## 1argea2025001-print-pdf ## Source details **Canonical URL:** [1argea2025001-print-pdf](https://www.imf.org/-/media/files/publications/cr/2025/english/1argea2025001-print-pdf.pdf) ## Other formats - [Markdown version](/-/media/files/publications/cr/2025/english/1argea2025001-print-pdf.pdf.md) - [Structured JSON version](/-/media/files/publications/cr/2025/english/1argea2025001-print-pdf.pdf.json) --- ### Executive summary — overall assessment - IMF Executive Board approved a 30-month arrangement for Argentina supported by the Extended Fund Facility (2022 EFF) on March 25, 2022. - Arrangement amount: US$44 billion (1,001 percent of quota). - Of the planned 10 reviews, eight were completed; arrangement expiry: end-2024. - The 2022 EFF eased Argentina’s repayment schedule to the Fund into 2026-2034 but did not deliver a durable resolution of the BoP problem during 2022–23. - Program performance featured two distinct phases: 2022–23 (program off-track amid shocks, policy slippages, and depleted reserves) and 2024 (sharp policy reversal under new administration with large fiscal consolidation and devaluation, followed by recession and falling inflation). ### Context and pre-program conditions - Legacy and immediate pre-2022 conditions: - Concentrated repayments from 2018 SBA: US$35 billion during 2022-23. - Net international reserves by end-2021: US$2.3 billion. - Gross FX reserves: US$39.7 billion (but much held against liabilities). - Inflation by end-2021: around 50 percent p.a. - Federal government budget deficit by end-2021: 4.5 percent of GDP. - Public debt assessment changed from “sustainable with high probability” to “sustainable but not with high probability.” - Institutional and political constraints: - Authorities’ “redlines” limited scope and strength of reforms. - Political fragility: intra-coalition opposition at congressional approval and later pre-election policy shifts. ### Program design and strategy - Core objectives (four-pillar framework): - (i) growth-friendly fiscal consolidation; - (ii) gradual disinflation via reduced monetary financing; - (iii) strengthen external position through competitive REER and FX reserve accumulation; - (iv) structural reforms to enhance sustainability and resilience of growth. - Key program parameters and calibration: - Access: SDR 31.914 billion (1,001.3 percent of quota). - Duration: 30 months. - Fiscal consolidation envisaged: cumulative primary balance improvement of 2.2 percent of GDP (around 0.7 percent of GDP per year during 2022-24) and additional 2.1 percent of GDP in 2025-27. - Disinflation target: reduce inflation from 51 percent at end-2021 to 33 percent by end-2024. - Reserve accumulation target: US$15 billion during the program period. - Conditionality and monitoring: - QPCs focused on primary balance floors, BCRA NIR floors, ceilings on monetary financing, ceilings on federal government stock of domestic arrears. - Continuous PCs disallowed intensification of exchange restrictions, new MCPs, and accumulation of external debt payments arrears by the federal government. - Structural benchmarks emphasized fiscal consolidation, monetary framework strengthening, roadmap for easing FX controls, and social protection evaluation. ### Implementation frictions and program weaknesses - Design constraints and omissions: - Program accepted many authorities’ redlines, yielding a baseline fiscal path weaker than staff initially advocated. - Fiscal strategy was modest and heavily backloaded; about a half of intended consolidation was projected for the last year when most Fund financing would already have been disbursed. - No overall nominal monetary anchor (e.g., NDA or base money limit) was included; BCRA quasi-fiscal losses and secondary market purchases were not fully captured by conditionality until late. - Contingency plans existed informally but were not reflected in published documents; no downside macro scenario was presented at approval. - Financing and phasing risks: - Heavy reliance on Fund financing with limited catalytic role for other creditors; burden sharing low. - Program assumed net domestic financing from private sources of about 2 percent of GDP per year vs realized average of 0.6 percent of GDP in 2022-2023 and program-assumed BCRA support of 1 percent of GDP. ### Macroeconomic shocks, implementation, and outcomes through end-2023 - Major shocks and chronology: - Russia’s war in Ukraine: surge in global commodity prices feeding inflation and boosting fiscal spending that was monetized. - Severe La Niña-induced drought in 2023: exports fell by a quarter; agricultural GDP contracted by 17 percent in 2023; estimated loss of US$20 billion in FX inflows. - Pre-election policy slippages in 2023: fiscal populism, tariff freezes, new bonuses and tax breaks, accumulation of arrears. - Key macro outcomes through late-2023: - Growth: 4½ percent in 2022; contraction of 1½ percent in 2023. - Average annual inflation in 2023: 130 percent; inflation by late-2023: over 200 percent (211 percent end-2023 reported elsewhere). - Real exchange rate: appreciated about 20 percent between 2021 and 2023. - Current account: moved from surplus in 2021 to deficit of 3½ percent of GDP in 2023. - Gross FX reserves: more than halved to US$21 billion by December 2023; NIR reached a low of negative US$11 billion in December 2023. - Argentina’s EMBIG bond spread by late-2023: about 2,500bps (up some 700bps from program start). - BCRA quasi-fiscal losses: rose from 3.3 percent of GDP in 2021 to 5.2 percent of GDP in 2022 and 10.5 percent of GDP in 2023. ### Policy reversal and developments in 2024 (Phase Two) - Political change and policy shifts: - November 2023 election of President Milei triggered large policy corrections in December 2023 and 2024. - Major policy actions and immediate effects: - Devaluation in 2024: 120 percent upfront nominal devaluation (December 2023 step devaluation). - Fiscal consolidation in 2024: about 5 percentage points of GDP, bringing the overall budget to balance. - Discontinuation of monetary financing substantially reduced money growth and quasi-fiscal losses. - Rapid FX gap narrowing: FX gap narrowed from 190 percent to about 20 percent by March 2024 and to single digits by early December 2024. - Gross reserves improved by about US$11 billion by mid-December 2024 (from US$21 billion in Dec-2023 to higher levels reported subsequently). - Sovereign spreads under new administration: around 750bps at time of report (fell from about 2,000bps in Dec-2023). - Economic and social costs in 2024: - Fall in output: Fall 2024 projection for 2024: ‒ 3½ percent (Fall 2024 projection). - Poverty rates in first half of 2024: exceeding 50 percent; extreme poverty surpassed 18 percent at end-June 2024. - Employment and growth impacts severe; social measures scaled up to mitigate hardship. ### Assessment of program performance and Fund decisions - What the 2022 EFF achieved: - Rescheduled Fund repayments into 2026-2034, easing immediate financial burden. - Likely helped avoid arrears to the Fund that would have had severe repercussions for Argentina and the Fund. - What the program failed to do during 2022–23: - Did not deliver durable BoP resolution due to insufficiently strong and frontloaded adjustment, large FX gap, and BCRA quasi-fiscal losses undermining disinflation and reserve accumulation. - Limited implementation of deeper structural reforms to reduce budget rigidities and tax distortions. - Risk and safeguards judgments: - Staff assessed Capacity to Repay (CtR) risks as “very high” at approval; CtR remained classified as subject to “exceptional risks” in later reviews though improving metrics in 2024. - Gross reserves (GIR) overstate usable buffers relative to net international reserves (NIR); reliance on GIR metrics risked overstating repay capacity. - Enterprise and reputational risks to the Fund were substantial given Argentina’s large exposure. ### Lessons learned, unresolved questions, and policy implications - Key policy and institutional questions raised: - Is the Fund’s lending policy framework appropriate for very large and concentrated exposures where repurchases to the Fund are a major part of the member’s BoP problem? - When is resolution unlikely through a single GRA arrangement and a different or staged approach needed? - Should CtR assessments rely on the most relevant reserve metrics (gross vs net) in complex reserve structures? - Should technical assistance for debt restructuring outside Fund-supported programs be reconsidered because of signaling risks? - Should repeated approvals of reviews based on “temporary” FX control measures be more strictly constrained because they can delay needed adjustment? - Should contingency plans be formally committed and documented to raise reputational costs of non-implementation? - How should the Fund and shareholders insulate staff and operations from political pressure to reinforce credibility and impartiality? - Program design and conditionality recommendations: - Adopt a more ambitious, frontloaded fiscal consolidation at program start given scale of imbalances. - Capture quasi-fiscal activities and BCRA losses in program anchors to better align fiscal and monetary policy incentives. - Increase parsimony and depth of structural conditionality where ownership is weak; follow up low-depth SBs with high-depth benchmarks linked to legislation. - Consider alternative phasing and financing mixes (e.g., more backloaded disbursements with higher net financing in 2023–24) to better incentivize commitment. - Tighten realism checks on EAC3 (market access) and EAC2 (debt sustainability) and adopt a holistic EAC4 application. ### Key quantitative highlights (preserve exact figures) - Arrangement amount: US$44 billion (1,001 percent of quota). - SDR access at approval: SDR 31.914 billion (1,001.3 percent of quota). - Concentrated repayments from 2018 SBA: US$35 billion during 2022-23. - Net international reserves by end-2021: US$2.3 billion. - Gross FX reserves end-2021: US$39.7 billion. - Inflation by end-2021: around 50 percent p.a. - Federal government budget deficit by end-2021: 4.5 percent of GDP. - Devaluation in 2024: 120 percent (upfront). - Fiscal consolidation in 2024: about 5 percentage points of GDP, bringing the overall budget to balance. - Inflation by late-2023: over 200 percent. - Average annual inflation in 2023: 130 percent. - Peak inflation in April 2024: nearly 300 percent y-o-y. - Inflation as of November 2024: about 166 percent. - EMBIG bond spread by late-2023: about 2,500bps (up some 700bps from program start). - Sovereign spread under new administration (time of report): around 750bps. - Exports fall in 2023 due to drought: reduced by a quarter. - Estimated drought loss in FX inflows: US$20 billion. - Poverty rates in first half of 2024: exceeding 50 percent. - Extreme poverty at end-June 2024: surpassing 18 percent. - Rescheduled repayment window to the Fund: 2026-2034. - Number of planned reviews: 10; reviews completed: eight. - Arrangement duration: 30 months; expiry: end-2024. - Date of Executive Board approval: March 25, 2022. - BCRA quasi-fiscal loss (Percent of GDP): 2021: 3.3; 2022: 5.1; 2023: 10.5; 2024 (proj.): 3.3. - Consolidated fiscal deficit (Percent of GDP): 2021: 7.8; 2022: 9.6; 2023: 15.3; 2024 (proj.): 3.4. - o/w Primary deficit (Percent of GDP): 2021: 3.0; 2022: 2.4; 2023: 2.9; 2024 (proj.): -1.7. - Seigniorage revenue (Percent of GDP): 2021: 2.6; 2022: 1.8; 2023: 2.4; 2024 (proj.): 2.7. - Consolidated fiscal deficit less seigniorage (Percent of GDP): 2021: 5.2; 2022: 7.8; 2023: 12.9; 2024 (proj.): 0.7. - Monetary base (Percent of GDP): 2021: 7.9; 2022: 6.3; 2023: 5.1; Sep-24: 3.9. - Net Foreign Assets (NFA, billions of USD): 2021: 16.2; 2022: 22.7; 2023: 2.5; Sep-24: 8.1. - BCRA credit to the public sector (Percent of GDP): 2021: 19.0; 2022: 19.1; 2023: 24.6; Sep-24: 8.6. - Participation rate in 2023 debt swap: 67%; AR$9.2 trillion deferred in 2023 swap. - Treasury exchanged 77 percent of peso-denominated debt due in 2024 (approximately US$50 billion) for longer-term local bonds maturing between 2025 and 2028 (March 2024 operation). - One-off tax amnesty effect: private FX deposits rose by US$14.3 billion between July 17 and end-November 2024. - Central Bank equity estimate as of August 2024: 1.7 percent of GDP (after valuing government securities at end-2023 market rates). - BCRA issued a short-term USD denominated bond (US$10bn BOPREAL) to clear the backlog of import bills. *Source: 1argea2025001-print-pdf - EXECUTIVE SUMMARY and selected chapters/annexes* ### EXECUTIVE SUMMARY ### EXECUTIVE SUMMARY ### Context and pre-program conditions - On March 25, 2022, the IMF Executive Board approved a 30-month arrangement for Argentina supported by the Extended Fund Facility (2022 EFF). - The arrangement amounted to US$44 billion (1,001 percent of quota), the second largest non-precautionary arrangement in the Fund’s history after the 2018 Stand-by Arrangement for Argentina (2018 SBA). - Of the planned 10 reviews, eight were completed. The arrangement is set to expire at end-2024. - Argentina entered the 2022 EFF after: - US$35 billion in concentrated repayments during 2022-23 arising from the 2018 SBA. - Net international reserves of US$2.3 billion by end-2021. - High inflation around 50 percent p.a. by end-2021. - A significant budget deficit of 4.5 percent of GDP by end-2021. - Assessment of public debt moved from “sustainable with high probability” to “sustainable but not with high probability.” ### Program design and strategy - The 2022 EFF sought to address Argentina’s BoP need by closely linking disbursements to the schedule of repayments, effectively refinancing scheduled repurchases to the Fund. - Program elements included: - Fiscal reforms aimed at reducing energy subsidies and optimizing social assistance. - Measures to strengthen monetary policy transmission. - Program design constraints and implementation frictions: - Authorities’ “redlines” limited scope and strength of reforms. - Policy strategy in 2022-23 characterized by: - A modest, heavily backloaded, and narrowly monitored fiscal adjustment. - Absence of a clear monetary anchor amid continued creation of significant peso liquidity due to direct and indirect monetization and Central Bank cashflow losses. - A sizable gap between official and parallel market exchange rates (FX gap) amid extensive FX controls and weak reserve coverage. - Program seen as subject to exceptional risks from the start due to limited buffers and net Fund financing and weak ownership. ### Macroeconomic shocks, implementation, and outcomes through end-2023 - Key shock and outcome chronology: - Russia’s war in Ukraine produced a surge in global commodity prices not fully captured in the program baseline, feeding inflation expectations and boosting fiscal spending that was monetized. - The real exchange rate appreciated significantly, eroding competitiveness; market peso/dollar exchange rate settled at roughly double the official exchange rate. - In 2023, a severe drought reduced exports by a quarter and pushed the economy into recession. - With approaching general elections in the second half of 2023, program ownership plummeted; contingency plans were not activated and commitments were repeatedly reneged upon. - By late-2023: - Inflation had quadrupled from the start of the program to over 200 percent. - Liquid FX reserves were fully depleted. - Argentina’s EMBIG bond spread had reached about 2,500bps, a rise of some 700bps relative to the start of the program. - Argentina faced a full-blown economic crisis by the time of the final round of the election. ### Policy reversal and developments in 2024 - The election in November 2023 of President Milei marked a turning point: - A very sharp fiscal consolidation of about 5 percentage points of GDP in 2024 brought the overall budget to balance. - Discontinuation of monetary financing substantially reduced money growth and quasi-fiscal losses of the Central Bank. - A large upfront devaluation of 120 percent helped ease FX market distortions and improve external competitiveness. - After a large initial spike, inflation began to decline. - Rapid narrowing of the FX gap allowed rebuilding of FX reserves closer to pre-program levels, though significant FX market distortions and limited exchange rate flexibility remained. - Argentina’s spreads declined sharply under the new administration (to around 750bps at the time of the writing of this report). - Economic activity suffered heavily; poverty rates exceeded 50 percent in the first half of 2024, prompting steps to scale up social benefits and improve targeting and governance. ### Assessment of program performance and Fund decisions - The 2022 EFF successfully eased Argentina’s financial burden by rescheduling repayment obligations to the Fund into 2026-2034 and likely helped avoid even worse outcomes in 2022-23, notwithstanding crisis-like conditions at end-2023. - However, the program did not deliver durable resolution of the BoP problem during 2022-23 due to: - Insufficiently strong and frontloaded adjustment given the scale of the problem. - Large FX gap and Central Bank quasi-fiscal losses undermining disinflation and reserve accumulation. - Limited implementation of deeper structural reforms to reduce budget rigidities and reform the tax system. - The Fund’s approach reflected unusually difficult trade-offs: balancing the objective to help a member with BoP needs largely driven by concentrated IMF repayment obligations against risks to the Fund’s reputation and finances if arrears occurred. ### Lessons, unresolved questions, and policy implications - Considerations raised by the 2022 EFF experience include: - Whether the Fund’s current lending policy framework is well-suited for very large and concentrated Fund exposure cases where repurchases to the Fund represent a major part of the member’s BoP problem and arrears would risk pushing the member into a deep crisis. - Whether a new approach is needed when resolution of an entrenched BoP problem is unlikely through a single GRA arrangement given the size of the problem, limits of conditionality without strong authorities’ commitment, and a shock-prone political environment. - Whether Capacity to Repay (CtR) assessments are appropriately guiding program safeguards and lending decisions, particularly when CtR cannot be assessed as “adequate” or is subject to “exceptional risks”; the need to use the most relevant reserve metrics given differences between gross and net reserves observed in the 2022 EFF. - Whether providing technical assistance to facilitate debt restructuring outside a Fund-supported program warrants reflection, given potential market signaling risks when TA is not anchored in commitments. - Whether the practice of repeatedly approving program reviews based on “temporary” FX control measures—which substituted for adjustment—merits reconsideration because such measures can delay needed policy adjustments and aggravate BoP problems. - Whether clearer commitments on specific contingency plan measures should be sought from authorities when implementation risks are high to raise reputational costs of non-implementation and limit slippages. - How the Fund and shareholders should handle political pressure to shield the institution and staff, reinforcing credibility and impartiality. ### Key quantitative highlights (as presented) - Arrangement amount: US$44 billion (1,001 percent of quota). - Concentrated repayments from 2018 SBA: US$35 billion during 2022-23. - Net international reserves by end-2021: US$2.3 billion. - Inflation by end-2021: around 50 percent p.a. - Federal government budget deficit by end-2021: 4.5 percent of GDP. - Devaluation in 2024: 120 percent (upfront). - Fiscal consolidation in 2024: about 5 percentage points of GDP, bringing the overall budget to balance. - Inflation by late-2023: over 200 percent. - EMBIG bond spread by late-2023: about 2,500bps (up some 700bps from program start). - Sovereign spread under new administration (time of report): around 750bps. - Exports fall in 2023 due to drought: reduced by a quarter. - Poverty rates in first half of 2024: exceeding 50 percent. - Rescheduled repayment window to the Fund: 2026-2034. - Number of planned reviews: 10; reviews completed: eight. - Arrangement duration: 30 months; expiry: end-2024. - Date of Executive Board approval: March 25, 2022. *Source: 1argea2025001-print-pdf - EXECUTIVE SUMMARY* ### 19. Poverty Rates __________________________________________________________________________________ 39 ### 19. Poverty Rates ### Introduction - The report is an Ex-Post Evaluation (EPE) of Argentina's 2022 extended arrangement supported by the Extended Fund Facility (2022 EFF). - Key evaluation aims: - Assess whether the macroeconomic strategy, program design, and financing were appropriate and in line with Fund policy. - Assess whether outcomes under the program met program objectives. - Evaluate judgments made in applying exceptional access policy, including on the member’s capacity to repay the Fund and identified risks to the Fund. - The 30-month arrangement had access of SDR 31.914 billion (1,001.3 percent of Argentina's quota), approved in March 2022. - Of the 10 scheduled reviews, eight were completed. ### A Difficult Context — A. The Aftermath of the 2018 Stand-By Arrangement - Background on the 2018 SBA: - Approved in spring 2018 amid a balance-of-payments crisis from a “sudden stop” of capital inflows. - Sized at SDR 35.4 billion, of which 70 percent (SDR 24.8 billion) was planned to be treated as precautionary. - Access was augmented at the First Review in October 2018 to SDR 40.7 billion (US$57 billion, or 1,277 percent of quota) without any amount treated as precautionary. - Four out of twelve planned reviews were completed; SDR 31.9 billion (78 percent of total access or about US$44.1 billion) was disbursed. - The 2018 SBA went off track in August 2019 amid intensifying macroeconomic instability, exchange rate pressures, capital flight, and elevated debt. - Legacy challenges entering the 2022 EFF: - Fund credit outstanding at end-2019 accounted for almost 100 percent of gross international reserves (GIR) and 24 percent of Argentina’s total external public debt. - Argentina was the Fund’s single largest borrower, representing over 47 percent of the Fund’s GRA credit outstanding. - The program and its legacy generated significant domestic public backlash and external criticism. - Political transition and institutional context: - October 2019 elections brought a center-left Peronist coalition to power (Alberto Fernández as President; Cristina Fernández de Kirchner as Vice President). - Historical tensions: during 2007–2015 the authorities did not consult with the Fund under Article IV until 2016; Fund resident representative office was closed in 2013 and reopened in 2018; in 2011 the Executive Board found Argentina in breach of Article VIII, Section 5 due to provision of inaccurate data. ### A Difficult Context — Additional Macroeconomic and Policy Developments (to end-2021) - Exchange rate and capital flow measures: - Capital account was closed; exchange rate regime switched to a crawling peg. - FX controls initially introduced in September 2019 restrained capital outflows but produced FX shortages and a parallel FX market. - The spread between peso/USD parallel market and official exchange rates (FX gap) exceeded 30 percent by October 2019 and widened to 100 percent by end-2021. - Public debt and restructuring: - Public debt rose from 57 percent of GDP in 2017 to 86 percent of GDP in 2018. - Fund staff pronounced Argentina’s public debt as unsustainable in a February 19, 2020, staff statement. - Authorities pursued a major sovereign debt restructuring through private sector involvement (PSI) outside of a Fund-supported program; IMF provided significant technical support. - The restructuring, finalized in September 2020, restructured about US$81 billion of public debt, providing a net-present-value reduction of about 45 percent and cashflow relief estimated at over US$38 billion between 2020 and 2025. - COVID-19 impact and BCRA quasi-fiscal operations: - Growth collapsed in 2020; primary fiscal deficit widened to 6.3 percent of GDP in 2020 and narrowed to 3 percent of GDP in 2021. - In absence of external funding, domestic peso debt issuance accelerated; government deficits were largely financed by the Central Bank (BCRA). - Direct lending and transfers of valuation gains from revaluation of FX-denominated non-tradable Treasury securities (NTTS) to the Treasury reached 7.4 percent of GDP in 2020 and 3.7 percent of GDP in 2021. - Resulting quasi-fiscal losses materially weakened BCRA’s balance sheet (Annex III). - Quasi-fiscal loss defined as interest paid on BCRA securities minus cash income from its claims on the government. ### B. Argentina’s BoP Problem Prior to Approval of the 2022 EFF - Twofold balance-of-payments (BoP) problem at end-2021: 1. Internal and external imbalances amid renewed debt vulnerabilities: - Twelve-month inflation reached 50 percent by end-year. - Primary deficit stood at 3 percent of GDP. - Federal fiscal deficit – including 1.5 percent of GDP in interest payments – registered 4.5 percent of GDP. - Over 80 percent of the fiscal deficit was monetized by the Central Bank. - BCRA debt held by the private sector rose to over 10 percent of GDP at end-2021. - Servicing BCRA debt entailed a quasi-fiscal loss of 3.3 percent of GDP in 2021, which was monetized. - Public debt was assessed as sustainable but not with high probability. 2. External challenge and repayment schedule to the Fund: - Gross FX reserves stood at US$39.7 billion and covered over 6 months of imports, but much of this represented undrawn swap lines and other FX liabilities. - Excluding such items, net international reserves (NIR) stood at US$2.3 billion and covered less than one month of imports. - BCRA’s liquid FX reserves (NIR excluding gold and SDR holdings) were negative. - Real exchange rate appreciated by 20 percent in 2021 as inflation outpaced the rate of crawl. - BCRA interventions in the parallel FX market amounted to US$4 billion in 2019-21. - Upcoming Fund repurchases were sizable: repayments peaked at SDR 13.4 billion and SDR 13.6 billion in 2022 and 2023, respectively (26-27 percent of GIR in each year). Repayments include charges and surcharges. - Repurchases of about SDR 2.7 billion in 2021 were made with resources from the August 2021 SDR allocation (SDR 3.1 billion). ### C. Complex Choices in the Lead-up to Approval of the 2022 EFF - Political economy and engagement with the Fund: - The 2018 program influenced public and political sentiment; senior officials publicly criticized the IMF and called for a “haircut” on debt to the Fund. - Authorities requested a new Fund arrangement in August 2020, just before the PSI offer closing date; discussions stalled after the PSI deal. - Initial discussions in November 2020 were inconclusive; drawn-out program discussions continued for a further 15 months. - Differences between Fund staff and the authorities were significant on critical reforms: size and composition of fiscal adjustment, strategy to reduce monetary financing and rein in inflation, and FX market policies. - The ruling coalition’s loss of congressional majority in 2021 aggravated doubts about authorities’ commitment and capacity to implement deep reforms. *Source: Excerpt from IMF Ex-Post Evaluation report for Argentina’s 2022 Extended Fund Facility (2022 EFF).* ### 10. The pressure on the authorities to reach agreement with the Fund steadily built up ### 10. The pressure on the authorities to reach agreement with the Fund steadily built up ### Build-up, timing, and political pressures - Sizable repurchases to the Fund were scheduled for early 2022, creating mounting pressure to reach agreement. - Under its Article of Agreement, the Fund cannot reduce the value of claims on members; absent policy changes or new external financing in 2022, this implied a high probability of Argentina running arrears to the Fund. - Authorities and several other Fund members advocated for a reduction of charges and surcharges to lighten the financial burden given the rise in SDR interest rate; such a reduction only materialized upon the completion of the review of charges and surcharges in October 2024. - Argentina also faced pressure from the Paris Club, which had agreed in June 2021 to avoid declaring a default on end-July 2021 obligations worth US$2.4 billion conditional on the approval of a Fund-supported program by end-March 2022. - Staff-level agreement (SLA) was reached in January 2022; Board approval occurred on March 25, 2022, around the time Fund repurchases totaling approximately SDR 2 billion fell due. - Political fragility: when SLA was reached in January 2022, Máximo Kirchner resigned in protest. In March 2022, when the IMF-supported program was tabled for congressional approval, a third of the ruling coalition either abstained or voted against the bill; congressional approval was nonetheless secured with near-unanimous opposition support. ### Consequences and challenges of potential arrears - Access to Fund financing would have been halted. Once a member is in arrears to the Fund, the Fund cannot provide further financing until the arrears have been cleared, likely precluding access to other sources of external financing with significantly adverse implications. - Clearing arrears would have been challenging: prior arrears instances were relatively small and could be cleared with intraday bridge financing from another member. The massive size of Argentina’s scheduled repurchases implied obligations—including charges and surcharges—would have quickly cumulated, exceeding the possible size of a new disbursement and requiring bridge financing of longer maturity than intraday basis to clear arrears, which would be difficult to secure. - Risks to the Fund: arrears by Argentina would likely have had a significant adverse impact on the Fund’s financial position. Unpaid charges would have reduced the Fund’s net income; failure to make timely repurchases could have led to provisioning under IFRS9 rules. The Fund’s positive net income and significant precautionary balances would have provided some buffers, but arrears could have affected other members through higher charges for other Fund borrowers and lower remuneration to Fund creditors under the burden sharing mechanism. - Reputational risk for the Fund from failing to assist a member facing a large BoP need and contributing to severe and likely protracted economic distress. ### Choice of instrument and overarching rationale - Strong incentives existed for both sides to reach agreement on a Fund arrangement; an Extended Fund Facility (EFF) emerged as the preferred choice. - From the Fund’s perspective, the program needed sufficient duration to secure necessary reforms to resolve the BoP problem and restore Argentina’s “medium-term external viability” (the Fund’s “UCT-quality standard” for financing in the upper credit tranches under the General Resources Account (GRA)). - Agreement was reached on a 30-month arrangement under the EFF to push out Argentina’s repurchases as far as possible and alleviate the BoP burden. ### Program parameters and calibration - Access was set at SDR 31.914 billion (1,001.3 percent of quota or about US$44 billion), which equaled the disbursements made under the 2018 SBA, including repurchases of SDR 3.2 billion made in 2021 and early 2022 before approval of the 2022 EFF. In nominal terms, it was the second-largest non-precautionary arrangement in Fund history after the 2018 SBA. - Phasing was broadly aligned with the repurchase schedule, with some upfront net financing matching repurchases made before program approval. Availability dates for drawing were changed several times thereafter. - Duration was initially set at 30 months (shorter than the 3-year norm or the 4-year maximum for EFFs). The shorter duration reflected the reprofiling intent and reluctance to increase the Fund’s exposure beyond the period of repurchases under the 2018 SBA, which would have involved larger net financing. - Burden sharing was low, with the Fund covering the bulk of Argentina’s external financing needs. Since Argentina had not yet re-established access to international capital markets and other IFIs and official creditors were reluctant to increase exposure, Fund financing did not play a catalytic role. The 2022 EFF was therefore expected to represent a large share of total external financing sources. ### Program strategy — four-pillar framework and targets - The program embodied a four-pillar strategy: (i) growth-friendly fiscal consolidation; (ii) gradual disinflation via reduced monetary financing; (iii) strengthening the external position through a competitive real exchange rate and FX reserve accumulation; and (iv) structural reforms to enhance sustainability and resilience of growth. - Growth-friendly fiscal consolidation: - Envisaged a cumulative improvement in the primary balance of 2.2 percent of GDP or around 0.7 percent of GDP per year during 2022-24. - A primary deficit was projected to persist throughout the program, reaching zero only in 2025. - The program baseline assumed continued fiscal adjustment beyond the program period, totaling 2.1 percent of GDP in 2025-27. - Composition of adjustment projected to be balanced between expenditure and revenue measures; expenditure policies focused on withdrawing COVID-related support measures, reducing energy subsidies, and reducing transfers to provinces and government consumption spending. - Revenue gains were expected through revenue administration reforms given already high statutory tax rates. - Infrastructure spending was assumed to increase over the program horizon as was pension spending. - Disinflation: - Target to reduce inflation from 51 percent at end-2021 to 33 percent by end-2024. - Limit direct monetary financing: BCRA transfers to the government were to decline from 4.7 percent of GDP in 2021 to 1 percent of GDP in 2022 and zero by 2024, while maintaining positive real interest rates. - Program emphasized supportive role of voluntary price and incomes policies while discouraging coercive measures. (A voluntary price agreement "Precios Cuidados" was signed mid-January 2022; it was abolished in December 2023.) - Strengthening the external position: - Targeted reserve accumulation of US$15 billion during the program period. - Endorsed the crawling peg as the appropriate exchange rate regime, with the rate of crawl calibrated to ensure a competitive real exchange rate to support trade surpluses. - FX interventions expected to be consistent with quarterly reserve accumulation targets and ordinarily limited to the official market (MULC). - Measures to explicitly address the large FX gap were not considered. The program included a prior action and a structural benchmark to improve transparency, compliance, and penalties in FX securities markets and to develop a roadmap for an eventual phased and conditions-based easing of FX controls (end-2022 structural benchmark). - Structural policies and social protection: - Featured a more ambitious structural reform agenda than the 2018 SBA, including enhancing efficiency and targeting of social transfers, with emphasis on promoting labor market participation, particularly among women and low-skilled workers. - Established a floor on social assistance spending, prioritizing improved targeting and efficiency of social protection measures, based on an evaluation of existing social programs. - Priority assigned to flagship initiatives, including Universal Social Protection (AUH), food stamps (Tarjeta Alimentar), and the scholarship program Progresar. - As the program evolved, structural reforms focused on: (i) supporting fiscal consolidation; (ii) strengthening the monetary policy framework and operations; (iii) enhancing transparency, financial integrity, and governance, including of public spending; and (iv) improving sustainability and efficiency of strategic sectors. ### Program implementation design, conditionality, and monitoring - Program design reflected political economy constraints; the Fund accepted many of the authorities’ policy ‘redlines,’ yielding a baseline fiscal path weaker than the Fund initially advocated and insufficient to achieve debt service metrics from the March 2020 TA report. - Quantitative performance criteria (QPC): - Focused on key policies underpinning macro stability and established floors on the primary balance and the BCRA’s net international reserves (NIR) and ceilings on monetary financing and the federal government’s stock of domestic arrears. - QPCs were monitored at quarterly test dates. - Continuous performance criteria disallowed imposition/intensification of exchange restrictions and import restrictions, the conclusion of bilateral payments agreements inconsistent with Article VIII, introduction/modification of MCPs, and accumulation of external debt payments arrears by the federal government. - Structural conditionality: - Structural benchmarks (SBs) aimed to aid fiscal consolidation, strengthen the monetary policy framework and operations, enable gradual conditions-based easing of FX controls, enhance transparency and governance, and improve sustainability and efficiency in certain sectors including energy. - Prior actions to raise policy interest rates and ease regulations limiting FX securities trading were undertaken ahead of 2022 EFF approval. ### Risks, contingency planning, and monitoring - The program was presented as pragmatic, realistic, and credible but subject to exceptionally high risks: - Fragile socio-economic conditions and potentially faltering political support amid "open hostility from some quarters towards the Fund." - Tight financing constraints and limited policy space. - External shocks including Russia’s war in Ukraine, pandemic intensification, tighter global financial conditions, and climate shocks. - In view of these risks, the program was to be monitored with quarterly reviews. *Source: 1argea2025001-print-pdf - 10. The pressure on the authorities to reach agreement with the Fund steadily built up* ### 20. The staff report for the arrangement request stopped short of describing Argentina’s ### 1argea2025001-print-pdf - 20. The staff report for the arrangement request stopped short of describing Argentina’s ### Capacity to Repay (CtR) and Financial Exposure - The staff report assessed CtR risks as “very high”. - This descriptor had not been given for any previous Fund-supported program. - Argentina’s CtR metrics were described as generally unfavorable relative to other cases. - CtR was seen as hinging critically on strong policy implementation to enable accumulation of international reserves and eventual resumption of market access; these outcomes were described as “subject to a high degree of uncertainty as shocks and policy slippages could compromise reserve accumulation and the timely re-access to international capital markets” (IMF, 2022a). - If all purchases were made as scheduled, Argentina’s obligations to the Fund under the 2022 EFF would be less burdensome than those under the 2018 SBA, mitigating CtR risks. - A supplement assessing risks to the Fund and its liquidity position was issued with the EFF arrangement request staff report; it noted: - elevated macroeconomic vulnerabilities, - the large size of the Argentina exposure both in absolute terms and relative to CtR metrics, - that the exposure would remain elevated for an extended period, - high credit risks to the Fund of the proposed program. - Reference: Assessment of the Fund’s Financial Exposures and Liquidity Position (EBS/22/14, Sup. 1), 3/16/2022. ### Enterprise and Reputational Risks - Enterprise risks were seen as extremely high. - The elevated exposure to Argentina over an extended period implied by the 2022 EFF was seen as creating “major financial and reputational risks for the Fund”. - Reputational risks from approving the 2022 EFF focused on the adequacy of program design if the program failed to engender confidence, especially following the 2018 SBA that did not meet its objectives. - Risks of not agreeing to a Fund-supported program included near-term financial risks of arrears and reputational risk from failing to assist a member with a BoP need “with a realistic and credible program that meets all Fund policy requirements” (IMF, 2022a). - The judgment was that moving forward with a Fund-supported program mitigated some enterprise risks, especially in the near term. ### Program Design, Buffers, and Contingency Planning - The program left little margin to respond to unexpected developments; buffers to handle policy slippages or shocks were not built in. - Understandings on broad contingency plans existed between staff and the authorities but were not reflected in published program documents and generally relied on ad hoc FX control measures. - The staff report at program approval did not present an alternative (downside) macroeconomic scenario. - Program documents emphasized that risks could not be fully mitigated through program design and contingency planning and require “finely balanced judgements.” ### Program Performance: Two Phases (2022–2024) - Phase One (2022-23): - Plagued by shocks: spike in commodity prices after the war in Ukraine and a severe La Niña-induced drought. - Policy slippages accelerated sharply in the pre-election period. - Macroeconomic outcomes: - Growth: 4½ percent in 2022; contraction of 1½ percent in 2023. - Average annual inflation: accelerated to 130 percent in 2023. - Real exchange rate appreciation: about 20 percent between 2021 and 2023 (about double the baseline projection). - Current account: moved from a surplus in 2021 to a deficit of 3½ percent of GDP in 2023. - Gross FX reserves: more than halved to just US$21 billion by December 2023. - By the second half of 2023, Argentina was on the brink of a full-blown crisis. - Phase Two (2024): - Dramatic fiscal tightening and a large step devaluation of 120-percent following the election of Javier Milei as President. - Growth projected in Fall 2024 at ‒ 3½ percent in 2024, leaving real GDP slightly below its level in 2021, and 9½ percent below the forecast at arrangement approval. - Inflation: temporarily overshot to a peak of nearly 300 percent y-o-y in April; fell to about 166 percent as of November. - Current account: returned to surplus. - Gross reserves: improved by about US$11 billion by mid-December. - FX gap: narrowed sharply to single digits. - Argentina sovereign spreads: fell to around 750bps in early December 2024. - Real exchange rate: re-appreciated. ### Fiscal Policy and Financing (2022–23) - The program envisaged fiscal gradualism contrasted with frontloaded disbursements and economic realities. - By arrangement approval, inflation was already high and accelerating; commodity price upswing was in force. - The envisaged fiscal adjustment was significantly backloaded: close to a half of the consolidation was projected for the last year of the program, when 92 percent of Fund financing would already have been disbursed. - The program assumed about 2 percent of GDP per year in net domestic financing from private sources—compared to an average of 0.6 percent of GDP in 2022-2023 that ultimately materialized—with another 1 percent of GDP financed by the Central Bank to support the fiscal deficits during the program. - The anchoring role of the targeted fiscal path progressively eroded during 2022-23: - The program continued to target a fiscal consolidation of 2.1 percent of GDP between 2021 and 2024, with an additional adjustment of 2.2 percent of GDP assumed between 2024 and 2027. - Meeting key end-year QPCs in 2022 coincided with inflation outcomes significantly diverging from the program’s original baseline. - Fiscal financing pressures: - The ambitious financing plan ran into difficulties in Argentina’s shallow financial market. - As average maturities shortened and rollover pressures intensified, the BCRA intervened in secondary markets. - The bulk of government financing needs was met by the BCRA, either directly or through secondary market purchases to prop up auctions, weighing heavily on the BCRA’s balance sheet and independence. - In 2023, a voluntary debt exchange helped lengthen most maturities to beyond the 2023 presidential election; projected nominal amortization payments still became larger due to indexation. - In 2023, a voluntary debt swap deferred most of AR$9.2 trillion in debt maturing between June and September 2023 to 2024 and 2025 with a participation rate of 67%. - As a prior action for the combined Fifth and Sixth Reviews, authorities converted existing dollar and inflation linked instruments into baskets of mostly dual and inflation linked securities maturing between August 2024 and January 2025. - Another exchange in 2024 (a completed structural benchmark in the Eighth Review) converted 40 percent of domestic debt falling due in 2024 to inflation linked securities maturing between 2025 and 2028 with average duration rising from 6 months to 3 years. - Rollover pressures resulted in mounting debt service costs: - By the combined Fifth and Sixth Reviews, a third of the total reduction in the primary deficit projected to be achieved in the course of the program was expected to be offset by higher interest expenditures relative to program approval (0.7 percent of GDP). - Despite fiscal adjustment, the consolidated public sector balance—including BCRA’s quasi-fiscal losses—was projected to worsen by 1.1 percent of GDP in the course of the program compared to an improvement of 2.2 percent of GDP anticipated at program approval. ### Fiscal Outcomes, Slippages, and Structural Measures - Balanced and growth-friendly fiscal consolidation proved unattainable. - The initial expectation of raising revenues by 1 percent of GDP through tax and customs administration reforms did not materialize. - By the Second Review, baseline projected virtually no increase in tax revenues over the program period. - Spending-side slippages in 2023 included: - Overspending on salaries. - The pension moratorium (introduced in February 2023), which allowed 800,000 people of pensionable age with insufficient years of contributions to access the contributory pension regime; initial estimated cost was 0.4 percent of GDP; the measure was repealed by Congress in 2024. - Delayed adjustment of energy tariffs: under the combined Fifth and Sixth Reviews, authorities committed to raise electricity tariffs effective September 1, 2023; instead tariffs were frozen in September and adjusted only by the new administration in 2024. - The originally planned increase in capital spending did not materialize. - Pension expenditures were less than expected due to weak protection against inflation in the pension indexation formula used at the time. - A modest package of revenue measures was adopted (a new tax on the highest bracket taxpayers, higher excises, and property tax increases), but the assessment of the yield was not clearly explained and may have been overoptimistic. - The program sought to counteract fiscal developments with tighter controls over discretionary spending. ### Key Quantitative Outcomes and Metrics (as reported) - Growth: - 2022: 4½ percent. - 2023: contraction of 1½ percent. - Fall 2024 projection for 2024: ‒ 3½ percent. - Inflation: - Average annual inflation in 2023: 130 percent. - Peak inflation in April 2024: nearly 300 percent y-o-y. - Inflation as of November 2024: about 166 percent. - Real exchange rate appreciation: about 20 percent between 2021 and 2023. - Current account: - 2023: deficit of 3½ percent of GDP. - 2024: returned to surplus. - Gross FX reserves: - December 2023: US$21 billion. - Improved by about US$11 billion by mid-December 2024. - Step devaluation in 2024: 120-percent. - FX gap: narrowed to single digits by late 2024. - Argentina sovereign spreads: around 750bps in early December 2024. - Debt management and financing: - Participation rate in 2023 debt swap: 67%. - AR$9.2 trillion deferred in 2023 swap. - Conversion in 2024: 40 percent of domestic debt falling due in 2024 converted to inflation linked securities maturing between 2025 and 2028; average duration increased from 6 months to 3 years. - Fiscal adjustment targeted: - 2021–2024: 2.1 percent of GDP (initial program target). - Additional adjustment 2024–2027: 2.2 percent of GDP (assumed). - Interest expenditure increases relative to program approval offsetting primary deficit reduction: 0.7 percent of GDP. - Consolidated public sector balance projected to worsen by 1.1 percent of GDP over the program versus an anticipated improvement of 2.2 percent of GDP at approval. - Central Bank financing assumed in program: 1 percent of GDP support to fiscal deficits (program assumption). *Source: Excerpt from IMF staff report (1argea2025001-print-pdf).* ### 28. Fiscal discipline and program ownership fell apart in the pre-election period during ### 28. Fiscal discipline and program ownership fell apart in the pre-election period during ### Fiscal developments and political economy - Revenues declined on account of the drought, while spending pressures and future commitments ramped up reflecting an intensifying political campaign in 2023. - New tax and spending initiatives in 2023 led to tensions at the time of the completion of the combined Fifth and Sixth Reviews. - The authorities committed to achieve the 2023 fiscal target by temporarily: - extending a distortive tax on FX access (impuesto pais), - restraining wage growth, - adjusting energy prices. - Fiscal populism resumed after the Reviews: in the last months of the Fernández administration the authorities: - froze energy and transport prices, - extended new bonuses to pensioners and employees, - provided new tax breaks and exemptions, - accumulated sizable arrears. - Examples of measures introduced (as noted in the Chapter footnote) included large wage increases to public sector employees, tax relief to households and SMEs, bonuses to various groups, accelerated public sector hiring, and subsidized consumer lending. ### Monetary, financial, and exchange rate framework (overview) - Argentina’s hybrid monetary framework combined: - an interest rate-based monetary policy seeking to maintain a positive real interest rate, and - a crawling peg FX regime with a calibrated rate of crawl intended to ensure a competitive real exchange rate and support FX reserve accumulation. - Limited anchoring role of fiscal policy forced monetary and exchange rate policies to confront internal and external imbalances largely on their own. ### Monetary policy transmission and financial sector structure - Monetary policy transmission was weak due to a shallow financial sector: - total financial sector assets were about 41 percent of GDP in 2022 (compared to an emerging market average of around 76 percent of GDP). - banking sector total assets were 27 percent of GDP, of which about a quarter (7 percent of GDP in 2022) represented credit to the private sector. - around a half of total assets were claims on the public sector, including the Central Bank (Figure 12). - The policy interest rate had limited impact on the real economy but immediate and large impact on fiscal financing costs and Central Bank losses. ### Central Bank losses, balance sheet, and credibility - At end-2021: - stock of BCRA securities stood at 10.9 percent of GDP. - quasi-fiscal losses of the Central Bank exceeded the primary deficit. - An IMF TA mission in August 2022 estimated BCRA’s equity at negative 11 percent of GDP and recommended (inter alia): - cease BCRA transfers and advances to the National Treasury, - stop quasi fiscal operations, - swap the USD denominated Non-Transferable Treasury Securities (NTTS) to interest-bearing peso securities, - apply international accounting standards to value the BCRA balance sheet. - The Staff Board (SB) to develop a strategy to implement these recommendations by end-2022 was not met, and, after an extension, dropped. - By end-2023: - BCRA’s net credit to the government reached 24.6 percent of GDP. - quasi-fiscal losses of the Central Bank grew from 3.3 percent of GDP in 2021 to 5.2 percent of GDP in 2022 and 10.5 percent of GDP in 2023 (the latter more than triple what the initial baseline envisaged). ### Monetary policy actions and costs - BCRA’s policy rate was kept above expected core inflation with successive interest rate hikes throughout 2022-23, albeit intermittently and by a small margin. - Private credit impact: stock of credit to the private sector shrunk by about 2 percent of GDP during 2022-23. - BCRA’s net purchases of government securities in the secondary market amounted to: - 2.3 percent of GDP in 2022, - 4.2 percent of GDP in 2023. - These purchases helped meet government resource needs and sterilization but carried significant costs and eroded credibility. - Large and frequent bond purchases contributed to inflation and devaluation expectations. ### Inflation, money creation, and real balances - Money creation persisted despite policy efforts. - Monetary base declined from 7.9 percent of GDP at end-2021 to 4.2 percent of GDP by 2024. - By end-2023, annual inflation had reached 211 percent (more than four times its end-2021 level). - As is common in high- and hyper-inflation cases: - money demand plummeted, - money velocity rose. ### External position, crawling peg, and FX policies - The crawling peg struggled to keep up with inflation as fiscal and monetary policies could not moderate domestic demand. - Key dynamics and outcomes: - Real exchange rate appreciated, eroding competitiveness. - A large FX gap was a key determinant of devaluation and inflation expectations and fueled further inflation. - Rate of crawl was often outpaced by inflation. - FX reserves declined while inflation outpaced the rate of crawl for most of the program period (Figure 16). - FX interventions included a US$0.5 bn Treasury debt buyback operation in early 2023 and periodic BCRA interventions in non-deliverable futures (NDF) markets. - Between August and November 2023: - gross FX reserves were depleted from about US$29 billion to US$21 billion (well below pre-program level of US$37 billion in February 2022). - net international reserves remained in the US$-5 to -10 billion range, reaching a low of US$-11 billion in December. ### Controls, multiple-currency practices (MCPs), and distortions - Authorities resorted to controls and MCPs, despite inconsistency with the program and, until Board approval, Article VIII, Sections 2(a) and 3 of the Fund’s Articles of Agreement. - Measures proliferated and included: - taxes on FX purchases, - strict limits for trading in the parallel FX securities markets, - repatriation and surrender requirements of export proceeds, - export incentive schemes offering preferential exchange rates for agricultural exporters, - limits on immediate FX access for imports and import financing requirements. - Short-term effects: - slowed FX outflows, - compressed imports, - uplifted reserves and tax revenues. - Medium- and long-term distortionary effects: - hoarding in anticipation of preferential treatment from export incentives, - backlog of import payments and debt overhang issues for importers, - distortions in resource allocation and production processes, - held back investment and FDI, - contributed to higher corporate markups and opportunities for rent seeking and abuse. ### Fund response and program governance - The Fund responded with forbearance: Executive Board granted approvals and waivers of non-observance for the continuous performance criteria in all but the First Review as the scope and complexity of MCPs and discretion in implementation increased. - Staff reports cautioned these policies as distortive and unsustainable, while acknowledging temporary usefulness in containing FX market pressures and meeting FX reserve accumulation targets. - The SB to publish a roadmap for gradual, conditions-based easing of FX controls was routinely postponed (initial deadline end-December 2022; reset to June 2023; March 2024 in the Fifth and Sixth Reviews; June 2024 in the Seventh Review; July 2024 in the Eighth Review). ### Key analytical findings and policy recommendations (as stated) - Core analytical findings: - Fiscal dominance and pre-election fiscal loosening undermined the monetary and exchange rate framework. - Monetary policy could not fully anchor expectations in the presence of weakened BCRA balance sheet and fiscal misalignment. - Controls and MCPs provided temporary relief but amplified distortions and vulnerabilities. - IMF TA and staff recommendations (noted in the text) included: - restore policy solvency by ceasing BCRA transfers and advances to the National Treasury, - stop quasi fiscal operations, - swap the USD denominated Non-Transferable Treasury Securities (NTTS) to interest-bearing peso securities, - apply international accounting standards to value the BCRA balance sheet, - publish and implement a roadmap for gradual, conditions-based easing of FX controls. *Source: IMF staff report chapter text.* ### 38. There was some progress on energy ### 1argea2025001-print-pdf - 38. There was some progress on energy ### Energy subsidy reform and fiscal savings - Energy subsidies at end-2021 amounted to 3 percent of GDP and were poorly targeted. - The “segmentation scheme” (Decree 332) implemented in late 2022 targeted removal of support for high-income households and aimed at more precise allocation to lower-income groups. - Actual tariff increases in 2022–23 consistently and considerably undershot the scheme’s caps; in August 2023 authorities froze energy and urban transport tariffs instead of updating electricity prices. - Fiscal savings from the subsidy reform fell from around 1 percent of GDP expected at program request to 0.7 percent of GDP realized between 2021 and 2023. - Tariff increases of 350 percent for electricity and 200 percent for gas were implemented in the first quarter of 2024. - Energy subsidies were projected to shrink from 1.6 percent of GDP in 2023 to 0.7 percent of GDP in 2024 (Eighth Review projection). ### Social spending, poverty, and social protection evaluation - Social spending targets were met in most reviews, but poverty rates increased during the program: - Poverty rose from approximately 37 percent at the end of 2021 to around 53 percent in the first half of 2024. - Extreme poverty rose from about 8 percent at the end of 2021 to surpassing 18 percent at the end of June 2024. - Authorities expanded social assistance to respond to inflationary pressures, declining real wages, and subdued growth; flagship programs (universal child allowance and food assistance) nearly doubled in real terms. - A structural benchmark (SB) to prepare and publish a comprehensive evaluation of social support programs and strategy was not met. ### Pension system outcomes - The pension system faced persistent structural challenges: aging population, replacement rates exceeding 90 percent of the average wage, generous special regimes at provincial level, and contribution non-compliance. - Parametric reforms were ruled out from the start. Authorities completed an end-December 2022 SB to produce a detailed assessment, but reforms did not follow. - A pension moratorium introduced in 2023 further raised the pension system’s fiscal costs (see ¶27 in source). ### Fiscal consolidation, debt management, and public debt dynamics - The new policy approach aimed to eliminate the fiscal deficit in 2024 entailing a fiscal adjustment of about 5 percent of GDP to reach a primary surplus of 2.1 percent of GDP. - Revenue projection revisions and deep expenditure cuts, including discretionary spending, contributed to fiscal improvement. - Domestic debt reprofiling and exchanges focused on extending maturities: - Treasury exchanged 77 percent of peso-denominated debt due in 2024 (approximately US$50 billion) for longer-term local bonds maturing between 2025 and 2028 (March 2024 operation). - Public sector participants hold about 60 percent of domestic debt. - Average maturity of domestic debt remained short at 28 months as of end-September 2024. - Public debt-to-GDP ratio spiked from 85 percent in 2022 to 157 percent in 2023 following exchange rate devaluation; at the time of the Eighth Review public debt was projected to decline to 91 percent of GDP. ### Exchange rate policy, FX gap, and reserve dynamics - A 120 percent step devaluation of the official exchange rate in December 2023 contributed to an overshooting real exchange rate; by March 2024 the FX gap narrowed from 190 percent to about 20 percent and US$11 billion in FX reserves were accumulated. - The crawling peg regime was retained with an initial crawl rate of 2 percent per month; the crawl being slower-than-inflation produced an appreciating real exchange rate. - FX gap widened to 50 percent in mid-2024, then narrowed to single digits in early December 2024 after stronger resident FX inflows and policy measures. - A one-off tax amnesty introduced July 17, 2024 led to private FX deposits in the domestic banking system rising by US$14.3 billion between July 17 and end-November 2024. - Sovereign bond spreads fell to around 750bps in early December 2024, down from around 2,000bps in December 2023 and 1,600bps in mid-July 2024. ### Monetary policy, inflation, and Central Bank balance sheet - Monthly interest rates dropped below monthly core inflation from December 2023, producing negative real interest rates initially; as inflation fell the real policy interest rate became marginally positive. - Inflation slowed from just below 300 percent y-o-y in April 2024 to about 166 percent as of November 2024. - Key initiatives included replacing the BCRA’s interest-bearing liabilities (LELIQ) with Treasury-issued Fiscal Liquidity Bills (LEFIs), eliminating put options, and government buybacks of securities held by the BCRA. - BCRA equity position was estimated at 1.7 percent of GDP as of August 2024 after valuing government securities at end-2023 market rates. - Remaining challenges: improving the quality and quantity of BCRA assets (particularly FX reserves), and further reforms to BCRA policy credibility and legal independence; full adoption of IFRS by the BCRA remained pending. ### Structural reform progress and other reforms in 2024 - Structural reforms advanced in several areas supporting adjustment: energy tariff adjustments, redesign of energy subsidies targeting basic consumption for vulnerable households, lifting of 2023 pension moratorium, and revision of pension indexation via decree to link benefits to past consumer prices. - Progress continued on implementing some 2022 safeguards assessment recommendations to strengthen BCRA autonomy and transparency; valuation of government securities in line with international standards was advanced, though full IFRS adoption remained pending. - Further efforts focused on: (i) enhancing efficiency, control, and transparency of public spending; (ii) implementing the AML/CFT framework; (iii) SOE privatization process; and (iv) advancing market-based reforms via product market liberalization, network and services sector deregulation, and labor market reforms. - Tariff Segmentation Scheme design detail: tariffs were supposed to reflect costs for high income households and increase at a rate of 80 and 40 percent of salary growth for middle and lower-income ones; removal of these caps was a prior action for the Eighth Review. ### Compliance with conditionality and implementation record - Compliance with quantitative performance criteria (QPCs) followed a V shape with the low point around the combined Fifth and Sixth Reviews: - All periodic QPCs were met through 2022 except the NIR floor at end-June. - QPCs on NIR and primary balances were missed at all test dates in 2023 by increasingly wider margins. - Ceiling on monetary financing and ceiling on domestic arrears were breached in June 2023 and December 2023. - Compliance improved markedly in 2024 under the Milei administration: monetary financing ended, primary balance targets met, NIR targets met in March and June 2024 but the September 2024 target was missed as reserve accumulation stalled. - Structural conditionality compliance was mixed: - Fiscal and monetary/FX policies represented 81 percent of all structural benchmarks over 2022–23, and most of these were met. - Implementation rate deteriorated as early as the Second Review due to postponements; completion rate fell in the Third Review, improved in the Fourth, deteriorated in the combined Fifth and Sixth Reviews, and improved in the Seventh and Eighth Reviews though the number of SBs was markedly reduced. *Source: IMF staff report excerpt (selected pages).* ### 52. The 2022 EFF did not evolve as envisaged due to a combination of external shocks, ### The 2022 EFF did not evolve as envisaged due to a combination of external shocks, major policy slippages, and unusually weak buffers and traction to secure course correction ### Program outcomes and evolution (findings) - By mid-2023 the program was not achieving its objectives: public finances deteriorated with an essentially unchanged federal government primary balance and much higher BCRA quasi-fiscal deficit. - Contributing factors included an unexpected severe drought and policy reversals from the start of 2023, in an election year when the economy minister emerged as a presidential candidate. - Absent adequate fiscal effort to tame domestic demand and anchor the monetary regime: - Inflation accelerated in 2022-2023. - Mounting quasi-fiscal deficits of the BCRA aggravated the inflation–fiscal nexus. - Authorities’ unwillingness to implement a sufficiently large devaluation led to an increasingly overvalued real exchange rate and near depletion of liquid FX reserves despite mounting FX controls. - Growth significantly disappointed. - 2024 policy shift and outcomes: - Program was significantly redesigned to support the new administration’s agenda. - Government spending compressed sharply in real terms; primary balance and consolidated public sector balance on track to be higher in 2024 than in 2021. - A large upfront devaluation helped stabilize and re-build FX reserves, but re-appreciation of the real exchange rate stalled reserve accumulation before adequate buffers were rebuilt and before most FX controls could be unwound. - Deep recession estimated in 2024 amid high and rising poverty rates (which exceeded 50 percent in the first half of 2024). - More recently, signs of some growth momentum have emerged. ### Assessment of program design (analysis) - Twofold BoP approach: roll over part corresponding to Fund repurchases and require authorities’ reforms to address remainder and regain market access by late 2026. - Fiscal strategy was modest and heavily backloaded: - Envisaged only 0.5 percent of GDP deficit reduction during the first year versus an overall budget deficit of 4.5 percent of GDP and a BCRA quasi-fiscal loss of 3.3 percent of GDP in 2021. - Revenue measures relied on tax administration improvements with uncertain near-term yields; distortive taxes accounting for around a third of tax revenues were preserved. - Reforms to durably reduce the wage bill and pensions were ruled out; automatic earmarking of about half of revenues to provinces perpetuated rigidities. - Contingency plans relied on ad hoc discretionary measures. - Financing strategy risks: - Depended on financial sector’s capacity to absorb sizable government bond issuances and on strong demand for peso liquidity. - Initial conditions were unfavorable: declining money demand, high inflation prospects amid surging commodity prices, small domestic financial sector, and large Central Bank quasi-fiscal losses. - Large quasi-fiscal losses constrained monetary policy and tripled as a share of GDP during 2022-23, exceeding the entire monetary base by a factor of two in 2023. - Lack of a monetary anchor: - Program conditionality (QPCs) limited the primary deficit and direct Central Bank financing but did not include an overall nominal anchor (e.g., a limit on net domestic assets (NDA) or base money). - BCRA purchases of government bonds in the secondary market and quasi-fiscal losses were excluded from conditionality until late in the program. - Sizable liquidity injections from the Central Bank were neither capped nor captured by monitoring framework and continued to fuel inflation even when fiscal and monetary QPCs were met. - FX reserve accumulation strategy undermined: - Maintaining a competitive real exchange rate and meeting FX reserve accumulation under a crawling peg required credible disinflation and strong confidence boost that did not materialize. - Devaluation expectations and inability to durably sterilize FX purchases made FX accumulation challenging. - Even during the program’s best stretch in H2 2022, achievement of FX goals required increasing reliance on distortionary exchange restrictions and MCPs. - Program reflected authorities’ policy preferences and redlines: - Prioritization of government spending goals over macro stability, tolerance of monetary financing, unwillingness to undertake deep reforms, and aversion to exchange rate adjustment led to a program differing markedly from staff proposals and Fund advice. - Program resembled a holding operation primarily aimed at reprofiling obligations to the Fund. - External shock impact: - A severe drought caused a very large (about US$20 billion) reduction in FX inflows and significantly aggravated outcomes in 2023. - Program ownership weakened as authorities diverged from program, contingency plans were not activated, and commitments were repeatedly broken. ### Policy adjustments under the new administration (results and remaining challenges) - Reforms that improved program design: - Established a strong fiscal anchor that eliminated deficit financing by the Central Bank. - Moved BCRA securities to the government balance sheet, substantially reduced quasi-fiscal losses, addressed a major source of liquidity creation, and strengthened disinflation credibility. - Program monitoring was strengthened by capturing BCRA secondary market purchases of government securities in conditionality. - Large upfront devaluation, measures to relax some FX controls and improve market access, and congressional approval of reform legislation (Ley Bases) helped bring program back on track. - Remaining priorities to sustain stabilization: - Broaden fiscal reform effort and improve social conditions to strengthen buy-in. - Make fiscal gains more durable by addressing structural fiscal rigidities: automatic cost-recovery of energy tariffs, improve sustainability of pension system and public wage bill, reduce distortionary tax complexity, and improve flexibility in fiscal relations with provinces. - Social acceptance is critical: authorities increased social benefits and enhanced inflation-protection of wages and pensions, but poverty rose to over 50 percent in early 2024, suggesting further social support may be needed absent reversal of this trend. - Reaching market access requires: - Credible strategy to unwind FX controls. - Greater exchange rate flexibility. - A more meaningful role for monetary policy, including ensuring a positive policy real interest rate that responds to inflation to support internal balance and external stability. - Despite strong progress in recent months, resolving Argentina’s BoP problem remains challenging. ### What could have improved the program (recommendations) - A more ambitious, frontloaded fiscal consolidation was critical to address the scale of imbalances and macro instability; fiscal consolidation was the key missing piece for debt sustainability and stabilizing the macroeconomy. - Fiscal anchor design: - Needed to comprehensively capture channels through which fiscal and quasi-fiscal activities contributed to aggregate demand. - In 2021 the primary deficit anchored the fiscal plan but captured somewhere between 40 and 60 percent of the consolidated deficit of the government and BCRA (depending on seigniorage inclusion); this share fell to less than a third in 2022 and less than a quarter in 2023, increasing the disconnect between program targets and actual fiscal stance. - A comprehensive diagnosis of the fiscal challenge would have exposed the weakness of the fiscal plan earlier; gradual approach postponed and magnified needed adjustment and undermined fiscal credibility. - Addressing quasi-fiscal losses directly and incorporating them into program anchors would have reduced money growth pressures and aided the disinflation strategy. ### Key statistics (Table 3: Argentina: Consolidated Public Sector Deficit 1/) - Consolidated fiscal deficit (Percent of GDP): 2021: 7.8; 2022: 9.6; 2023: 15.3; 2024 (proj.): 3.4 - o/w Primary deficit (Percent of GDP): 2021: 3.0; 2022: 2.4; 2023: 2.9; 2024 (proj.): -1.7 - Interest expenditure (Percent of GDP): 2021: 1.5; 2022: 2.1; 2023: 1.9; 2024 (proj.): 1.8 - BCRA quasi-fiscal loss (Percent of GDP): 2021: 3.3; 2022: 5.1; 2023: 10.5; 2024 (proj.): 3.3 - Seigniorage revenue (Percent of GDP): 2021: 2.6; 2022: 1.8; 2023: 2.4; 2024 (proj.): 2.7 - Consolidated fiscal deficit less seigniorage (Percent of GDP): 2021: 5.2; 2022: 7.8; 2023: 12.9; 2024 (proj.): 0.7 *Source: IMF staff summary of the IMF assessment in the referenced chapter.* ### 66. Stronger fiscal adjustment would have increased the chances of program success if ### 66. Stronger fiscal adjustment would have increased the chances of program success if ### Fiscal adjustment and exchange rate/external sector measures - Addressing the large FX gap would have better supported reserve accumulation goals. - Hoarding of FX, rent seeking, and lobbying for preferential exchange rates by exporters plagued the program and undermined efforts to build reserves. - Reunification of the exchange rates and greater exchange rate flexibility would have lessened these effects. - While reunification/flexibility "would have temporarily jolted inflation," the external sector strategy would have been more achievable and the overall disinflation strategy more credible. - An upfront and significant reduction of Central Bank losses could have strengthened the disinflation effort. - Central Bank losses embodied past and present fiscal excesses and made monetary policy significantly less effective. - Recapitalization of the Central Bank, and/or ensuring sufficient interest payments on government securities held by the BCRA, would have reduced its operational cashflow losses. - Such measures would have increased the fiscal deficit and made the broader fiscal challenge more transparent, but would have allowed an interest rate–based monetary policy that did not automatically trigger countervailing liquidity injections every time policy was tightened. - Result: "the efficacy of monetary policy as a tool to fight inflation would have been resuscitated." ### Structural conditionality and deep reforms - Key structural issues flagged by IMF staff: - A complex and distortive tax system. - Budget rigidity from an unsustainable pension system and a sizable public wage bill, over "70 percent" of which was controlled by the provinces. - Obstacles: - Reforms of this nature require significant and time-consuming preparatory work and internal dialogue, which did not take place in advance of the 2022 EFF—likely owing to weak incentives and political resistance. - How the EFF could have supported progress: - (i) Clearly state necessary reform objectives in structural benchmarks. - (ii) Ensure that all low-depth structural benchmarks are followed up by higher-depth benchmarks (all roadmaps and strategies should eventually result in legislation) and delay SBs elevated to prior actions. - (iii) Be more parsimonious in structural conditionality, favoring high-depth benchmarks. - Rationale: Greater parsimony of conditionality in an environment with weak ownership and large political risks could have focused authorities’ efforts and strengthened the signal of program ownership given by the degree of compliance with benchmarks. ### Phasing, financing, and incentives for sustained reform - Phasing and timing issues: - There was a mismatch between the schedule of disbursements (over "90 percent" of which were scheduled for 2022-23) and programmed fiscal adjustment (with "about a half initially planned in 2024"). - Contributions from Argentina’s external adjustment and other financing sources were lower than in other programs, leaving the Fund financing most of the BoP need. - Consequences: - Frontloaded phasing provided policy space that was ultimately used up, and low net financing from the Fund may have provided insufficient incentives to sustain reforms, especially around the election cycle. - Suggested alternative: - Combining more ambitious fiscal adjustment and greater exchange rate flexibility with more backloaded phasing. - "More backloaded disbursements with higher net financing in 2023 and 2024 might have better incentivized adjustment and more durable commitment to policy implementation, while potentially preserving some space for bringing forward disbursements in response to shocks." ### Macroeconomic projections: optimism and forecast performance - Growth forecasts: - The program’s growth forecasts were optimistic beyond the first year. - Current-year forecasts were generally in line with Consensus except during the Fourth Review when the program underestimated the drought’s adverse effect. - One-year ahead growth forecasts were at times more optimistic than Consensus by "more than one standard deviation" and significantly exceeded market sentiment at the time of the Fifth and Sixth Reviews. - Both program and Consensus one-year ahead forecasts significantly exceeded the outcome—attributable to the unexpectedly long-lasting drought. - Inflation forecasts: - Current year and one-year ahead inflation forecasts were substantially lower than actuals throughout the program. - Program forecasts were more than "one standard deviation" below contemporary Consensus forecasts in 6 out of 8 instances for current year inflation and 5 out of 8 instances for next year’s inflation. - External sector projections: - Program projections were within "one standard deviation" of mean Consensus forecasts in six out of eight Reviews for current year and one-year ahead current account. - FX reserve projections were close to Consensus and/or actuals for the current year in all program forecasts except for the Fifth and Sixth Reviews. - There was consistent over-optimism in one-year ahead FX reserve projections, with all forecasts until the Seventh Review "more than one standard deviation" above mean Consensus. ### Comparison with other EFF-supported programs - Phasing and financing-adjustment mix: - The phasing was frontloaded compared to other EFFs and more in line with SBAs despite Argentina’s deep structural imbalances. - Planned external adjustment and financing from other creditors made only small contributions to filling external financing requirements, with the Fund’s share correspondingly larger. - "There is no indication that the Fund program catalyzed significant external financing flows beyond what would already have been available." - Structural conditionality and implementation: - Composition of planned structural measures: "fiscal sector (58 percent); Central Bank issues (16 percent)." - About "half" of structural measures were of low depth; high-depth structural conditions were limited ("14 percent"). - "A third" of structural measures were not implemented. - The structural depth of implemented measures was similar to that of planned measures and to other EFFs. - Quantitative performance criteria (QPCs): - About "60 percent" of QPCs were met—similar to other EFFs. - QPC modification was far more frequent than in other EFFs and skewed towards loosening: "45 percent" of QPCs were loosened while only "7 percent" were tightened. - Macroeconomic outcomes as an outlier: - The real appreciation under the 2022 EFF was generally above the "90th percentile" of other EFF-supported programs and by far the largest among those approved under the Exceptional Access Policy. - Outcomes for the current account and FX reserves were close to the "10th percentile" of comparators (partly due to the historic drought). - Inflation "increased by 180 percentage points" during this period, exceeding the first two years of comparable programs by several orders of magnitude. - The program was an outlier in initial inflation rate prior to approval: "48 percent" in 2021. - The adjustment of the primary fiscal deficit—both planned and actual—was comparable to the median adjustment in other EFF-supported programs, in unconditional terms and after accounting for pre-program deficit and public debt levels. - Significant and increased quasi-fiscal losses by the BCRA complicate assessment of the initial fiscal stance and size of the adjustment. ### Consistency with Fund policies, procedures, and safeguards - Exceptional Access Policy (EAP) context: - Programs supported by a Fund GRA arrangement must meet the upper credit tranche (UCT)-quality standard; EAP prescribes additional safeguards and satisfaction of four exceptional access criteria (EACs). - Procedural requirements involve early and systematic consultation with the Executive Board and provision of information justifying exceptional access. - Holistic assessment and linkages: - Elements of the safeguards framework are interconnected; whether one criterion is met may rest on assessment of another. - The strength of the underlying policy reform program is the cornerstone of the Fund’s multi-layered risk mitigation framework; if program design/implementation prospects are weak, EAP safeguards are weaker even if technically met. - Application to Argentina’s 2022 EFF: - From the start, the program faced exceptional risks, including that it may fail to engender confidence and stability. - The design of the program did not inspire confidence; approvals and reviews appear to have relied on technical assessments of individual elements rather than a holistic view of how Fund resources were safeguarded. - EAC1 was easily satisfied by the macroeconomic background in 2021; other EAC assessments warrant further discussion given the program’s design and risks. *Source: IMF staff report excerpt titled "66. Stronger fiscal adjustment would have increased the chances of program success if"* ### 80. At arrangement approval, EAC4 was assessed as met in part on the basis of ### 1argea2025001-print-pdf - 80. At arrangement approval, EAC4 was assessed as met in part on the basis of ### Assessment of EAC4 (political and institutional assurances) - At arrangement approval, EAC4 was assessed as met in part based on congressional approval of the program required under Argentine law, providing political assurance and suggesting broad support including from the opposition. - Key findings: - A third of the ruling coalition did not vote in favor, revealing intra-coalition fragility. - Inflammatory rhetoric by key political leaders and a history of acrimonious relations between the Fund and Peronist governments aggravated risks to program credibility. - Authorities from both administrations made numerous disparaging public statements about the Fund, levied accusations against Fund staff, and questioned the validity of Fund-supported programs. - Concerns existed about the authorities’—notably the Central Bank’s—institutional capacity to implement the program amid severe fiscal dominance and a precarious balance sheet. - The assessment of EAC4 being met became increasingly tenuous over the program as: - Fractures within the governing coalition deepened. - The economy minister emerged as a presidential candidate. - Openly populist policies were advanced ahead of elections. - Post-election assessment: - Initially judged met based on staff’s view of broad parliamentary support for President Milei’s policy plans despite his party’s significant congressional minority. - By the Eighth Review, delays in approving key reform legislation and reliance on executive discretion reduced the binding nature of parliamentary support. - Staff nonetheless judged EAC4 met due to: implementation of discretionary policy measures to mitigate legislative setbacks, and staff’s assessments of prospects of eventually securing Congressional support as strong. ### Assessment of EAC3 (market access prospects) - Initial expectation: Argentina to regain market access in 2025 (by time repurchases to the Fund fell due in late 2026) on a scale to enable repurchases. - At arrangement approval, EAC3 was assessed as met conditional on strong program implementation that would: - Restore confidence. - Improve reserve coverage with support of sustained trade surpluses and increased FDI. - Create conditions for a gradual lifting of FX controls. - Key critiques and developments: - Assessment was subject to high uncertainty; shocks and policy slippages could compromise reserve accumulation. - Initial assessment appeared optimistic given cross-country experience, program strength, concerns about EAC4, implementation risks, extensive FX controls, and the program baseline not envisaging public debt becoming sustainable with high probability in this period. - Through end-2023, assumptions underpinning the initial assessment appeared increasingly out of reach; shocks and repeated policy setbacks materialized, including: - External bond prices near-distressed. - Escalating inflation. - Widening FX gap and swing to a sizable current account deficit. - Proliferation of FX controls without a roadmap for unwinding. - Liquid FX reserves nearly depleted. - These developments likely merited a more critical assessment of regaining market access in 2025 and ensuring realism of conditioning assumptions. ### Assessment of EAC2 (debt sustainability and financing cushion) - Framework: - Assessment conditional on debt sustainability classification: “red zone” (unsustainable ex-ante) requires outside financing (debt restructuring or other exceptional financing) to restore sustainability to “green zone”; “gray zone” allows EAC2 to be satisfied if non-Fund financing improves sustainability and safeguards for Fund resources. - Argentina’s history and assessment: - Argentina’s 2020 FX-debt restructuring occurred outside a Fund-supported program. - Immediately after the restructuring, debt was assessed in the green zone, but COVID-19 and unsustainable policies brought debt to the gray zone by the time the 2022 EFF was approved. - Technical assessment: - Applied a sound analytical framework, correctly but with some optimism (Annex XIV). - With Argentina locked out of international capital markets, additional safeguards hinged on sufficient private-sector and external bilateral official FX debt remaining outstanding by end of program to allow restructuring if needed to improve debt sustainability to at least the “gray zone.” - Staff assessed sufficiency through twin tests: debt sustainability under a large shock and FX availability if market access delayed. - Methodology revised shortly ahead of the EAC2 assessment to use the Fund’s new Sovereign Risk and Debt Sustainability Framework (SRDSF) for Market Access Countries, improving rigor and transparency; applied consistently across 2022 EFF reviews. - Caveats: - Assessment hinged on strong program implementation and baseline macro assumptions that contained optimistic projections on long-run GDP growth, the real exchange rate, and sizable fiscal adjustment beyond the program period. - While the “gray zone” assessment and post-program DSA test were met with sizable buffers, the FX availability test was often met by a thin margin. ### Procedural requirements and Board engagement - Procedural elements required prior to approval of the arrangement were followed: - Systematic consultations on program negotiations. - Short note outlining tentative diagnosis, needed measures, basis for EA judgment, preliminary evaluation of four EA criteria, and likely timetable. - Separate informal note evaluating the case for EA with further consideration of the four EA criteria. - Board engagement: - Board updated very frequently between arrangements, including informal sessions prior to program approval. - The first short note provided as background for the November 2020 meeting; the second informal note provided for the informal session on February 16, 2022. - Dates of informal sessions (as reported): - August 30, 2019; February 19, 2020; March 20, 2020; May 28, 2020; June 8, 2020; September 10, 2020; November 9, 2020; March 17, 2021; November 15, 2021; January 18, 2022; January 28, 2022; February 16, 2022; March 3, 2022; and March 18, 2022. ### Financial risks, Capacity to Repay (CtR), and reserves - Procedural safeguards: - Financial risks and safeguard assessments were generally followed; CtR assessed at each review. - Updated safeguards assessment conducted April-May 2022 before first review; updated fiscal safeguards review conducted before the first review due to use of Fund purchases for budget support. - Access, phasing, and risk tolerance: - Given the programmed adjustment, lower access and less frontloaded phasing would have been more consistent with Fund policies and guidance and with substantial enterprise risks from large Fund exposure to Argentina. - Fund financing was agreed and disbursed despite inability to assess Argentina’s CtR as adequate. - CtR classification: - Assessed as having “very high risks” from initial request through the Third Review. - Elevated to “exceptional risks” from the Fourth Review through the Eighth Review, with the latter noting CtR had “improved somewhat.” - Evolution of CtR metrics: - CtR metrics improved as SBA repurchase schedule shifted to the EFF repayment profile and due in part to reserve accumulation during 2024. - Despite some improvement in debt service measures, peak ratio of Fund credit outstanding to gross reserves continued to increase in the Seventh and Eighth Reviews, remaining well above other EA programs. - Gross vs net international reserves and liquidity signals: - At end-2021, NIR amounted to only US$2.3 billion, despite GIR totaling US$39.7 billion. - NIR reached a low of negative US$11 billion in December 2023, while GIR remained at US$21 billion. - Some GIR were held against gross official liabilities in foreign currencies (FX swap lines, deposits of financial institutions from reserve requirements on FX deposits, FX holdings of the deposit insurance fund), leading to GIR overstating FX buffers. - This discrepancy illustrated by difficulties in making repayments to the Fund during 2023 despite reported GIR never falling below $20 billion. ### Enterprise risk management and Board-level handling of risks - ERM policy evolution: - 2016 statement on risk acceptance governed tolerance during program negotiations, approval, and first three reviews but lacked specific procedural requirements. - In December 2022 the Board approved a broader ERM policy that specified governance and procedures and laid groundwork for quantified measures of risk tolerance. - Under the new policy, the staff report for the Seventh Review in January 2024 was accompanied by a standalone enterprise risk assessment—the first under the new policy. - Enterprise risk communication and management: - Enterprise risks were communicated early, though less systematically than under the new ERM policy. - Multiple informal Board engagements highlighted enterprise risks and risk mitigation strategies. - Missed opportunities: - From the time the 2018 SBA went off track, a broader menu of options (including alternatives to program engagement) and deeper assessment of enterprise risks could have been explored by the Executive Board. - Consideration of the EPE of the 2018 SBA occurred after program negotiations were underway for over a year, missing integration of past lessons into program design. - Risks to the Fund’s preferred creditor status, ability to handle very large arrears, impacts of arrears on concessional lending fundraising, and shareholder support for other policy initiatives were not systematically discussed against the enterprise risks of appearing too lenient to avoid arrears. - The Fund underestimated the difficulty of changing course once the program was underway, repeating a failure of the 2018 SBA; a clearer view of the risk of “pulling out” would have aided more informative enterprise-risk assessments and discussions of program alternatives. *Source: 1argea2025001-print-pdf - 80. At arrangement approval, EAC4 was assessed as met in part on the basis of* ### 95. The 2022 EFF reflected very difficult trade-offs in a highly complex setting. Many ### The 2022 EFF reflected very difficult trade-offs in a highly complex setting. Many ### Context and motivations for Fund engagement - Overarching motivation: help a member amid a challenging post-COVID backdrop. - Considerations affecting engagement: - Preparedness to handle financial consequences of arrears by Argentina. - Potential consequences for Argentina’s economy and the Fund’s reputation given the difficult legacy of the 2018 SBA. - Authorities’ (notably Argentina’s political leadership) limited apparent commitment to implement needed reforms, despite significant accommodation of their redlines. - Fund judgment: helping Argentina—even through a less-than-ideal program—was seen as potentially leading to better outcomes than not agreeing to a program, despite heavy risks. - Additional complicating factors: - Early 2023: a severe drought aggravated macroeconomic imbalances and complicated assessment of policy slippages unrelated to the drought. - Pre-election period: constrained Fund options because both “pulling the plug” and continuing to complete reviews had political neutrality and post-election policy-correction implications. ### Program outcomes, course correction, and impacts on the population - By late 2023: a major course correction by the new government put macroeconomic policies broadly on the right track, though the path to durable resolution of the BoP problem remained long and uncertain. - The Fund’s engagement helped avoid large arrears to the Fund and placed Argentina’s obligations on a more manageable repayment profile without increasing the Fund’s own exposure. - Interim costs and risks: - Argentina endured crisis conditions and a sharp macroeconomic adjustment that was necessarily larger than what was needed at the outset of the 2022 EFF. - Overall outcomes of the program would be substantially weaker if evaluated on the basis of developments through the end of 2023. - Counterfactual uncertainty: difficult to assert with strong confidence that engaging via the 2022 EFF delivered better outcomes, since counterfactual outcomes cannot be observed. ### Lessons from prior evaluations and program design implications - 2022 EFF echoed lessons from the 2021 EPE and the 2003 EPE/EPA but encountered similar pitfalls due to a complex political and socio-economic backdrop and the legacy of the 2018 SBA. - Program robustness to shocks would have required: - A stronger policy effort to allow buffers in the program. - More explicit contingency planning and alternative scenario analysis. - Tradeoff between ownership and program quality: - Need to balance deference to policy “redlines” with questioning those “redlines” where appropriate to protect program quality and the Fund’s reputation. - Repeated slippages during 2023 underlined the recommendation to consider when the Fund should “pull the plug” on programs whose objectives can no longer realistically be met, including when meeting the Exceptional Access Criteria becomes tenuous or doubtful. - Need for a more granular assessment of EAC4 and realism checks for EAC3 and EAC2; emphasize a holistic application of the EA framework that accounts for links among its elements and collective signals. ### Fund policies, large concentrated exposures, and lending framework - No clear policy framework governing the Fund’s approach to exposures so large that arrears would make re-engagement near-impossible and bridge financing unavailable, creating substantial reputational and financial costs. - Imperative to avoid such outcomes pressured the Fund’s willingness to delay a review, reducing a key source of Fund leverage and handicapping program prospects. - Fund lending framework does not generally differentiate between sources of BoP problems, specifically where a large part stems from obligations to the Fund. - Marginal financial risks to the Fund associated with refinancing Argentina’s outstanding Fund credit were much lower than if comparable new financing had been provided to a borrower with no Fund credit outstanding. - Resolution of these tensions requires broader discussion of policy options, including: - Options not limited to standard program engagement (e.g., a postponement of Fund repurchases beyond the program period 86). - If a standard program is the only viable option, ways to ensure a realistic possibility for the member to exit from arrears while accounting for all relevant trade-offs. ### Enterprise risk governance and Board engagement - Early and comprehensive enterprise risk discussions with the Board are critical in such large-exposure, high-risk contexts. - Argentina had multiple informal Board engagements in 2020-22 and Board documents included analysis of financial risks to the Fund. - January 2024: Board discussion of dedicated enterprise risk assessment anchored in the new ERM policy provided an enhanced framework being adopted in other high enterprise risk cases. - Board consideration should encompass a broader set of options than program vs. no program, including policy changes and associated risks and mitigants. - Caution: do not underestimate pressures to maintain course once program route chosen versus stopping a review when implementation weakens below acceptable levels. ### CtR assessments, reserves metrics, and lending decisions - CtR assessments are important for risk management but Fund policies would benefit from clarity on how such assessments should be factored into lending decisions. - In Argentina’s 2022 EFF: - Lending proceeded despite inability to assess the country’s CtR as “adequate” and completion of reviews notwithstanding “exceptional risks” to CtR. - CtR assessment based on gross FX reserves overstated actual repay capacity because reserves were not reported in line with international standards and included assets held against FX liabilities that made them markedly higher than net reserves. - Need for CtR assessments to consider the most relevant country-specific measures of reserve buffers and consistency with the Fund’s risk tolerance level (or revision thereof). ### Technical assistance, debt restructuring, and signaling risks - Precedent: providing technical assistance to facilitate debt restructuring without clear and credible policy commitments under a Fund-supported program warrants further consideration. - In March 2020 the DSA prepared outside a Fund-supported program was based on hypothetical policy scenarios not backed by actual commitments, sending questionable signals to investors. - The DSA incorporated only a limited impact from the COVID-19 pandemic and was not revised until after the debt restructuring was completed. - Risk: restructurings can be used in lieu of (rather than to complement) reforms; Fund assistance should account for implications for the Fund’s preferred creditor status and signaling role. ### Use of FX controls, MCPs, and program review practices - Use of FX and price controls and MCPs during the 2022 EFF was significant. - Under Article VIII, Sections 2(a) and 3 of the Articles of Agreement, the Executive Board can approve temporary use of exchange restrictions and MCPs in certain circumstances. - Concern: repeated approvals of program reviews based on targets met through such “temporary” measures, which increasingly substituted for adjustment, warrant reconsideration. - Fund financing is intended to allow correction of BoP maladjustments without resorting to measures destructive of national or international prosperity; where such measures are used as stopgaps, the program should envisage their rapid removal. - Reliance on such measures throughout 2022-23 signaled lack of durable adjustment and merited substantive program recalibration. ### Contingency planning, transparency, and program credibility - Credibility and likelihood of success would have been enhanced by authorities’ explicit commitment to spelled-out contingency plans in program documents. - Inclusion of contingency plans would provide ex ante markers for authorities, the Fund, and market participants about requirements for completion of program reviews in baseline or adverse scenarios. - Exclusion of such plans from published program documents may have lowered reputational risks for authorities and weakened the Fund’s ability to constrain policy slippages. - Side letters are available to convey confidential contingency plans to the Executive Board 90; reluctance to provide such commitments could have informed the assessment of EAC4. ### Political pressures and institutional safeguards - Delicate balance between securing authorities’ ownership and ensuring policies adequate to deliver program objectives. - Undue deference to authorities’ preferences risks undermining program quality, the member’s longer-term interests, and the Fund’s ability to fulfil its mandate. - Fund shareholders and the Board should consider how to shield the institution and its staff from political pressures to reinforce the Fund’s credibility and impartiality as a global institution. *Source: IMF evaluation of Argentina’s 2022 EFF (chapter content provided).* ### 2022. https://www.ft.com/content/65cb9e49-2dce-46e7-b2a5-e006e7280648 ### 1argea2025001-print-pdf - 2022. ### Annex I — Lessons Drawn by the Ex-Post Evaluation of the 2018 SBA - The EPE of the 2018 SBA (discussed by the IMF’s Executive Board in December 2021) concluded the program did not succeed for several reasons, grouped broadly into four buckets: - Shortcomings in program design: baseline assumptions were overly optimistic leaving little buffer for shocks; program did not sufficiently consider alternative or unconventional policies (e.g., a debt restructuring or use of capital flow management measures). - Shortcomings in clear and frank communication within the Fund on analysis and risks underlying key judgments in the application of the Exceptional Access (EA) and program assumptions, risks, and contingency measures. - External communications, led by the authorities, were not sufficiently clear and strong to help restore confidence. - The program’s inability to catalyze other sources of financing and the Fund’s resulting role as the largest creditor to Argentina made it difficult to “pull the plug.” - The EPE drew seven general lessons: 1. Ensuring robustness of the program to shocks and forecast errors by using conservative yet plausible baseline assumptions and testing the sensitivity to alternative assumptions; 2. Tailoring the program to country circumstances, even if that means embracing unconventional measures (e.g., CFMs) when the policy space offered by traditional policies is limited; 3. Sharpening the application of the Exceptional Access Framework by laying out the analysis and risks underlying key judgments, such as market access, as fully as possible; 4. Carefully balancing ownership—in a broad societal sense when the government has fragile political support—against the quality and appropriateness of program policies and risks to the Fund’s reputation, including by questioning policy “redlines” that could compromise program objectives; 5. Ensuring effective external communication, led by the country authorities, so that the program is well understood by the population and in financial markets and has the intended catalytic effect; 6. Revisiting the Fund’s assessment and risk-mitigation processes to ensure the Board has sufficient information to robustly discuss program assumptions and strategies and to ensure contingency plans are agreed in advance with authorities; 7. Considering the broader implications for the Fund’s role in the global financial safety net, including burden sharing with other IFIs and private creditors and when the Fund should “pull the plug” on programs whose objectives can no longer realistically be met. - Executive Directors noted several lessons were not new and emphasized that findings should inform Argentina’s new Fund-supported program. *Source: 1argea2025001-print-pdf - 2022.* ### Annex II — Summary of the Staff Technical Note on Public Debt Sustainability - End-2019 debt stock and composition: - Federal government debt: US$323 billion, equivalent to 88 percent of GDP, assessed as unsustainable and requiring a definitive debt operation with a meaningful contribution by private creditors. - Private creditors held US$133 billion, or 41 percent of the total debt. - Debt to the private sector breakdown: foreign-law debt US$73 billion and domestic-law debt US$60 billion. - About 60 percent of debt to the private sector (US$80 billion) was held by nonresidents. - The analysis focused on the US$207 billion held by the official and private sectors and excluded US$117 billion of public debt held by other public sector bodies (the Central Bank (BCRA) and the social security trust fund FGS). - Staff’s feasible macroeconomic framework (projections and assumptions): - Real GDP: projected contraction of 2.3 percent in 2020, rebound to over 2 percent in 2021-23, then convergence to a long-term potential of 1.5 percent. - Fiscal consolidation: 2½ percent of GDP during 2021-23 and an additional ½ percent of GDP in 2024-25. - Primary fiscal deficit/projection: starting from a projected primary fiscal deficit of 1.6 percent of GDP in 2020, improvement to a primary surplus of 0.8 percent of GDP by 2023 and 1.3 percent of GDP starting 2025. - Inflation: assumed to gradually decline aided by reduced monetary financing, positive real interest rates, and a rate of crawl of the nominal exchange rate; official exchange rate assumed to act as a de-facto nominal anchor. Temporary price controls assumed to be gradually lifted starting in late 2020. - International reserves: assumed to increase steadily—averaging US$2.8 billion in 2021-23 and US$1.8 billion in 2023-30—supported by a trade surplus and modest FDI inflows, with gradual easing of CFMs and eventual restoration of access to international capital markets. - Debt targets and minimum cash-flow relief suggested (conditional on macro and re-financing projections): - GFNs target: averaging no more than 5 percent of GDP after 2024, and not exceeding 6 percent of GDP in any year (compared to projected GFN of 13.3 percent of GDP in 2020). - Debt service in foreign currency target: averaging no more than 3 percent of GDP after 2024 (6.1 percent of GDP projected in 2020). - Projected outcome: minimum cash-flow relief necessary to meet these targets projected to stabilize Argentina’s debt—excluding debt held by BCRA and FGS—at below 40 percent of GDP by 2030 and beyond (60 percent of GDP if BCRA- and FGS-held debt were included). *Source: 1argea2025001-print-pdf - 2022.* ### Annex III — Balance Sheet Challenges of the BCRA - Historical drivers of weakening (2006 onward): - Progressive weakening due to persistent monetary financing through different channels. - Government instructed BCRA to use freely usable international reserves to service external Treasury liabilities; in exchange, BCRA received non-transferable dollar-denominated treasury securities (NTTS) with typically 10-year maturity and interest rates close to the return on FX reserves subject to a cap. - NTTS interest payments were paid in cash or accrued and securitized with new NTTS with principal rolled over. In times of currency devaluation, NTTS were revalued and profits transferred to the Treasury, exacerbating debt overhang. - In 2019, such revaluation led to the transfer of US$18 billion as profit distribution to the Treasury. - By 2020, accumulated stock of NTTS reached 16.3 percent of GDP or about US$60 billion. - BCRA financing was an essential component of the fiscal response to COVID-19 in 2020-21: BCRA subsidized private credit and increased direct advances and transfers of asset revaluation gains to the Treasury, totaling 7.4 percent of GDP in 2020 and 4.7 percent of GDP in 2021. To mop up liquidity, BCRA issued its own securities raising quasi-fiscal losses. - 2022–2023 developments: - Money creation and Central Bank losses accelerated in 2022-2023, further undermining BCRA’s credibility. - BCRA stepped up bond purchases in the secondary market, particularly in 2023; these were sterilized through issuance of BCRA securities (LELIQ) whose stock grew to 16.4 percent of GDP in 2023. - Treasury generally securitized its debt service to BCRA; BCRA’s cashflow deficits—met with creation of fresh peso liquidity—mounted further, reaching 10.5 percent of GDP. - Preferential exchange rates to exporters were an additional contributing factor. - In fall 2022, IMF Technical Assistance mission estimated BCRA’s equity at negative 11 percent of GDP in 2022. - Recommended urgent measures: cease all quasi-fiscal operations and transfers to the Treasury; strengthen accounting standards; convert NTTS to an inflation-linked peso superbond to be serviced from fiscal resources. - 2021–Sep-24 summary operations table (values in percent of GDP unless otherwise stated): - Net Foreign Assets: 2021 = 3.6, 2022 = 4.9, 2023 = 1.1, Sep-24 = 1.5 - Net Domestic Assets: 2021 = 4.3, 2022 = 1.4, 2023 = 4.0, Sep-24 = 2.4 - Credit to the public sector: 2021 = 19.0, 2022 = 19.1, 2023 = 24.6, Sep-24 = 8.6 - of which: temporary advances = 4.7 (2021), 3.4 (2022), 0.9 (2023), 0.5 (Sep-24) - non-marketable gov't bonds = 12.7 (2021), 13.3 (2022), 6.8 (2023), 3.1 (Sep-24) - gov't bonds and other net credit = 2.6 (2021), 2.4 (2022), 16.9 (2023), 5.0 (Sep-24) - Credit to financial institution: -2.7 (2021), -2.6 (2022), -3.9 (2023), -1.8 (Sep-24) - BCRA securities: -10.9 (2021), -12.7 (2022), -16.4 (2023), -1.8 (Sep-24) - Other: -1.1 (2021), -2.4 (2022), -0.4 (2023), -2.6 (Sep-24) - Monetary Base: 7.9 (2021), 6.3 (2022), 5.1 (2023), 3.9 (Sep-24) - Memorandum items: - Quasi-fiscal loss (cashflow deficit): 3.3 (2021), 5.1 (2022), 10.5 (2023), -0.2 (Sep-24) - NFA (in billions of USD): 16.2 (2021), 22.7 (2022), 2.5 (2023), 8.1 (Sep-24) - 2024 improvements and actions: - By 2024, BCRA’s balance sheet substantially strengthened through: - improvements in reserve coverage; - redemption of government securities held by the BCRA, supported by fiscal surplus and net government debt placements; - transfer of all peso-remunerated liabilities from the BCRA’s balance sheet to the Treasury (completed in July 2024). - As a result of the transfer of BCRA remunerated liabilities to the Treasury (completed in July 2024), quasi-fiscal costs declined to zero; the Treasury now bears interest costs of the new monetary policy instrument (the LeFi, the Fiscal Liquidity Treasury Bill). - Balance sheet transparency improved by valuing government securities at end-2023 market rate. - The BCRA issued a short-term USD denominated bond (US$10bn BOPREAL) to clear the backlog of import bills. - Notes on the liability transfers (two-phase process): - Initial phase (launched in March): government encouraged banks to shift holdings of pases towards fixed rate Treasury bills (LECAPs) by offering higher interest rates, with option of using various Treasury bills as collateral in BCRA’s standing lending facility. - Second phase (launched in July): government converted all remaining pases to a newly created variable rate Treasury bill (LeFis), which became the new monetary policy instrument. *Source: 1argea2025001-print-pdf - 2022.* ### Annex IV. IMF Arrears Policy and Resolution Mechanisms ### Annex IV. IMF Arrears Policy and Resolution Mechanisms ### Framework and threefold strategy - The Fund’s policy on arrears consists of a threefold strategy providing for: - (i) preventive measures to avoid new arrears from emerging, - (ii) intensified collaboration to support normalizing relations with the Fund, and - (iii) the application of escalating remedial measures. - The strengthened cooperative strategy on overdue financial obligations applies to both short-term and protracted arrears (of six months or more) and to both Poverty Reduction and Growth Trust (PRGT) and to the General Resources Account (GRA). - Arrears to the GRA are breaches of obligations under the Articles of Agreement, subject to the sanctions specified in Article XXVI, Section 2, and as such follow a specific timetable of remedial measures. ### Remedial measures for overdue financial obligations to the GRA (timing and steps) - Immediate prohibition of use of any of the Fund’s general resources upon occurrence of arrears. - Subsequent steps and timing: - Notifications to the member in an attempt to resolve the arrears. - If not resolved, the arrears are reported to the Board one month after occurrence. - Issuance of a complaint at the two-month mark, which formalizes the prohibition on use of Fund resources. - After a brief factual press release is published, a declaration of ineligibility will be considered to take effect not more than twelve months after the emergence of arrears. - Within three-months a declaration of noncooperation will trigger the suspension of technical assistance to the member. - The remedial measures could culminate in the procedure on compulsory withdrawal within six months after the decision on suspension of voting and representation rights. - The timetable of remedial measures for arrears to the GRA is based on the procedures for dealing with members with arrears to the Fund adopted by the Executive Board on August 17, 1989, as amended by Decision No. 12546-(01/84), adopted on August 22, 2001. ### De‑escalation policy and resolution mechanisms applied - Under the de-escalation policy on arrears, the process for lifting remedial measures is based on a Board decision that the member in arrears has strengthened its cooperation with the Fund, as evidenced by: - a sustained track record of performance regarding economic policies and payment to the Fund, - prospects of full clearance of arrears and regaining access to the Fund’s financial resources. - The de-escalation policy on arrears has been applied to five countries: - Republic of Congo (2002) - Liberia (2006) - Somalia (2020) - Sudan (2000) - Zimbabwe (2010) - Resolving protracted arrears also required political and financial support by other Fund members in the form of bilateral loans and grants to allow for restructuring of debt in arrears and facilitating movement towards regaining access to Fund resources and sustainability. - The resolution mechanisms to clear arrears to the Fund have only been applied to few cases despite the prescribed de-escalation of remedial measures. ### Historical incidence, magnitude, and recent patterns - Over time, incidence of arrears to the Fund have continued to decline and there has not been any new case of protracted arrears since 2001 (Zimbabwe). - Since 1980, there have been a total of 30 cases of protracted arrears by the Fund membership. - The credit outstanding at the start of these arrears ranged from SDR 1.3 million to SDR 728.9 million. - The last protracted arrears case was Sudan, which had incurred arrears in 1984 and was cleared in 2022. - Recent cases of arrears were typically short-term arrears cases of technical nature, involving small countries and amounts. - Only the short-term arrears by Greece in 2015 carried a financial and strategic significance, due to the size of the Fund’s credit exposure. *Source: Annex IV. IMF Arrears Policy and Resolution Mechanisms* ### 0.4 percent of GDP over time. ### 0.4 percent of GDP over time. ### Macroeconomic developments and program reviews - After moderating to 5 percent in December, monthly inflation accelerated to 6.3 percent in January-February. - Real interest rates in the secondary market were hovering around 12-13 percent and the FX gap at around 90 percent. - A new financing strategy sought a voluntary debt exchange aimed at extending maturities. - Banks’ holdings of BCRA securities rose sharply, while credit to the private sector declined. - Fifth and Sixth Reviews (August 23, 2023): - Key end-June 2023 QPCs were missed by wide margins; program went off track amid policy slippages and an intensifying impact of the drought. - Electoral considerations affected policy making with new tax relief, spending initiatives, public wage increases and bonuses. - Growth slowed and exports plummeted. - FX reserves fell by US$16 billion in the first six months of 2023. - MCPs, exchange restrictions, and other control measures intensified, leading to nonobservance of the continuous PCs. - Monthly inflation hovered at 5-6 percent and the FX gap averaged around 100 percent. - BCRA losses continued to mount due increased sterilization costs. - Authorities’ key policy undertakings ahead of completion of the reviews included efforts to contain wages, a 27-percent (relative to end-July) step devaluation, a large interest rate hike, and measures to reduce energy subsidies. - The end-year target for the primary balance remained unchanged. - Phase Two (2024): - Seventh Review (January 31, 2024): - In the last months of 2023 the government largely reneged on policy commitments; key QPCs were missed by large margins. - Monthly inflation accelerated to 12.8 percent in November (over 320 percent annualized). - The FX gap exceeded 150 percent. - NIR reached negative US$11.2 billion in early December as hard currency liquid reserves were completely exhausted. - BCRA interventions and MCPs and exchange restrictions intensified. - Newly elected President Milei took office on December 10, 2023, and implemented a 120-percent step devaluation, stepped up FX purchases, and began to cut expenditures and unwind tax rebates, aiming at a fiscal adjustment of 5 percent of GDP in 2024. - Monetary financing was sharply curtailed, and work began to strengthen the BCRA’s balance sheet. - Eighth Review (June 13, 2024): - Program was assessed as firmly on track; all end-March QPCs were met. - About two-thirds of the fiscal adjustment planned for 2024 was achieved as of end-April through wide-ranging executive measures. - Monthly inflation declined faster than expected, falling to 8.8 percent in April from 25.5 percent in December 2023. - Supported by a sizable turnaround in trade balance and aggressive FX purchases, NIR recovered to about US$0.3 billion. - The FX gap narrowed rapidly to 20 percent but began to widen again, reaching about 40 percent. - Limited unwinding of MCPs and exchange restrictions was underway, though the relevant continuous PCs were again missed. - Efforts to heal the BCRA balance sheet and reduce its quasi-fiscal losses continued, including through improved accounting standards and a partial offloading of BCRA securities. ### The economic impact of the Ukraine war and the 2022-23 drought - Ukraine war: - Had limited spillovers to Argentina but added to inflationary pressures. - Muted impact on economic activity and foreign exchange inflows given weak trade connections with Russia and Eastern Europe. - Higher import prices (gas, fertilizers) were offset by higher export prices (grains, crude oil). - Impact on fiscal balances was limited as a higher energy subsidy bill was offset by an increase in export tax revenues. - Economy largely insulated from tighter global financial conditions due to lack of access to international markets and widespread FX controls. - Higher food and energy prices added to already strong inflationary pressures. - Authorities re-directed spending towards higher energy subsidies and targeted social assistance. - 2022-23 drought: - Significantly impacted Argentina's economy; agricultural sector accounts for nearly 10 percent of GDP. - Worst soybean harvest in over a decade; corn and wheat also declined but less severely. - Agricultural GDP contracted by 17 percent in 2023. - Overall real GDP contracted by 1½ percent in 2023 (shallower than the 2½ percent contraction forecast at the Fifth and Sixth Review). - Drought estimated to have caused a loss of US$20 billion in FX inflows from agricultural exports, contributing to a swing to a deficit in the current account and the loss of FX reserves. - Program was adjusted to partially accommodate the drought with a loosening of 2023 NIR targets; sought a balanced mix of financing and adjustment and policy measures to partially offset imports. - Only limited adjustment materialized in 2023; combined trade and other financing and reserve depletion were more than double the estimated impact of the drought. ### Export incentive schemes: iterations and economic impact - Iterations and design: - September 2022: exporters of soybean and derivatives could fulfill FX surrender at a preferential exchange rate about 40 percent above the official rate; scheme lasted duration of September 2022. - December 2022: scheme reinstated for December 2022 with roughly same coverage and preferential rate about 40 percent above official rate. - April to August 2023: coverage expanded to broader agricultural products including corn; preferential exchange rate averaged about 20 percent above the official rate over the duration; prohibitions on accessing FX market for certain import payments until receipt of export proceeds for soy products. - Late 2023 and 2024: new scheme in September 2023 allowed agricultural exporters to settle 25 percent of proceeds in the formal parallel (CCL) FX market; later raised to 50 percent and expanded to all exporters; replaced in December 2023 with the 80:20 Preferential Export Scheme which reduced share settled in parallel FX market to 20 percent while maintaining broad coverage. - Economic impact: - First two iterations (Sept and Dec 2022) resulted in US$11 billion (2 percent of GDP) of agricultural sales, helping secure NIR and fiscal program targets (latter through export tax revenues, which increased by about ½ percent of GDP given export tax rates of 33 percent). - BCRA bore costs of about ¾ percent of GDP arising from the exchange rate differential; compensated by the Treasury with long-maturity non-transferable Treasury securities. - BCRA also shouldered sterilization cost as it withdrew the peso liquidity introduced. - Third iteration (April 2023) facilitated US$6½ billion in agricultural exports and generated about ¼ percent of GDP quasi-fiscal costs to the BCRA; additionality likely much lower due to exporters hoarding in expectation of further rounds. - Agricultural exports in 2023 may have been held back by the historic drought. - Later iterations’ export and fiscal impact difficult to assess; these imposed no quasi-fiscal costs to the BCRA given reliance on parallel FX markets instead of preferential exchange rate offers. ### Consistency with program conditionality and Fund policies - First three iterations of export incentive schemes were assessed as MCPs and necessitated approval under Article VIII and waivers of non-observance of the continuous performance criterion related to multiple currency practices in the Second, Third, Fourth, and combined Fifth and Sixth Reviews. - Fourth iteration (80:20 Preferential Export Scheme) did not give rise to a MCP as it does not specify a specific exchange rate and CCL market transactions are not considered exchange transactions. - An end-June 2024 structural benchmark introduced in the Seventh Review for its elimination was not met. - The Fund’s new MCP policy took effect on February 1, 2024; pre-existing MCPs were deemed removed and prior Board approvals lapsed; a new assessment was conducted in the Eighth Review according to the new MCP policy. ### Exchange restrictions, MCPs, and intensification over the 2022 EFF - Measures giving rise to exchange restrictions and MCPs included: - Preferential exchange rates for exporters of soybeans and derivatives, and for non-resident tourists. - Reduction in annual limits on undelayed FX access for goods imports and restriction of FX market access beyond those limits for certain import categories. - Implementation of annual limits on immediate FX access for payments of imports of services. - Inclusion of transactions with CEDEARS instruments in capital market transaction restrictions. - Reinstatement and modification of preferential exchange rates for exporters and expansion of eligible products. - New taxes on purchase of foreign currency for payment of certain services and imported goods (rates cited include 30 percent, 25 percent, 7.5 percent, and increases to 17.5 percent in later measures). - Prohibitions on accessing the FX market for import payments of soybeans until receipt of export proceeds. - Authorization requirements by the BCRA for FX market access for specific professional services and payments of interest to non-resident related counterparties. - Extension of affidavit periods for CCL and non-CCL transactions and requirements affecting company groups. - Extensions of provincial refinancing requirements for external loans before accessing FX market for repayments. - Restrictions on individuals participating in pension buyback scheme and beneficiaries/contributors of SIPA from accessing the FX market under certain conditions. - Assessment labels in Table 1 include: New MCP, Intensification of exchange restrictions, Modification of MCP, New exchange restriction/new MCP, and Modification and intensification of an existing MCP and exchange restriction. ### Key performance criteria and target outcomes under the 2022 EFF (selected figures preserved) - Program targets and outcomes include many fiscal and monetary metrics reported in billions of Argentine pesos (unless otherwise stated) and specific US$ figures for NIR: - Cumulative floor on the federal government primary balance and numerous PC statuses reported (examples: -222.3, -210.9, -192.7; met/ not met statuses vary across revisions and periods). - FX reserves and NIR changes: examples include NIR reaching negative US$11.2 billion in early December; recovery to about US$0.3 billion by June 13, 2024. - BCRA financing and central bank targets: examples include cumulative ceiling on central bank financing figures such as 236.8, 122.0, 438.5, 475.8, 435.1, 613.3, 665.4 and statuses met or not met depending on period. - Ceiling on central bank stock of non-deliverable futures reported with targets like 6.000, 7.000, 9.000 and actual stocks like 1.200, 4.358, 3.131, 0.587, etc., with met statuses. - Targets subject to adjustors as defined in the Technical Memorandum of Understanding (TMU); definitions and base values changed in revisions (examples: NIR baseline US$2.325 billion and revised to US$2.277 billion; stock of non-deliverable futures on December 31, 2021 stood at US$4.185 billion). - Notes and methodological points: - Flows measured from January 1 through December 31 for certain targets. - TMU definitions changed in the Seventh Review; central bank financing definition broadened and shifted to net concept with cumulative flows measured starting from December 10, 2023. - Some targets discontinued starting in 2024 (e.g., stock of non-deliverable futures). *Source: 1argea2025001-print-pdf - 0.4 percent of GDP over time.* ### 1. Cumulative floor on the federal government primary balance 3/ 10/ ### 1. Cumulative floor on the federal government primary balance 3/ 10/ ### Fiscal and Quantitative Performance Indicators - Cumulative floor on the federal government primary balance: -317.1; 962.4; ...; 3868.3 — Met - Ceiling on the federal government stock of domestic arrears 4/: 2536.7; 5264.4; ...; 1563.0 — Met - Continuous Performance Criterion — Non-accumulation of external debt payments arrears by the federal government: 0.0; 0.0; ...; 0.0 — Met ### Indicative Targets (selected) - Cumulative floor on real government revenues 3/ 5/: ...; ...; ...; ...; ... - Cumulative floor on federal government spending on social assistance programs 3/ 6/: 588.6; 1177.2; ...; 1124.7 — Not Met ### Monetary targets - Performance Criteria: - Cumulative floor on the change in net international reserves of BCRA 7/ 8/ 10/: 4.300; 6.000; 5.900; 8.700 — Met - Cumulative ceiling on central bank financing of the federal government 3/ 8/: 0.0; 0.0; ...; -2119.4 — Met - Indicative Target: - Ceiling on the central bank stock of non-deliverable futures 9/: 7.000; ...; ...; ...; ... ### Compliance summary - Multiple performance criteria and ceilings were recorded as Met; the spending floor on social assistance programs was recorded as Not Met. *Source: 1argea2025001-print-pdf - 1. Cumulative floor on the federal government primary balance 3/ 10/* --- ### Annex XII. Structural Benchmarks Under the 2022 EFF ### Prior Actions (selection) - 1 Increased the effective annual policy rate. Sector: Monetary/FX Policy. Timing: Program request (March 2022). Status: Met - 2 Eased certain FX security market restrictions. Sector: Monetary/FX Policy. Timing: Program request (March 2022). Status: Met - 3 Updated wholesale electricity and gas prices. Sector: Fiscal Structural. Timing: 1st Review (June 2022). Status: Met - 4 Modified budget to ensure consistency with the end-2022 fiscal targets. Sector: Fiscal Structural. Timing: (June 2022). Status: Met, previously SB - 5 Submitted to congress the draft 2023 budget consistent with the agreed primary deficit. Sector: Fiscal Structural. Timing: 2nd Review (Oct. 2022). Status: Met, previously SB - 6 Issued an Emergency Decree consistent with the program primary deficit target. Timing: (Dec. 2022). Status: Met - 7 Issued a new Decree to contain the fiscal impact of the new pension moratorium. Timing: (March 2023). Status: Met - 8 Extended domestic debt maturities. Sector: Financing. Timing: 5th and 6th Reviews (Aug. 2023). Status: Met - 9 Implemented a nominal step devaluation. Sector: Monetary/FX Policy. Timing: 5th and 6th Reviews (Aug. 2023). Status: Met - 10 Increased the effective annual policy rate. Sector: Monetary/FX Policy. Timing: 5th and 6th Reviews (Aug. 2023). Status: Met - 11 Issued an administrative order to ensure future public wage increases are capped. Timing: (Aug. 2023). Status: Met - 12 Completed public hearings outlining proposals for electricity and gas tariff increases. Timing: (Jan. 2024). Status: Met - 13 Bought back government debt held by the central bank to maintain net zero credit to government. Timing: (Jan. 2024). Status: Met - 14 Developed a strategy, in consultation with the Fund, to help ensure an orderly solution to the ... Timing: (Jan. 2024). Status: Met - 15 Issued a decree to remove the CVS formula (Decree 332/2022), which caps increases in N2. Timing: (June 2024). Status: Met ### Structural Benchmarks (selection) - 1 Avoid additional taxes on financial transactions. Sector: Fiscal Structural. Timing: Continuous. - 2 Call a public hearing on a proposal to update wholesale energy tariffs effective June 1, 2022. Sector: Structural. Timing: Apr-22. Status: Met - 3 Submit to congress amended AML/CFT Legislation (Law 25.246). Sector: Financial Integrity. Timing: May-22. Status: Met - 4 Prepare a proposal with an action plan to enhance financial and budget reporting of entities of the national public sector. Sector: Fiscal Structural. Timing: Jun-22. Status: Met - 5 Modify the SEPIPyPPP 1/2021 Resolution to enable annual regulation setting investment project prioritization and selection criteria. Sector: Fiscal Structural. Timing: Jun-22. Status: Met - 6 Publish a time-bound plan to streamline the reserve requirement system and improve the transmission of monetary policy. Sector: Monetary/FX Policy. Timing: Jun-22. Status: Met - 7 Publication of semi-annual investor relations presentation. Sector: Financing. Timing: Jul-22. Status: Met - 8 Publish a National AML/CFT Strategy. Sector: Financial Integrity. Timing: Sep-22. Status: Met - 9 Conduct a study to strengthen the equity and long-term sustainability of the pension system focused on special pensions regimes. Sector: Fiscal Structural. Timing: Dec-22. Status: Met, with modifications - 10 Develop a detailed and time-bound action plan to identify compliance gaps and improve compliance risk management of key domestic taxes and customs duties. Sector: Fiscal Structural. Timing: Dec-22. Status: Met - 11 Secretary of energy to publish a medium-term energy sector strategy and detailed plan to improve subsidy segmentation implementation. Sector: Fiscal Structural. Timing: Dec-22. Status: Met, with modifications - 12 Prepare a medium-term debt management strategy (MTDS). Sector: Financing. Timing: Dec-22. Status: Met - 13 Conduct and publish a comprehensive evaluation of social support programs; Timing: Mar-23. Status: Not met; Completed but not published due to confidentiality - 14 Modify and submit to congress legislation—Foreign Exchange Criminal Law—to improve the penalty framework. Timing: Reset from March 2023 to May 2023. Status: Not met; draft legislation finalized, submission to congress expected by end- October - 15 Publish 2022 financial statements of the BCRA to enhance financial disclosures towards compliance with IFRS-7. Timing: May-23. Status: Met - 16 Complete a comprehensive evaluation of tax expenditures. Timing: Jun-23. Status: Met - 17 Publication of an external ex-post audit on COVID spending for at least 2020. Timing: Jun-23. Status: Not met; clearance resolutions were issued in late 2022, but the audit reports remain unpublished due to confidentiality - 18 Develop a strategy to durably improve the BCRA financial position, drawing on recommendations from the Fund’s Safeguard Assessment. Timing: Modified and reset. Status: Not met - 19 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. Timing: Reset from March 2022 to October 2023. Status: Not met; published report did not include breakdown of assets and liabilities data due to lack of availability - 20 Develop and execute a plan aimed at extending the maturities of a portion of the domestic debt coming due in 2024. Timing: 2023 to October 2023. Status: Financing Mar-24 — Met - 22 Publication of detailed reforms of the current tariff segmentation scheme to better target subsidies on the basic energy basket for vulnerable households. Timing: May-24 — Met - 23 Eliminating the existing preferential export scheme. Timing: Jun-24 — -- - 24 Develop compliance improvement plans for customs. Timing: Jun-24 — -- - 25 Develop and publish a framework for the gradual easing of FX controls and CFMs outlining necessary conditions and objectives. Timing: Reset from June 2023 to March 2024. Status: -- - 26 Develop an action plan to consolidate all central government entities into the treasury single account (TSA) at the central bank, in consultation with Fund staff. Timing: to July 2024. Status: -- - 27 Strengthen integration of administrative databases to improve targeting and efficiency of social support. Timing: Sep-24. Status: -- - 28 Submit to Congress the draft 2025 budget consistent with overall balance including key macroeconomic assumptions and a comprehensive fiscal risk statement. Timing: Oct-24. Status: -- - 29 Develop and publish a draft proposal to enhance the efficiency, equity and simplicity of the tax system, reorienting away from distortive trade and financial transactions taxes. Timing: Sep-24. Status: -- *Source: 1argea2025001-print-pdf - 1. Cumulative floor on the federal government primary balance 3/ 10/* --- ### Annex XIII. The UCT-Quality Standard ### Core principles and definition - The Fund’s Articles and Guidelines on Conditionality require that Fund-supported programs aim to solve balance of payments problems and achieve medium-term external viability. - Under Article V, Section 3(a), the Fund must adopt policies that “assist members to solve their balance of payments problems in a manner consistent with the Articles and that will establish adequate safeguards for the temporary use of the general resources of the Fund.” - UCT-quality standard: Upper credit tranche (UCT) transactions must use resources to support implementation of policies that give substantial assurance that the needed adjustment of the balance of payments will be achieved within a reasonable period. - Key principles summarized from IMF (1978): - Programs in upper tranches must support policies that achieve needed BoP adjustment within a reasonable period. - The resolution of the BoP problem must not be delayed or merely suppressed by temporary measures. - Improvements in the balance of payments achieved through restrictions on trade and payments are not considered durable or proper adjustment measures. ### Operational implications - A UCT-quality program must be designed to resolve, not delay, the member’s BoP problem and to achieve medium-term external viability (IMF 2002, 2019, 2024c). - Policy measures needed to resolve the BoP problem should be taken during the program period and implemented so that the BoP strengthens before repurchases begin (IMF 2019, footnote 4). - Management may not recommend, and the Board may not approve, a new UCT arrangement unless the UCT standard is met. - A program review will be completed only if the Executive Board is satisfied that the program remains on track to achieve its objectives (IMF, 2002b). *Source: 1argea2025001-print-pdf - 1. Cumulative floor on the federal government primary balance 3/ 10/* --- ### Annex XIV. Optimism in the EAC2 Assessment ### Context and mechanism - EAC2 safeguard assessments apply in the post-program period and depend on projections of government debt-to-GDP and GFN-to-GDP ratios, which are affected by projected 2030 real GDP, 2030 REER, and average fiscal balances in 2025-30. - The adverse scenario used in safeguard assessments is centered around baseline projections; over-optimism in the baseline affects the adverse scenario. ### Identified areas of over-optimism - Real GDP: - 2030 real GDP forecasts were measurably more optimistic than Consensus forecasts at the Fifth-Sixth, Seventh and Eighth Reviews. - The projected real GDP level was about 4 percent higher than the mean Consensus projection. - Projections appeared insensitive to the deep recession Argentina experienced in 2023-24, incorporating no long-term scarring effects as the near-term outlook worsened. - REER: - The 2030 REER forecast was approximately at the staff-assessed medium-term equilibrium REER level at program approval and in the first three program reviews. - In the Fourth and Fifth-Sixth Reviews, both the staff-assessed equilibrium and the extent by which the REER forecast exceeded it increased. - In the Fifth-Sixth Review, the 2030 REER projection was 9 percent stronger than in the Third Review and 6 percent stronger than the staff-assessed equilibrium. - Primary balance: - Until the Seventh Review, the average primary balance projections over 2025-30 incorporated as much adjustment post-program as planned for the program period, at about 2 percent of GDP. - The projected average primary surplus over 2025-30 was consistently above the average primary balance in 2001-19. - In the Seventh and Eighth Reviews, the projected average primary surplus was closer to the historical maximum, but the implied post-program adjustment narrowed in view of the sizable fiscal consolidation implemented by the Milei administration. *Source: 1argea2025001-print-pdf - 1. Cumulative floor on the federal government primary balance 3/ 10/* --- ### Appendix I. The Authorities’ Views on the Ex-Post Evaluation of Exceptional Access Under the 2022 EFF Arrangement ### Summary assessment - The authorities’ assessment broadly agrees with the IMF’s EPE evaluation that the 2022 program failed until it was rescued by the current government. - Core criticisms of the program: - Poor design, inconsistencies with objectives, and lack of government ownership. - Central weakness: weak fiscal consolidation ambition and continuation of uncapped monetary financing. - Fiscal deficit in 2021 was 4.5% of GDP and the Central Bank (BCRA) had a 3% of GDP quasi fiscal loss; the program only required a 0.5% of GDP fiscal adjustment in its first year. - The program assumed most adjustment would occur in final years while allowing continued monetary financing of the deficit. - Program collapsed by December of 2023: fiscal deficit larger than at start, Central Bank quasi-fiscal deficit larger, inflation significantly higher than program envisioned, net international reserves negative. ### December 2023-November 2024 turnaround (authorities’ view) - New authorities implemented a comprehensive stabilization program without additional IMF financial support or technical assistance. - The program responded to an impending hyperinflation episode and economic depression. - The authorities assert the stabilization program’s success rested on an unprecedented fiscal adjustment plus complementary policies; omission of any component likely would have resulted in hyperinflation and unprecedented contraction. ### Core pillars of the stabilization program (authorities’ list) - (i) Instantaneous elimination of a 5% of GDP fiscal deficit. - (ii) Immediate cessation of Central Bank’s financing for government spending; strengthening of the Central Bank’s balance sheet; an end to monetary expansion originated in interest payments to remunerated reserve requirements. - (iii) A monthly 2% monthly devaluation of the Argentine peso vs the US dollar (crawling peg). - (iv) A doubling, in real terms of direct social assistance to the poor. - (v) Streamlining of the complex, distortionary reserve requirement system for financial institutions. - (vi) Correction of price distortions, including an increase of over 500% in key regulated prices. - (vii) Immediate refinancing and payment of domestic and external debt obligations. - (viii) Broad deregulation and opening of the economy to international competition. - (ix) Deep public sector reform, including closure or privatization of inefficient state-owned enterprises. *Source: 1argea2025001-print-pdf - 1. Cumulative floor on the federal government primary balance 3/ 10/* ### 5. Economic and financial variables indicate that Argentina’s stabilization and reform ### 5. Economic and financial variables indicate that Argentina’s stabilization and reform program has succeeded across the board. ### Program performance and macro outcomes - The program is performing in line with the authorities’ expectations and exceeding market and analysts’ forecasts. - Despite an unprecedented fiscal adjustment, the impact on output and employment has been milder than expected compared with Argentina’s history and other countries’ adjustment programs. - Fiscal surplus was reached within the very first month of implementation and continuously sustained since then and through November 2024. - The 5% of GDP fiscal adjustment averted a major economic depression and hyperinflation. - Economic output is projected to contract by less than 3% in 2024. - Economic activity bottomed out in April, and a full recovery is now underway. - GDP grew 3.9% in the third quarter, a stunning 16.6% annualized. - The economy is projected to grow by at least 5% in 2025 and 2026. ### Inflation, monetary framework, and FX policy - CPI inflation fell from 25.5% in December 2023 to 2,4% in November 2024, marking the lowest level in more than three years. - Forward-looking indicators show inflation expectations are currently below the 2% implied by the FX crawl. - The fall in inflation is particularly remarkable given the large increases in key regulated prices. - A new monetary policy framework introduced quantitative monetary aggregates starting from June 2024, which was essential to break inflation expectations and accelerate the disinflation process. - The 2% crawling peg was instrumental in anchoring inflation and exchange rate expectations. - Had Argentina raised real interest rates or deviated from the 2% crawl, the report asserts the result would have been further money printing and a continuation of the inflation spiral. ### Exchange rate, reserves, and sovereign risk - The parallel exchange rate has remained stable since the government took office, despite a 200% devaluation of the official rate, narrowing the gap between official and parallel rates from 150% to approximately 10%. - Sovereign risk has fallen from 2,000 basis points to 675 basis points—the lowest level in over four years. - This sharp decline indicates that market access is within reach, increasing the likelihood of fast repayment to the IMF. - Since December 10, 2023, the Central Bank purchased more than $21 billion. - Net of unanticipated external debt payments, the BCRA will meet the Net International Reserve target for the year. ### Banking, deposits, and external accounts - Dollar deposits in the banking system more than doubled, from $16.5 billion to $36.1 billion, driven by a tax amnesty and increased confidence in the government ́s program. - Argentina has no major economic imbalances: fiscal accounts are in balance, the current account will record a small surplus, banks are well capitalized and face no major currency mismatches in their balance sheets. ### Social impact and targeted support - The fall in inflation of the basic food basket (Canasta Básica Alimentaria), combined with increased cash transfers to more targeted subsidies for low-income sectors, means that direct financial aid has more than doubled in real terms and has resulted in coverage of 100% of basic food needs. - Real salaries for formal workers are up 11.3 % in real terms from December 2023 to September 2024. - Pensions are up 8.7 % in real terms from November 2023 to November 2024. ### Structural reforms and remaining issues - The government remains steadfast in its commitment to transitioning to a new economic framework prioritizing strengthened fiscal solvency, a reduced state role in the economy, greater openness to international trade, and the elimination of distortions that hinder private sector efficiency and growth. - Many distortive FX restrictions and controls have been eliminated, although some relevant elements remain in place. ### Assessment, lessons learnt, and governance implications - The authors disagree with the assessment that “fiscal policy shouldered the bulk of the disinflation effort,” arguing that without corresponding monetary and FX policy changes Argentina would have fallen into hyperinflation despite the fiscal adjustment. - The steadfast disinflation program was primarily successful because Argentina followed the authorities’ policies and views on interest rate and FX policies, even if they might not be fully in line with those of the IMF. - The new administration implemented a much more ambitious reform, principally fiscal, complemented by corresponding monetary and FX measures that differed from the IMF view; this unsolicited and much larger adjustment proved effective and faster in stabilization and disinflation. - Program design in countries with highly unstable macroeconomic contexts requires balancing technical perspectives with realistic feasibility of policy implementation and contingency planning. - Early and continuous engagement among staff, management, and the Board is essential to weigh strategic and political considerations; the Board is the right venue to articulate these dimensions. - A sound and well-coordinated communication strategy is important to enhance domestic buy-in and program ownership, especially where the IMF faces reputational challenges. *Statement by Mr. Madcur and Mr. Nador (OEDAG) on Argentina, January 10, 2025* --- _Source: https://www.imf.org/-/media/files/publications/cr/2025/english/1argea2025001-print-pdf.pdf_