Update on Argentina

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IMF staff and Argentina agreed on a strengthened set of policies to underpin the Stand-By Arrangement to bolster confidence, counter market volatility, and establish foundations for macroeconomic stability.
The revised package includes:
- an acceleration in the improvement in the fiscal position;
- a shift to monetary aggregates as the nominal anchor;
- a floating exchange rate;
- an increase in the level of benefits in the main social safety net programs.
The revised Arrangement approved by the IMF Executive Board allows the authorities to draw the equivalent of about US$5.7 billion, bringing total disbursements since June to about US$20.4 billion, and brings the total amount available under the program to US$56.3 billion by end-2021.
The resources available in the program are no longer expected to be treated as precautionary and the authorities have requested the use of the IMF financing for budget support.

Argentina’s strengthened economic plan aims to bolster confidence and stabilize the economy through:
- a reduction in the budget deficit;
- adoption of a simpler monetary policy framework;
- freely floating the exchange rate (with foreign currency intervention limited to cases of an extreme overshooting of the currency).
Protecting the most vulnerable is central, including prioritizing social assistance spending and planning for an increase in spending on social assistance programs if social conditions deteriorate.
The plan is designed to reduce the threat of runaway inflation by ending the creation of money, and to restore a well-functioning floating exchange rate.
The central bank committed to publish data every week demonstrating it is fulfilling these policies.

The authorities are committed to reducing the federal government’s financing needs and placing public debt on a firm downward path.
Fiscal targets and timing:
- achieve a primary balance in 2019;
- achieve primary surpluses starting in 2020.
Measures the government is seeking in the Argentine Congress include:
- introducing taxes on exports;
- increasing the wealth tax;
- scaling back inefficient energy subsidies;
- reprioritizing capital spending;
- improving the structure of federal transfers to provinces.

The Central Bank will shift to a stronger, simpler, and more verifiable monetary policy regime, temporarily replacing inflation targeting with a monetary base target.
Core commitments:
- cap the growth of money to zero percent per month (calculated as the change in the monthly average) until June 2019, with the aim of decisively bringing down inflation and inflation expectations;
- not allow short-term rates to fall below 60 percent until 12-month inflation expectations decisively fall for at least two consecutive months.

The Central Bank of Argentina (BCRA) has adopted a floating exchange rate regime without intervention.
Exception:
- in the event of extreme overshooting of the exchange rate, the BCRA may conduct limited intervention in foreign exchange markets to prevent disorderly market conditions;
- such intervention would be unsterilized.

The draft federal budget strengthens the social safety net and maintains the floor on social assistance spending and the framework for adjusting social spending.
Specific measures:
- increases social spending and preserves health spending while better targeting health outlays to the most vulnerable;
- includes a 12 percent expansion of public childcare to raise female labor force participation (particularly for lower income households);
- with World Bank support, the National Social Security Administration (ANSES) will continue to improve targeting and expand coverage of the universal child allowance (AUH);
- the government developed a system to improve monitoring of social conditions to better respond to emerging needs of low income households.

Under the revised arrangement, Fund resources for Argentina in 2018-19 have increased by US$19 billion.
A total of about US$56.3 billion would be made available to Argentina for the duration of the program through 2021.
Disbursement profile and changes:
- Fund disbursements for the remainder of 2018 would more than double compared to the original program, to a total of US$13.4 billion (on top of the US$15 billion already disbursed);
- planned disbursements in 2019 are nearly doubled, to US$22.8 billion;
- US$5.9 billion planned for 2020-21.
The resources available in the program are no longer expected to be treated as precautionary and the authorities have requested the use of the IMF financing for budget support.