will gradually be eased as conditions allow, permitting a gradual return to international markets starting in "late 2025".
- Gross international reserves:
  - Reserves are assumed to recover at a slightly faster pace in the medium-term than in previous reviews and to reach "2022 levels (i.e., pre-drought) levels by 2026", reflecting large losses during 2023 ("US$ 22 billion").
- Financing assumptions:
  - External official financing:
    - Annual official net financing unchanged relative to the fifth and sixth reviews, with average annual contributions of "0.3 percent of GDP" from MDBs through 2024 and beyond.
    - Projected repayments to the Paris Club reflect the October 2022 joint declaration, stretching out to "2028".
    - The portion of the central bank bilateral FX swap with the PBOC drawn in 2023 (about "US$4.9 billion") was not included in public debt analysis as it falls below the risk-based de-minimis threshold of "1 percent of GDP". The activated swap is assumed to be refinanced in "2024".
  - External private sector financing:
    - Debt service on FX-denominated debt to foreign private creditors is assumed to follow the "2020 restructuring schedule", with modest new issuance in international markets from "late 2025" onwards.
    - No foreign-financed debt buybacks or repo operations are assumed.
  - BCRA financing of the fiscal deficit:
    - Direct transfers, after reaching "0.9 percent of GDP in 2023", are projected to be zero from "2024 onwards".
    - No further intervention in the secondary debt market is assumed.
  - Domestic market financing:
    - Program baseline assumes overall fiscal balance in "2024" (no need to mobilize net financing) and plans to extend maturities of a portion of domestic debt coming due in 2024.
    - Given stabilization of inflation will take at least "18–24 months", the financing strategy maintains reliance on inflation (CER)-linkers in the near term, with a gradual shift to fixed rate issuances over the medium to long-term.
    - Real rates are expected to rise gradually to "4½ percent by 2028", consistent with a gradual unwinding of CFMs and the cost of accessing international markets.
    - Downside risks remain, but sustaining an overall fiscal balance will ensure no further indebtedness and facilitate market access to refinance existing obligations.

### Key statistics and timepoints (extracted)
- Contingent liability shock: "6 percent of GDP".
- Public debt peaks: "154 percent of GDP".
- Public debt: "90 percent of GDP by end-2024"; "50 percent of GDP by 2028".
- GFNs: "14 percent of GDP by 2029".
- Fan chart stabilization probability by 2033: "close to 80 percent".
- Federal debt threshold reference: "40 percent of GDP".
- GFNs target (2025–2032): "5 percent of GDP".
- Real GDP contraction: "2.8 percent in 2024".
- Medium-term growth: "2.3 percent".
- Potential growth: "2.3" (vs. "2 percent").
- REER misalignment estimate: "around 30 percent".
- Inflation (eop): "95 percent in 2022"; "215 percent in 2023"; "149 percent in 2024".
- Average inflation: "exceed 250 percent in 2024"; "around under 60 percent in 2025"; single digits in "2029".
- Primary balance: deficit of "3 percent of GDP in 2023" to surplus of "2 percent of GDP in 2024".
- Steady-state primary surplus: "2.5 percent of GDP from 2025 onwards" (previously "1.3 percent").
- Reserve loss in 2023: "US$ 22 billion".
- MDB contributions: "0.3 percent of GDP" (annual average).
- PBOC swap drawn: "US$4.9 billion" (below "1 percent of GDP" de-minimis).
- BCRA transfers: "0.9 percent of GDP in 2023" then zero from "2024 onwards".
- Real rates to "4½ percent by 2028".
- Return to international markets: "late 2025".
- Paris Club repayments stretched to "2028".
- Inflation stabilization horizon: "18–24 months".

*Source: IMF staff chapter text (Contingent liability and longer-term risk analysis).*

### 5. Debt consolidation across sectors:

### 5. Debt consolidation across sectors

### Coverage and key exclusions
- The coverage in this SRDSA is gross federal (central government) debt held by the private, official and public sectors.
- The DSA does not include:
  - GDP warrants,
  - debt of the provinces or municipalities,
  - debt of the central bank.
- Staff does not judge the exclusion of provincial debt as a significant contingent liability risk, as demonstrated by the federal government's non-bailout approach to the recent provincial debt restructuring.
- Central bank bilateral FX swaps drawn in June and July of 2023 were not included in public debt for DSA purposes because the BCRA extinguished the swap position, bringing the value of the activated swaps below the de-minimis threshold of 1 percent of GDP.
- Nevertheless, the central bank’s weak balance sheet is identified as a key contingent liability, necessitating a strategy to strengthen both its finances and governance.

### Public debt composition and market structure (central government perimeter)
- Foreign-currency denominated debt will continue to dominate over the long term.
- With inflation remaining high and unanchored, the financing strategy assumes reliance on inflation (CER)-linkers, with an increase in maturity and shift towards fixed rate instruments envisaged only in the medium term.
- The large share of FX debt is held by IFIs, and the large share of overall debt held by the intra-public sectors (including non-marketable instruments), mitigates rollover risks.

### Baseline scenario (selected figures; percent of GDP unless indicated)
- Public debt:
  - Actual 2023: 154.5
  - 2024: 86.2
  - 2025: 79.5
  - 2026: 69.5
  - 2027: 59.8
  - 2028: 53.5
  - 2029: 47.9
  - 2030: 41.9
  - 2031: 36.3
  - 2032: 31.7
  - 2033: 26.4
- Change in public debt (percent of GDP):
  - Actual 2023: 69.9
  - 2024: -68.3
  - 2025: -6.7
  - 2026: -10.0
  - 2027: -9.7
  - 2028: -6.3
  - 2029: -5.6
  - 2030: -6.0
  - 2031: -5.6
  - 2032: -4.6
  - 2033: -5.3
- Contribution of identified flows (percent of GDP):
  - 2023: -15.0
  - 2024: -31.2
  - 2025: -16.1
  - 2026: -8.6
  - 2027: -6.4
  - 2028: -4.2
  - 2029: -3.5
  - 2030: -3.4
  - 2031: -3.1
  - 2032: -2.2
  - 2033: -2.0
- Primary deficit (percent of GDP):  
  - 2023: 3.0
  - 2024–2033 (each year): -2.1 (2024), -2.5 (2025 onward reported as -2.5 each year)
- Automatic debt dynamics (percent of GDP):
  - 2023: -17.1
  - 2024: -29.2
  - 2025: -13.6
  - 2026: -6.1
  - 2027: -3.9
  - 2028: -1.7
  - 2029: -0.9
  - 2030: -0.9
  - 2031: -0.6
  - 2032: 0.3
  - 2033: 0.5
- Interest rate - growth differential (percent of GDP):
  - 2023: -47.7
  - 2024: -108.0
  - 2025: -32.0
  - 2026: -17.8
  - 2027: -10.2
  - 2028: -5.0
  - 2029: -3.6
  - 2030: -4.1
  - 2031: -3.4
  - 2032: -2.7
  - 2033: -2.2
- Real interest rate (percent):
  - 2023: -48.6
  - 2024: -112.4
  - 2025: -27.9
  - 2026: -14.4
  - 2027: -7.6
  - 2028: -3.2
  - 2029: -2.3
  - 2030: -3.1
  - 2031: -2.5
  - 2032: -1.9
  - 2033: -1.5
- Real growth rate (percent):
  - 2023: 0.9
  - 2024: 4.4
  - 2025: -4.1
  - 2026: -3.4
  - 2027: -2.6
  - 2028: -1.8
  - 2029: -1.2
  - 2030: -1.1
  - 2031: -0.9
  - 2032: -0.8
  - 2033: -0.7
- Relative inflation (percent):
  - 2023: 31.5
  - 2024: 78.7
  - 2025: 18.5
  - 2026: 11.7
  - 2027: 6.3
  - 2028: 3.3
  - 2029: 2.6
  - 2030: 3.3
  - 2031: 2.9
  - 2032: 3.0
  - 2033: 2.7
- Gross financing needs:
  - 2023: 9.1
  - 2024: 5.2
  - 2025: 23.4
  - 2026: 4.9
  - 2027: 15.2
  - 2028: 5.3
  - 2029: 12.0
  - 2030: 4.3
  - 2031: 10.0
  - 2032: 5.2
  - 2033: 6.6
- Debt service (percent of GDP):
  - 2023: 6.1
  - 2024: 7.3
  - 2025: 25.9
  - 2026: 7.5
  - 2027: 17.8
  - 2028: 7.9
  - 2029: 14.5
  - 2030: 6.8
  - 2031: 12.5
  - 2032: 7.8
  - 2033: 9.2
- Memo indicators:
  - Real GDP growth (percent): 2023 -1.1; 2024 -2.8; 2025 5.0; 2026 4.5; 2027 3.9; 2028 3.1; 2029 2.3; 2030 2.3; 2031 2.3; 2032 2.3; 2033 2.3
  - Inflation (GDP deflator; percent): 2023 135.6; 2024 253.1; 2025 58.4; 2026 31.1; 2027 17.4; 2028 10.4; 2029 8.9; 2030 11.4; 2031 10.9; 2032 10.4; 2033 9.9
  - Nominal GDP growth (percent): 2023 133.5; 2024 241.9; 2025 67.0; 2026 36.7; 2027 22.0; 2028 13.8; 2029 11.4; 2030 14.0; 2031 13.4; 2032 12.9; 2033 12.4
  - Effective interest rate (percent): 2023 1.9; 2024 3.5; 2025 4.5; 2026 6.4; 2027 4.1; 2028 4.3; 2029 4.0; 2030 4.1; 2031 4.1; 2032 4.6; 2033 4.7

### Medium-term risk assessment and indicators
- Staff commentary: Medium-term risk assessment of high risk is driven by the widening of the fanchart resulting from the temporary spike in the debt-to-GDP ratio due to valuation effects in the context of the strong exchange rate devaluation.
- Staff assesses medium-term risks at moderate, as debt-to-GDP ratios will decline rapidly as the overshooting of the real effective exchange rate (REER) unwinds and stabilizes at its long-term level and fiscal consolidation accelerates.
- Key medium-term indicators and values:
  - Fanchart width: 141.9 2.1
  - Probability of debt not stabilizing (pct): 10.53
  - Terminal debt level x institutions index: 55.8 1.2
  - Debt fanchart index: ...3.36
  - Average GFN in baseline: 11.0 3.8
  - Bank claims on government (pct bank assets): 15.0 4.9
  - Change in claims on govt. in stress (pct bank assets): 27.1 9.1
  - GFN financeability index: ...17.7
  - Medium-term index (MTI) components and weights are presented, with the MTI normalized level and thresholds used for risk classification.
- Probabilities for crisis prediction performance, 2024-2029:
  - Prob. of missed crisis (if stress not predicted): 81.8 pct.
  - Prob. of false alarm (if stress predicted): 3.4 pct.

### Decomposition of public debt and debt service by creditor (selected 2024–2025 figures)
- Total (US$ bn):
  - Total debt stock: 424.37 (Percent total debt: 100.00; Percent GDP (2024): 79.37)
  - External debt: 139.77 (Percent total debt: 32.94; Percent GDP (2024): 26.14)
  - Domestic debt: 284.59 (Percent total debt: 67.06; Percent GDP (2024): 53.23)
- Multilateral creditors (US$ bn and percent GDP where indicated):
  - Multilateral total: 73.18 (17.24 percent of total debt; 13.69 percent of GDP)
  - IMF: 41.57 (9.79 percent of total debt; 7.77 percent of GDP)
  - World Bank: 9.45 (2.23 percent of total debt; 1.77 percent of GDP)
  - IADB: 16.25 (3.83 percent of total debt; 3.04 percent of GDP)
  - CAF: 4.43 (1.04 percent of total debt; 0.83 percent of GDP)
- Bilateral creditors:
  - Total bilateral: 4.66 (1.10 percent of total debt; 0.87 percent of GDP)
  - Paris Club: 1.71 (0.40 percent of total debt; 0.32 percent of GDP)
  - Non-Paris Club: 2.94 (0.69 percent of total debt; 0.55 percent of GDP)
  - o/w China: 2.79 (0.66 percent of total debt; 0.52 percent of GDP)
- Domestic instruments (US$ bn; percent total debt; percent GDP):
  - T-Bills: 78.32 (18.46 percent of total debt; 14.65 percent of GDP)
  - Bonds: 190.91 (44.99 percent of total debt; 35.70 percent of GDP)
  - Loans: 15.37 (3.62 percent of total debt; 0.00 percent of GDP in table presentation but specific percent GDP breakdown shown as 8.9 for face value category)
- Debt service contributions and currency breakdowns are reported in the table by creditor and instrument for 2024 and 2025.

### Staff commentary and policy implications
- Public debt is projected to decline over the long term, reflecting baseline assumptions of a more ambitious and frontloaded fiscal consolidation path.
- Lower FX misalignments are expected to be conducive to more stable macroeconomic conditions.
- Sustained fiscal consolidation (including beyond the program), along with efforts to:
  - further deepen domestic capital markets,
  - boost exports and productivity,
  remain essential to mobilize domestic saving, strengthen reserves, and improve prospects of international market access, which in turn would strengthen debt-servicing capacity.
- The large residuals in 2023 and 2024 can be explained by stock-flow adjustments given differences between end-of-period and period average exchange rates due to sharp exchange rate adjustments in 2023.
- The plan to extend the maturities of a portion of domestic debt coming due in 2024 is expected to help contain financing risks.

*Source: 5. Debt consolidation across sectors (Argentina), IMF staff chapter excerpt.*

### 3.  New Import Payment Arrangements. The new administration introduced a new system of

### 3. New Import Payment Arrangements

### Overview of the new system
- The new administration introduced a new system of payment for imports replacing the cumbersome SIRA/SIRASE mechanism.
- The new system retains certain elements of the old, including:
  - the requirement of BCRA consent for advance payment for imports or payment between related parties.
  - importers must provide a declaration of not accessing the CCL market for 90 (180) days.
  - the requester should not be included in the tax authorities’ database of apocryphal invoices or documents.
- Staff assessment: overall, the new system is more streamlined and transparent than the previous arrangement applicable to payments for imports and does not intensify the preexisting exchange restrictions.

### FX‑denominated instrument to address commercial debt overhang
- The new administration introduced an FX‑denominated instrument to help importers clear outstanding stock of commercial debts accumulated until December 12, 2023.
- The BCRA announced the conditions of the new instrument “made up of three series of Bonds for the Reconstruction of a Free Argentina (BOPREAL).”
- Subscription is in pesos and therefore there is an implied exchange, but:
  - staff does not assess this mechanism as giving rise to either an exchange restriction or MCP as there is no exchange of currencies.
  - The BOPREAL can be used for the payment of tax obligation at a specified exchange rate, and since the use of the FX denominated bond for the payment of tax obligation in peso does not involve an exchange transaction, the requirement to use a specific exchange rate is not considered as giving rise to an MCP.

### Exchange restrictions and multiple currency practices (MCPs) — measures intensifying restrictions or modifying MCPs
- Staff identifies measures introduced both before and since the new administration took office that give rise to intensification of existing restrictions and modification of an MCP:
  - a. Restriction on beneficiaries of the Argentine Integrated Pension System (SIPA) and workers contributing to SIPA who receive financing under the ANSES credit scheme pursuant to Decree No. 463/23 from accessing the FX market for as long as the loan remains unpaid. This provision intensified an existing exchange restriction.
  - b. Stipulation under BCRA Communication “A” 7915 of December 11, 2023, that as of December 11, 2023, all requests for FX required authorization of the BCRA. This measure, which intensified an existing exchange restriction, was repealed the next day (Communication “A” 7916).
  - c. Increase of the PAIS rate to 17.5 percent for transportation services and imported goods with exemptions for essential goods, which amounts to a modification of an MCP and intensification of existing exchange restrictions arising from the imposition of this tax on the purchase of FX.

### Related macroeconomic context and policy responses (selected figures and commitments from the Letter of Intent and MEFP)
- Economic and financial situation upon assuming office:
  - collapse of 5 percent in industrial activity.
  - runaway inflation already at a daily rate of 1.5 percent.
  - imminent payments to the IMF and international bondholders of over US$2.5 billion.
  - net international reserves had plunged to a negative US$10.3 billion.
  - backlog in import payments had increased from an average of US$30 billion to US$60 billion.
  - the 2023 overall fiscal deficit exceeded 5 percent of GDP—reaching some 15 percent of GDP when taking quasi-fiscal costs into account.
  - monetization of the 2023 fiscal deficit by the Central Bank reached 5 percent of GDP.
  - over 50 percent of all Argentines live below the poverty line, and that number is near 60 percent for children.
- Key policy aims and early actions:
  - Immediately reaching an overall fiscal balance for the central government; program anchored on an ambitious fiscal adjustment of about 5 percent this year.
  - Realigning, improving, and simplifying the FX regime and rebuilding reserves; central bank purchases from the official market since assuming office reached US$4.6 billion.
  - Expectation that net international reserves will reach US$-1.5 billion by end-2024.
  - Strengthening the domestic debt market and maintaining technical support and financing from multilateral institutions.
  - Eliminated any type of monetary financing of the budget and ceased auctions of the 28-day Leliqs.
- Financing and program requests:
  - Request for completion of the seventh review of the arrangement and rephasing of disbursements in the amount of SDR 3.5 billion.
  - CAF bridge financing for US$960 million to help meet FX obligations to the Fund in December.

*Source: Excerpts from the provided IMF document (Letter of Intent and Memorandum of Economic and Financial Policies, January 18, 2024).*

### 4.      Our administration has inherited an economy with rising and severe imbalances,

### 1argea2024001 - 4.      Our administration has inherited an economy with rising and severe imbalances,

### Inherited imbalances, distortions, and vulnerabilities
- High public deficits and no market access:
  - Sustained fiscal deficits added to public debt and reliance on inflationary (central bank) financing.
  - Expansionary fiscal policy ahead of the elections produced an unprecedented rise in the inflation tax of 5 percent of GDP and a large buildup in domestic arrears, in the absence of domestic and external market access.
  - Consolidation efforts have been undermined, including by the recent decision to raise the Personal Income Tax (PIT) floor.
- Inflation in triple digits and a weakened central bank:
  - Annual headline inflation reached over 160 percent in November, despite repressed inflation from administrative price controls.
  - Rapid expansion of BCRA interest-bearing liabilities for sterilization produced carrying costs that reached 260 percent in annual effective terms amid faltering peso demand.
- Depleted reserves and unsustainable increase in importers’ debts:
  - Net International Reserves (NIR) reached negative US$10.3 billion in early December.
  - Importers’ commercial debt increased by US$30 billion above the historical norm, complicating future balance of payments and adding pressure to the parallel exchange rate.
- Fragile social conditions:
  - Poverty is estimated to have risen to around 45 percent at end-2023.
  - 60 percent of children live in poverty.

### Structural impediments to growth
- Proliferation of price controls and distortions produced severe resource misallocation.
- Over-regulated product, labor, and financial markets have suffocated productivity, private sector investment and formal employment.
- Since 2011, Argentina’s real income per-capita has fallen by 11 percent and growth potential has stagnated.

### Program performance to date
- Fund-supported program went significantly off track since the fifth and sixth reviews due to policy slippages and unwillingness to adjust to shocks.
- Key performance criteria missed by large margins:
  - End-September target for the primary fiscal balance was missed, with deviations estimated to be even larger by end-2023.
  - End-2023 targets for net international reserves, domestic arrears, and direct monetary financing of the fiscal deficit were missed (deviations would have been larger without recent actions to align the exchange rate and boost reserves).
- Progress on structural benchmarks (SBs) stalled; missed deadlines in areas including:
  - Monitoring and transparency of public finances;
  - Adjustment of energy tariffs;
  - Strategy to improve the BCRA balance sheet;
  - Roadmap for gradually unwinding FX controls.

### Stabilization plan and near-term outlook
- Core policy stance:
  - Strong fiscal anchor aiming at a zero overall fiscal balance.
  - Elimination of net new central bank financing of the public sector.
  - Scaling up targeted social assistance; strengthening and simplifying FX regime; improving BCRA balance sheet and monetary policy; dismantling structural/regulatory impediments to growth.
  - Proper sequencing to allow for progressive easing of CFMs, as conditions permit.
- Near-term macroeconomic impacts and projections for 2024:
  - Non-agricultural real GDP projected to contract by around 5 percent.
  - Overall real GDP growth projected at -2.8 percent in 2024.
  - Monthly inflation expected to accelerate to over 20 percent in the initial months as price controls are unwound; disinflation expected thereafter with monthly inflation reaching single-digit levels by mid-2024.
  - External current account projected to move into surplus, facilitating reserve accumulation of at least US$7 billion in 2024, and close to US$10 billion since the administration took office on December 10 (against losses of US$20 billion through December 9, 2023).
  - Reserve accumulation pace contingent on orderly solution to pent-up currency demand from importers’ debt overhang.
  - Potential upside to reserve accumulation exists as the private sector is already tapping international capital markets.
- Medium-term outlook:
  - Recovery expected to begin in late 2024 as initial headwinds fade.
  - Growth projected to rebound to around 5 percent in 2025, with output levels returning to trend by 2029.
  - Potential growth conservatively projected at around 2.3 percent per annum, with significant upside from pro-market reforms and transformation in energy and mining sectors.
  - Annual inflation expected to decline gradually to single digits in the outer years of the projection horizon.
  - Sustained trade surpluses projected to enable additional reserve accumulation of US$5–10 billion per year over the medium term.
  - Gradual re-access to international capital markets for the public sector by late 2025.

### Key macroeconomic figures (Revised Macroeconomic Baseline, 2022–2024; figures as presented)
- GDP growth (avg, %): 5.0 -2.5 -1.1 2.8 -2.8
- Non-agro GDP: 5.7 -1.2 -0.3 1.1 -5.2
- Inflation (avg, %): 72.4 115.2 133.5 80.3 253.4
- Inflation (eop, %): 94.8 120.0 211.4 60.0 149.4
- Primary fiscal balance (% of GDP): -2.4 -1.9 -3.0 -0.9 2.0
- Overall fiscal balance (% GDP): -4.2 -4.1 -5.2 -4.0 0.0
- Current account balance (% GDP): -0.7 -0.6 -3.5 1.2 0.9
- Change in net int’l reserves (US$bn)1/: 6.5 -4.7 -20.0 8.2 9.7
- Change in importerś debt (goods and services; US$bn): 10.7 10.5 25.8 -6.0 2.4
- Net change in NIR and importerś debt (US$bn)2/: -4.2 -15.2 -45.8 14.2 7.3
- Monetary financing (% GDP)3/: 3.1 3.0 5.0 0.0 0.0

  Notes associated with these figures (as presented):
  - 1/ Net International Reserves (NIR) are gross reserves net of swap lines, deposit insurance, reserve requirements on FX deposits, and other reserves liabilities. For 2023, the measure is cumulative up to December 9, 2023; for 2024, the measure is cumulative starting December 10, 2023; at current rates.
  - 2/ The change in importers' debt is added with a negative sign to the change in NIR to reflect the drag on reserves and future reserve accumulation potential due to the policies that led to the extraordinary buildup in commercial debt.
  - 3/ Up to 2023 includes profit transfers, advances (adelantos) and secondary market purchases. For 2024 includes also issuance of new non-marketable government bonds and treasury buybacks, including that from December 21 2023.

### Program policy commitments and measures
Fiscal Policy
- Target: primary fiscal surplus of 2 percent of GDP by end-2024 (reverse from previous program target of a 0.9 percent of GDP primary deficit).
  - Implies an adjustment of around 5 percent of GDP.
  - Adjustment underpinned by balanced set of expenditure and temporary revenue measures; 2023 budget extended to keep tight controls over nominal spending.
- Expenditure cuts:
  - Rationalization of inefficient energy subsidies with electricity and gas tariff adjustments starting in February to secure a 0.5 percent of GDP reduction in energy subsidies (public hearings to outline proposals for the tariff increases as prior action).
  - Increases in urban transport tariffs.
  - Strict prioritization of capital spending: (i) protecting gas pipelines and essential maintenance; (ii) completing ongoing projects in advanced stages; (iii) pausing new public tenders and shifting infrastructure investment to the private sector where possible.
  - Cuts in transfers to provinces and state-owned enterprises as a first step to reform and privatization.
  - Reductions in government operating costs, including reorganization of national administration and cuts in number of ministries.
  - Streamlining public sector wage bill by immediately releasing workers hired in 2023 and rationalizing wage increases.
- Revenue increases (near-term, temporary):
  - Expand coverage of the tax on FX access (impuesto pais) to all goods and services imports and increase the rate to 17.5 percent from the previous average rate of 7.5 percent.
  - Increase export duties for all non-agricultural exports to 15 percent from an average of 7 percent; Omnibus bill proposed to temporarily raise export taxes.
  - Efforts to reverse the recent increase in the PIT threshold; separate legislation anticipated to be submitted to congress.
- Social spending protections and adjustments:
  - Reinforce social spending targeted at the vulnerable and arrest inflation-driven erosion in pensions.
  - Eliminate the pension indexation formula and preserve the real value of pensions, especially for lower-income pensioners, through discretionary increases (initiative included in Omnibus Bill); no pension moratoria will be granted and the most recent scheme will not be extended.
  - Streamline social programs distributed through intermediaries and significantly reinforce targeted transfers via AUH and food stamp (Tarjeta) programs; expand support to informal workers with no children currently outside the safety net.
  - With World Bank technical assistance, strengthen integration of administrative databases (proposed end-September 2024, SB).
- Additional measures under consideration for H2 2024:
  - Strengthen excises, streamline tax incentives/breaks, boost tax compliance.
  - Publish reforms to tariff segmentation scheme to better target subsidies on the basic energy basket for vulnerable households (proposed end-May 2024, SB).
- Arrears and cash management:
  - Cleared large overhang of domestic arrears by paying down ARS 1 trillion accumulated in Q4:2023.
  - Strengthen expenditure controls and cash management; considering transferring balances from Banco de la Nacion to the central bank and including balances of all central government entities in the treasury single account.
- Medium-term fiscal reform agenda (beyond 2024):
  - Deliver overall fiscal balance in 2025; submit draft 2025 budget to congress by September 15, 2024 (proposed SB).
  - Work with World Bank and IADB on proposals to: enhance tax efficiency and simplicity; strengthen pension sustainability and equity; rationalize SOEs and improve governance; increase efficiency of public employment; strengthen targeting and governance of the social safety net; revamp fiscal framework and improve coordination across government levels.

Financing Policy
- End monetary financing by achieving overall fiscal balance and strengthening domestic debt market.
  - Strengthen BCRA balance sheet while Treasury refinances existing peso debt via domestic capital markets.
  - Initial successful auctions began rebuilding cash buffers and enabled buybacks of government debt held by the central bank to maintain net zero credit to government, including puts (prior action).
  - Plan to extend maturities of a portion of domestic debt coming due this year (proposed end-March, 2024 SB).
- External financing and market access:
  - Secure net financing and technical support from official creditors and development partners (CAF, IADB, WB).
  - Maintain BCRA swap lines with People’s Bank of China (PBOC) and work on options to refinance funded tranches.
  - Program assumes re-establishment of market access by end-2025 (private sector likely earlier); goal is to manage external obligations to support resilience and growth, not to increase net external indebtedness.
  - Efforts to resolve outstanding official obligations and inherited arrears (e.g., resumed payments to Bolivia with payment plan to clear arrears by August 2024; ongoing discussions on Yacyreta; legal processes on international court cases including YPF nationalization).

*Source: IMF staff summary of the administration’s program as presented in the provided chapter.*

### 17.      To support stabilization efforts, the BCRA’s has streamlined its operational framework.

### 17.      To support stabilization efforts, the BCRA’s has streamlined its operational framework.

### Monetary operations and framework
- Auctions of the 28-day central bank paper (Leliq) ceased in mid-December, with the overnight (pases pasivos) rate becoming the sole policy instrument.
- The monetary policy stance and framework are expected to evolve over time to support money demand and the disinflation process.
- As fiscal dominance is addressed, authorities are working to refine the monetary policy framework and operations to ensure they are well anchored with clear and well communicated medium-term objectives to ensure price stability (proposed end-April, 2024 SB).
- To support these efforts, technical assistance has been requested from the Fund.

### Strengthening the BCRA balance sheet
- A plan is developed and being implemented focused on:
  - Elimination of all monetary financing of the fiscal deficit.
  - Accumulation of international reserves following the needed adjustment of FX policy.
- The plan fulfills the previously missed structural benchmark.
- The disinflation path is expected to restore real money demand from current historical lows, permitting a recomposition of BCRA liabilities.
- Authorities intend to sustain efforts and complement them with actions to gradually strengthen the quality of BCRA assets, and to further the application of international accounting standards.

### Financial sector controls, credit allocation, and monetary transmission
- Efforts underway to unwind financial sector controls and policy distortions to improve monetary transmission and credit allocation.
- Reviews under way for:
  - All commercial interest rates (deposit floors/lending caps).
  - Lending quotas.
- Longstanding credit incentive schemes are being phased out.
- Expected results:
  - Streamlining of deductions on reserve requirements.
  - Enhanced monetary policy transmission.
  - Improved credit allocation (private credit is near historic lows).
  - Improved banks’ ability to adjust to the evolving monetary policy framework.

### Exchange Rate Policy — recent adjustments and objectives
- Large step devaluation on December 12: nominal exchange rate moved from 360 ARS/USD to 800 ARS/USD.
- In parallel:
  - Temporarily expanded impuesto pais (importers effectively purchase FX at around 940 ARS/USD).
  - Maintained previous export promotion scheme with a reduced share of proceeds (20 percent) temporarily channeled to the parallel exchange rate market (contado con liquidacion, CCL).
- Official monthly crawl rate was set at 2 percent to serve as a complementary nominal anchor in the price formation process, as fiscal consolidation and reserve accumulation proceeds.
- Policies have already boosted reserves (¶3) and exchange rate policy will remain consistent with reserve accumulation goals.
- Actions taken to address relative price misalignments:
  - Conditions created to abandon previous approach of intervening to manage parallel or futures FX markets.
  - Reduced to zero the stock of dollar futures (NDFs) and stopped the sale of hard currency bonds in pesos in the parallel FX markets.

### FX regime rationalization, trade flows, and instruments to manage commercial debt
- Aim to increase transparency and simplicity of the FX regime and eliminate complex distortions and discretionary FX and trade-related controls.
- Opaque administrative import controls (SIRA/SIRASE) have been dismantled and replaced with a transparent, rules-based system including an automatic mechanism for the payment of imports over time.
- Planned or proposed actions:
  - (i) Eliminating the existing preferential export scheme (80 percent MULC / 20 percent CCL) (proposed end-June 2024, SB).
  - (ii) Fully unwinding the impuesto pais and streamlining withholding taxes on imports by end-2024, or earlier as conditions permit.
- Strategy to unwind large external commercial debt overhang transparently while protecting activity and employment; a prior action was developed to ensure an orderly solution to this debt stock to normalize trade flows.
- BCRA created three series of new FX-denominated instruments (BOPREAL) with maturities up to 4 years and varying interest rates:
  - Window for subscriptions will close by end-February and issuance of each instrument will be limited, subject to projected availability of FX reserves.
  - Holders of the initial US$5 billion of longer-dated instruments will be able to apply 70 percent of these to settle tax liabilities.
  - Instruments intended to provide predictability for importers, absorb peso liquidity, and alleviate near-term FX pressures.
  - Structured as an FX swap transaction; does not imply a subsidy or public indebtedness (by BCRA or Treasury) as the commercial obligation remains between private entities.
- A rigorous independent trade registry process has been created to provide transparency and avoid perceived over-reporting of commercial debts.

### Roadmap to unify exchange rate and lift FX controls
- Goal to eventually unify the exchange rate and lift FX controls as conditions permit.
- Developing a roadmap for the gradual unwinding of FX controls (reset to end-June 2024, SB), to be carefully calibrated and contingent on progress implementing the stabilization plan.
- Expectation that greater predictability will help encourage foreign direct investment and growth.
- Recent policy shift has opened private sector access to the external debt market earlier than expected.

### Structural policies and deregulation
- Emergency Decree (DNU 70/2023) issued with over 300 measures to enhance competition across sectors (housing, transport, airspace, healthcare, pharmaceutical, tourism) and strengthen labor market flexibility:
  - Cuts in hard-to-predict fines on layoffs (above and beyond severance pay).
  - Removal of other hiring and firing bottlenecks.
  - Repeal of laws that discouraged investment (Land Law, Supply Law) and laws that distorted markets (Rent Law, Shelf Law).
  - Changed legal status of SOEs to facilitate future privatization.
  - Amended customs code to eliminate export limits.
  - Reinforced power of private contracts by freeing them from restrictions in the civil and commercial codes.
- Legislative initiatives will follow to implement changes and regulations to safeguard competition.

### Investment, energy, and export-related reforms
- Retail fuel prices adjusted to better reflect costs; proposal to eliminate domestic oil price controls.
- Stronger regulations and proper pricing of electricity and natural gas utility sectors expected to boost investment and exports in shale oil and gas.
- Legislation submitted to strengthen regulation and create incentives for long-term investment in strategic sectors like energy and mining, including green metals.

### Transparency, governance, and AML/CFT
- Commitment to strengthen transparency and governance to reduce rent-seeking and tackle pervasive corruption.
- Consideration to conduct a comprehensive governance assessment with Fund technical support to identify priorities for a medium-term strategy.
- Plans to:
  - Seek public-private partnerships that limit fiscal risks.
  - Review and strengthen public procurement processes, including extending coverage of government websites (COMPR.AR and CONTRAT.AR) and reforming the Procurement Law (Ley de Compras).
  - Boost AML/CFT framework and define a path forward in accordance with FATF Recommendations and assessment of proposed AML/CFT legislation reforms and the results of the 2022 National Risk Assessment.

### Program monitoring, targets, and conditionality
- Overhaul requested for program conditionality and monitoring to ensure program remains on track.
- Implementation to be monitored through prior actions (PAs), revised quantitative performance criteria (QPCs), indicative targets (ITs), continuous performance criteria (PCs), and structural benchmarks (SBs).
- Revised quarterly and monthly targets to be set; rephasing and extension of program targets requested to facilitate timely assessment through end-2024.
- The attached Technical Memorandum of Understanding (TMU) defines quantitative performance criteria and indicative targets under the program.
- Quantitative targets for end-March 2024, end-June 2024, and end-September 2024—along with continuous PCs and ITs—are set out in Table 1; the PAs and SBs are set out in Table 2.
- Selected quantitative figures and target language preserved exactly as in program tables and text:
  - Proposed end-April, 2024 SB for refinement of the monetary policy framework and operations.
  - Proposed end-June, 2024 SB to eliminate the existing preferential export scheme.
  - Proposed end-March, 2024 SB to develop and publish a roadmap for gradual easing of FX controls (reset to end-June, 2024).
  - Table 2 proposed structural benchmark completion dates and descriptions (examples include: end-March, 2024; end-April, 2024; end-May, 2024; end-June, 2024; end-September, 2024; September 15, 2024).
  - Table 1 and Table 2 include detailed fiscal and monetary targets, performance criteria, and status notations (e.g., "Not Met", "Met") as presented.

*Source: 1argea2024001 - 17.      To support stabilization efforts, the BCRA’s has streamlined its operational framework.*

### 9. Publish first enhanced quarterly report for public corporations and trust

### 9. Publish first enhanced quarterly report for public corporations and trust funds including a breakdown of assets and liabilities, based on 2022 data and quarterly data through 2022Q4

### Program exchange rates and inflation assumption
- Program exchange rates (rates published by the BCRA as of December 29, 2023):
  - Argentine Pesos to the US dollar 808.45
  - Argentine Pesos to the SDR 1,084.67
  - Argentine Pesos to the Euro 893.90
  - Argentine Pesos to the Canadian dollar 611.95
  - Argentine Pesos to the British pound 1,031.02
  - Argentine Pesos to the Renminbi 113.85
  - Gold price (US$/ounce) 2,064.45
- Inflation assumption for setting program PCs and ITs: average annual point estimate of 253.4 percent in 2024.

### Fiscal definitions and measurement
- Federal government coverage for the program: central administration, social security institutions, decentralized institutions (Administración Nacional), PAMI, fiduciary funds, and other entities and enterprises of the federal government.
- Federal government primary balance:
  - Measured above-the-line and defined in accordance with the monthly and annual reporting of the “Esquema IMIG”, with additional adjustments to reflect 2014 GFS Manual accounting practices.
  - Equivalent to total revenues (ingresos totales, according to “Esquema IMIG”) 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), and capital revenues (ingresos de capital).
  - Revenues excluded from assessment of the primary deficit floor: any type of financial transfers from the Central Bank (including Utilidades and Adelantos Transitorios), interest income from intra-public sector holding of securities and debt obligations, proceeds from the sale of financial assets (including privatization proceeds through the sale of shares), proceeds from the sale of licenses/permits (including payments for mobile phone or broadcast licenses, and natural resource permits), revenue income from the issuance of government debt that is part of non-tax revenues (resto rentas de la propiedad), and special drawing rights (SDRs) allocated by the Fund or received bilaterally from other IMF members.
- Federal government 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), which includes capital transfers to provinces.
- Treatment of public-private partnerships, divestment costs, and non-cash settlements:
  - Government-funded public-private partnerships treated as traditional public procurements; obligations recorded transparently and measured as part of the Federal government deficit on a cash basis.
  - Costs associated with divestment or liquidation of public entities allocated to current and capital expenditures accordingly.
  - All primary expenditures directly settled with bonds or other non-cash liabilities recorded above-the-line and count as spending, except settlements of liabilities related to pensions, revenue sharing and expenditure allocation with provinces and the Autonomous City of Buenos Aires associated with court proceedings finalized or pending as of March 3, 2022, and payments of arrears per ICSID or similar arbitration rulings.
- Measurement and monitoring:
  - Federal government primary balance measured at each test date as the cumulative value starting from the beginning of each calendar year.
  - All fiscal data needed for program monitoring 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 equal the floating debt, the difference between primary spending recorded on an accrual basis (gasto devengado, from the SIDIF system) and primary spending recorded on a cash basis (base caja, from the Treasury). Includes intra-public transfers (transferencias figurativas), and primary spending for personnel (gasto en personal), acquisition of goods and services (bienes y servicios), nonprofessional services (servicios no profesionales), capital expenditures (bienes de uso), and transfers (transferencias).
- Measurement: Arrears measured on a daily basis.
- Ceiling: Arrears will be capped at 0.8 percent of GDP (ARS 5,264,553 million) for the daily average of the final two weeks of each quarter.
- Monitoring: Daily data on the stock of arrears (and underlying spending on an accrual and cash basis), recorded at daily frequency, will be provided to the Fund with a lag of no more than 25 calendar days after the end of each month.

### Cumulative Floor on the Change in Net International Reserves (NIR) of BCRA
- Definitions:
  - NIR equal to the balance of payments concept of NIR defined as the U.S. dollar value of gross official reserves of the BCRA minus gross official reserve liabilities. Non-U.S. dollar denominated foreign assets and liabilities will be converted into U.S. dollar at the program exchange rates.
  - Gross official reserve assets defined consistently with BPM6 and include BCRA’s (i) monetary claims, (ii) free gold, (iii) holdings of SDRs, including all Fund disbursements since March 25, 2022, (iv) the reserve position in the IMF, (v) holdings of fixed income instruments and (vi) net cash balances within ALADI. Excluded: assets pledged, collateralized, or encumbered; claims on residents; claims from derivatives in foreign currency vis-à-vis domestic currency; precious metals other than gold; assets in nonconvertible currencies; illiquid assets.
  - Gross official reserve liabilities in foreign currencies include (i) foreign currency liabilities with original maturity of one year or less, (ii) Fund cumulative disbursements, except for the net financing component of the program (SDR 3.166 billion), net of cumulative Fund payments since March 25, 2022, and (iii) any deliverable forward FX liabilities with original maturity of one year or less 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.
  - Foreign currency swaps with the People’s Bank of China and with the BIS, foreign exchange bank reserve requirements, SEDESA, ALADI and other non-resident deposits considered as FX liabilities of the BCRA with maturity of one year or less for program purposes.
- Measurement: The change in NIR is the cumulative change in the stock of NIR at each test date relative to the stock on December 10, 2023.
- Monitoring: Foreign exchange asset and liability data at the BCRA will be provided to the Fund at daily frequency within two days.
- Adjustor for official non-project loans and grants:
  - NIR targets adjusted upward (downward) by the surplus (shortfall) in program loan disbursements and grants from multilateral institutions (including the BCIE, EIB, IBRD, IADB and CAF) and bilateral partners, relative to the baseline projection reported in Text Table 2.
  - Downward adjustor capped at a cumulative of US$750 million in each calendar year.
  - Program loan disbursements defined as external loan disbursements (excluding project financing disbursements and IMF disbursements) from official creditors for financing of the general government.
- Program loan disbursements (Baseline Projection) cumulative from January 1 (In millions of US$):
  - end-March 2024 66
  - end-June 2024 199
  - end-September 2024 437
  - end-December 2024 950

### Central Bank (BCRA) financing to the government and limits
- Definitions of BCRA financing to the government include:
  - overdraft transfers from the BCRA to the Federal Government (Adelantos Transitorios),
  - distribution of profits (Utilidades),
  - acquisition of government debt in the primary market or by direct purchases from public institutions,
  - issuance of new non-marketable government bonds (Letras Intransferibles),
  - purchase of government securities in the secondary markets, including transactions bilateral, conducted at MAE and BYMA, or made at other parties’ discretion from application of regulation A7291 and execution of “put options” on government securities (under A7555 and A7716).
- Net financing defined as financing to the government net of cash transfers from the Federal Government to the BCRA to repurchase government securities, reduce the stock of overdraft transfers or the stock of non-marketable government bonds or recapitalize the BCRA. Transactions in the context of debt exchanges or rollover of non-marketable government bonds are excluded.
- Measurement: The cap of cumulative flows on net financing is set to zero in 2024.
- Clarification: Any decrease in the stock of Adelantos shall only reflect cash payments of this amount in pesos by the Treasury to the BCRA. Transfer of Letras Intransferibles to the BCRA will not reduce the stock of Adelantos.
- Monitoring: Daily data will be provided to the Fund within two days. The flow of BCRA net financing to the government measured at each test date as the cumulative value starting from December 10, 2023. Secondary market purchases measured up to the end of the month prior to the target date.

### Continuous performance criteria and other constraints
- Federal Government Non-Accumulation of External Debt Payment Arrears:
  - Debt defined as current, contractual liabilities created through provision of value and requiring future payments in assets or services; includes loans, suppliers’ credits, and leases (with lease debt equal to present value at inception of lease payments expected).
  - External debt determined by residency criterion (includes nonresident holdings of Argentine law peso and foreign currency debt).
  - External arrears defined as external debt obligations (principal and interest) falling due after March 3, 2022, that have not been paid, considering contractual grace periods.
  - Coverage: this PC covers the federal government; does not cover (i) arrears on trade credits, (ii) arrears on debt subject to renegotiation or restructuring, (iii) arrears from nonpayment of commercial claims that are the subject of litigation initiated prior to March 3, 2022.
  - Monitoring: continuous basis.
- Exchange restrictions, MCPs, bilateral payment agreements and import restrictions:
  - Continuous performance criteria to seek not to: (i) impose or intensify any exchange restrictions, (ii) introduce or modify Multiple Currency Practices (MCPs), (iii) conclude bilateral payment agreements inconsistent with Article VIII, (iv) impose or intensify import restrictions for balance of payments reasons.

### Quantitative indicative target: Federal government social assistance spending
- Definition: Social spending for program purposes computed as cumulative sum of all federal government spending (current and capital) on the following social assistance programs:
  - Asignación Universal para Protección Social, which includes Asignación Universal por Hijo, Asignación por Embarazo, and Ayuda Escolar Anual
  - Tarjeta Alimentar
  - Progresar
- Monitoring: Data provided to the Fund with a lag of no more than 25 calendar days after the end of each month.

*Source: 1argea2024001 - 9. Publish first enhanced quarterly report for public corporations and trust funds*

### 25.      In addition to providing any data and information staff request to monitor program

### 1argea2024001 - 25.      In addition to providing any data and information staff request to monitor program

### Data reporting requirements for program monitoring
- Authorities will provide, in addition to any staff-requested data and information, the following datasets to ensure adequate monitoring of economic variables.

### Daily reporting (required items)
- Nominal exchange rates; total currency issued by the BCRA; deposits held by financial institutions at the BCRA; total liquidity assistance to banks through normal BCRA operations, including overdrafts; and interest rates on overnight deposits.
- Disaggregated data of BCRA’s international reserve assets by source with a lag of three days.
- Aggregated data on banks’ foreign exchange positions, provided in the following categories: public national; public provincial; private domestic; private foreign; and small banks.
- Data on gross BCRA sales and purchases of securities settled in different currencies, for each market segment and at transaction price in the applicable currency, to be provided to the Fund with a daily frequency, with a lag of three days.
- Data on BCRA position of non-deliverable futures by maturity, to be provided within two working days.
- Data on BCRA government securities purchased and sold in the secondary market by maturity and mechanism, and corresponding price and quantities, with a lag of three days.
- Data on the outstanding stock of BCRA put options on government bonds.

### Weekly reporting
- BCRA balance sheet.
- Daily data on BCRA-issued securities by type of security and interest rate.
- Weekly data on (i) the stock of BOPREAL by series, (ii) the maturity profile of BOPREAL, (iii) interest payments on BOPREAL and (iv) the stock of the debt registry.
- Daily data on sales and purchases of securities settled in different currencies, recorded and provided by the Comision Nacional de Valores, including trading by the BCRA. This information will include a report of the daily estimation of total stocks and implicit exchange rate of the most representative securities transacted in the CCL and MEP modalities and operations.
- Daily data on Treasury deposits in SDRs at the BCRA.
- Daily data on flows in and out of the BCRA’s SDR holding account including amount and purpose.

### Fortnightly reporting
- Interest rates on domestic debt instruments including LELITE, LEDES, LECER, LEPAS, BONAR, BONTE, BONAD and BONCER at different maturities.
- Information on outstanding debt instruments (local and global debt): maturity, currency, legislation, characteristics (DL, Dual, CER, fixed), holders (banks, FXI, insurance, corporates, foreigners, BCRA, FGS, BNA, provinces).
- Daily data on external financing from each multilateral and bilateral creditor, broken down by budget support and project financing, and by largest bilateral projects.

### Monthly reporting (to be provided with a lag of no more than 25 days after month close, unless otherwise stated)
- Federal government operations including monthly cash flow from the beginning to the end of the current fiscal year (and backward revisions as necessary), according to both the format of the Informe Mensual de Ingresos y Gastos (IMIG) and to the format of the Cuenta Ahorro Inversion Financiamiento (AIF). Specific reporting will include:
  - i. Revenues from sales of physical assets, licenses, and permits (and 12-month projections for future sales of such assets).
  - ii. Income related to the issuance of government debt securities (resto de rentas de la propiedad).
- Data on the stock of domestic arrears by ministry or agency.
- Fiscal financing sources (below-the-line), including BCRA transfers, issuance of domestic public securities, financing from within the non-financial public sector, external financing, and other financing schemes.
- Detailed quarterly financing plan for the coming twelve months, including the aforementioned sources, to be provided one month in advance.
- External financing received and projections for the coming four quarters, with loans and grants categorized by program and project.
- On federal debt:
  - i. Domestic and external debt service (amortization and interest payments) of the federal government, with a lag of no more than 25 days after the closing of each month. Projected monthly federal government debt amortization/repayments and interest payments (local currency and FX bonds, treasury bills, Eurobonds, domestic loans, external commercial and external official loans). This would include both direct and guaranteed debt. In the case of issuance of government guaranteed debt, the name of the guaranteed individual/institution shall be included.
  - ii. Information on the stock of external arrears will be reported on a continuous basis.
  - iii. Federal government debt stock by currency, as at end month, including by (i) creditor (official, commercial domestic, commercial external); (ii) instrument (local currency and FX   denominated bonds, treasury bills, Eurobonds, domestic loans, external commercial and external official loans); and (iii) direct and guaranteed.
  - iv. The balances of the (federal) government at the central bank and in the commercial banking system needed to determine the cash position of the (federal) government.
- Required and excess reserves of the banking sector in local and foreign currency.
- Balance sheets of other financial corporations (non-deposit taking), including holdings of federal and provincial debt and of the BCRA instruments within one month after month end.
- Data on the total loans value of all new federal government-funded public private partnerships.

### Quarterly reporting
- Federal government transfers to the provinces and the Autonomous City of Buenos Aires related to the settlement of liabilities associated with pensions, revenue sharing and expenditure allocation, as well as payments of arrears as per ICSID or similar arbitration rulings.
- On provincial government operations, with a lag of no more than two months after the closing of each quarter, according to the format defined by the Ministry of Finance.
- On provincial debt:
  - i. Quarterly data on the provincial government debt stock by currency, provided within two months following the closing of each quarter, including by (i) creditor (official, commercial domestic, commercial external); (ii) instrument (local currency and FX denominated bonds, treasury bills, Eurobonds, domestic loans, external commercial and external official loans); and (iii) direct and guaranteed.
  - ii. Quarterly domestic and external debt service (amortization and interest payments) of the provincial governments, provided within two months following the closing of each quarter.
  - iii. Quarterly projections for the following semester for provincial government debt amortization/repayments and interest payments, at least 30 days before the end of each quarter. This would include local currency and FX bonds, treasury bills, Eurobonds, domestic loans, external commercial and external official loans, and both direct and guaranteed debt. In the case of issuance of government guaranteed debt, the name of the guaranteed individual/institution shall be included.

### Recent developments, program performance, and key statistics (supplementary information)
- Reserve and FX market developments:
  - The central bank has continued buying FX in the official market, with cumulative purchases since December 10, 2023, reaching US$5.9 billion as of January 26, 2024.
  - Argentine bond prices continue to outperform emerging market peers yet remain at distressed levels (35-  40cents on the USD), and the FX gap is  now hovering around 50 percent.
  - High frequency data confirms a contraction in activity and shift to a trade surplus due to tighter policies and exchange rate realignment.
  - Preliminary data suggests some slowdown in inflation during January.
  - Economic activity fell by 1.4 percent m/m in November.
  - December trade data: swing to surplus (US$1 billion) from a deficit in November (US$0.6 billion), reflecting a compression in import volumes (15 percent m/m SA) and a rebound in export volumes (11 percent m/m SA).
- Fiscal outcomes and actions:
  - The cumulative primary deficit reached 2.9 percent of GDP in 2023, above the 1.9 percent of GDP target.
  - For 2023, real revenues were down 7 percent y/y; export duties down 58 percent y/y (from the drought); real primary spending down 5 percent y/y.
  - The bulk of the deficit was financed by the central bank.
  - The authorities completed all agreed prior actions, including energy tariff adjustments and a market strategy for addressing importer debt.
  - Energy: gas and electricity prices will quickly reach cost recovery by April 2024, except for the most vulnerable households; programmed reduction in energy subsidies by 0.5 percent of GDP this year.
  - Importer debt: subscriptions to the first-series, longer-dated FX securities reached US$4.1 billion of the allotted US$5 billion. The total stock of registered commercial debt for imports (accumulated before December 13, 2023) reached US$42.6 billion, net of US$8.5 billion of debt canceled without access to the official FX market.
  - Limits to central bank credit: From December 10 to January 26, the Treasury placed ARS7.5 trillion (3.9 percent of 2023 GDP) of debt through primary auctions and used ARS3.8 trillion to buy back debt from the BCRA, keeping net central bank credit to the government below zero (ARS -1.2 trillion).
- Social measures and legislative agenda:
  - Social assistance: universal child allowance (AUH) doubled; food stamps increased 50 percent in January and a further 100 percent increase announced effective February; discretionary bonuses for pensioners and social allowance recipients; exemption from urban transport price increases for social allowance recipients.
  - Legislative plans: government to treat fiscal elements separately in the Omnibus bill to expedite approval; normalize fuel excises starting in February to permit earlier-than-planned discarding of export duties; legislation submitted to undo personal income tax changes (proposal contemplates ARS1,250,000 monthly non-taxable floor versus ARS2,340,000 currently), with projected increase in the share of workers paying PIT to around 7 percent, from 1 percent currently, and revenue yields of about 0.4 percent of GDP per year at the federal level.

### Program performance indicators (selected observations from Table 1)
- The cumulative primary deficit outcome for 2023 was 2.9 percent of GDP (described in text).
- Monetary performance criteria outcomes noted include multiple instances of "Not Met" for the cumulative floor on the change in net international reserves of BCRA and for the ceiling on central bank financing of the federal government, as summarized in Table 1 (detailed tabulations provided in the source table).

*Source: Argentina — Seventh Review under the Extended Arrangement under the Extended Fund Facility, Supplementary Information and Supplementary Letter of Intent (January 29, 2024).*

### Appendix I. Supplementary Letter of Intent

### Appendix I. Supplementary Letter of Intent

### Implementation progress and recent actions
- Continued implementation of the stabilization plan since the January 18 letter.
- Advanced decisively in resolving the overhang of importer debt.
- Finalized public hearings to realign energy utility tariffs.
- Strengthened the central bank’s balance sheet, including by continuing to ensure zero net credit to government (all prior actions).
- Doubled efforts to enhance social spending to protect the most vulnerable.
- Continued to accumulate reserves—over US$5.9 billion since December 10—allowing Argentina to stay current on all external debt service.
- High frequency indicators suggest inflation is gradually falling.
- Submitted an Omnibus bill to Congress to create a more rules-based and market-oriented economy; fiscal elements of the bill were separated to facilitate earlier approval.

### Fiscal policy, targets, and measures
- Authorities report they are now running a primary surplus, consistent with reaching an overall fiscal balance this year.
- Committed to use all available options to support the fiscal path and targets, including using executive discretion starting February to progressively normalize fuel excises.
- Fiscal consolidation: a frontloaded fiscal consolidation of 5 percent of GDP is envisaged to reach an overall fiscal balance and end monetary financing.
- Fiscal correction anchored in a combination of expenditure and revenue measures.
  - Spending measures include: cutting discretionary items of the national administration, reverting expansionary actions such as VAT exemptions, reducing energy and transport subsidies, rationalizing the public sector wage bill, realigning capital expenditures to new priorities, and curbing transfers to provinces and state-owned enterprises.
  - Revenue measures include: mobilizing revenues from temporary sources; taxes on FX access for imports were temporarily raised to 17.5 percent from 7.5 percent; two important tax-increase initiatives being considered in Congress (Omnibus bill proposing a temporary rise in export taxes with different rates for agricultural and non-agricultural exports; an initiative to increase the personal income tax threshold).
- Acknowledgment that higher quality measures will be needed in late 2024 and beyond to improve tax and spending efficiency; plans being developed with IMF, IDB, and World Bank technical assistance to:
  - Improve tax compliance and rationalize the tax system.
  - Enhance the targeting of subsidies.
  - Improve the sustainability of the pension system.
  - Reinforce coordination at provincial levels.
  - Improve governance of SOEs.
- Commitment to safeguard the real value of pensions through discretionary bonuses while eliminating the current distortive pension indexation mechanism (negotiations ongoing).

### Exchange rate, reserves, and external sector measures
- Implemented a large step devaluation of 120 percent, taking the nominal official exchange rate from 360 ARS/USD to 800 ARS/USD.
- Set the initial crawling rate at 2 percent per month to provide a nominal complementary anchor for inflation.
- Created a scheme to provide an orderly solution to the large commercial debt stock; initial auctions have attracted north of USD4 billion.
- Streamlined exchange restrictions and multiple currency practices; committed to eliminate them by the end of this year.
- Goal to ultimately unify the FX and lift CFMs, as conditions permit, and expediting development of a roadmap for their gradual unwinding.
- New FX framework has allowed stable central bank interventions in the official market, with purchases of about US$6 billion.
- Expectation to continue reserve accumulation, facilitating a reserve accumulation of at least US$7 billion in 2024, which is about US$10 billion since the administration took office, supported mainly by the new policy set and export improvement as the 2023 severe drought unwinds.

### Monetary policy and banking sector measures
- Monetary policy will evolve to support money demand and disinflation goals; the monetary framework will be strengthened to ensure the central bank can play an anchoring role.
- Elimination of Leliqs (28-day central bank securities) has occurred; priority given to continue to strengthen the central bank balance sheet, including by stopping any form of monetary financing of the fiscal deficit.
- Bank regulations will be gradually realigned for better monetary transmission and credit allocation.
- Recent net financing from successful auctions through January 2024 resulted in net financing of about 1.6 percent of the GDP, allowing the Treasury to rebuild cash buffers and buyback government debt held by the central bank.

### Financing, multilateral engagement, and debt management
- Continued deepening engagement with multilateral and regional development banks to mobilize financing and technical support.
- Working closely with all bilateral creditors to secure delivery of committed financing.
- Focus on securing rollover of domestic obligations.
- Encouraged Executive Directors to support:
  - The seventh review under the Extended Fund Facility.
  - Requests for waivers of applicability and nonobservance of performance criteria.
  - The modification of performance criteria.
  - Temporary exchange restrictions and multiple currency practices.
  - The rephasing of access and the financing assurances review.

### Structural reforms, investment, and export potential
- Plan includes high-quality policies to unlock Argentina’s potential in agriculture, energy, mining, technology, and other strategic sectors.
- Realignment of relative prices and completion of projects for field development and crude and gas transportation could boost crude exports by US$8 billion over the medium term.
- Numerous mining projects (copper, lithium, gold, and silver) underway could expand export capacity and opportunities in battery production and electro-mobility; prospects for LNG exports are being explored.
- Improved investment framework included in medium-term initiatives, with continued efforts to improve transparency and governance, including further strengthening the AML/CFT framework in line with international standards.

### Social protection and distributional considerations
- Enhanced social spending to protect the most vulnerable is being prioritized.
- Safeguarding the value of pensions in real terms is emphasized; preservation via discretionary bonuses while negotiating elimination of distortive pension indexation.
- Acknowledgement that the delicate social situation requires utmost attention.

### Summary assessment and authorities’ commitments
- Authorities view the package as comprehensive in scale and ambition, targeting twin fiscal and current account surpluses to bring down inflation and restore fiscal and external sustainability.
- Recognition that initial corrective measures have begun bearing fruit and that the stabilization process will be challenging, with conditions likely getting worse before getting better.
- Authorities reaffirm strengthened commitment to the policies and objectives of the economic program supported by the IMF arrangement under the Extended Fund Facility (EFF), and to meeting the enhanced program's targets and structural conditionality for the remainder of the program.
- Request for IMF Executive Directors’ support for the seventh review and associated waivers, modifications, and reviews.

*Source: Appendix I. Supplementary Letter of Intent (Buenos Aires, Argentina, January 29, 2024) and Statement by Mr. Madcur (January 31, 2024).*

---


_Source: https://www.imf.org/-/media/files/publications/cr/2024/english/1argea2024001.pdf_