IMF Executive Board Approves US$50 Billion Stand-By Arrangement for Argentina
IMF News, June 20, 2018
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Bibliographic details
- Published: June 20, 2018
Objectives and policy anchors of the program
- Overall goal: strengthen the economy by restoring market confidence, lessening financing needs, placing public debt on a firm downward trajectory, and reducing inflation.
- Fiscal anchor:
- Goal of achieving federal government primary balance by 2020.
- Program target: secure a primary deficit of 1.3 percent of GDP in 2019 via a significant up-front adjustment.
- Monetary and exchange rate framework:
- Rebuild credibility of the inflation-targeting framework by strengthening central bank independence and ending direct and indirect central bank financing of the government.
- Authorities committed to a floating, market-determined exchange rate; limit foreign exchange intervention to periods of significant volatility and market dysfunction; rebuild reserve buffers.
- Central bank adopts a new credible path of disinflation to bring inflation to single digits by end-2021.
- Social protection and inclusion:
- Protect social spending and prioritize well-designed government support programs for the most vulnerable.
- Provide room for greater spending on pre-identified, high-quality, means-tested social assistance projects if social conditions deteriorate.
- Measures to increase female labor force participation (eliminating the second-earner tax penalty; providing working families with assistance with childcare).
- Public debt sustainability: program aims to put Argentina’s public debt on a firm downward trajectory.
Board findings and summary (Ms. Christine Lagarde)
- Recognition of Argentina’s recent systemic transformation (changes to foreign exchange markets, subsidies, taxation, and official statistics).
- Acknowledgement of recent balance of payments pressures due to: severe drought reducing agricultural production and export revenue, higher world energy prices, and tighter global financial conditions (appreciation of the U.S. dollar and upward shift in U.S. interest rates).
- Emphasis that steadfast implementation of the policy plans is required to address vulnerabilities, ensure debt sustainability, reduce inflation, foster growth and job creation, and reduce poverty.
- Statement that the program is custom-tailored to Argentina’s situation and that authorities have demonstrated strong ownership.
Recent economic developments
- April market pressures resulted from:
- Severe drought with sharp decline in agricultural production and export revenue.
- Increases in world energy prices.
- Tightening global financial conditions (U.S. dollar appreciation and higher U.S. interest rates).
- Manifestations of these forces: pressure on the Argentine peso, market anxiety about roll-over of short-term central bank paper, and an increase in Argentina’s sovereign risk premium.
- Embedded vulnerabilities: significant fiscal and external financing requirements.
Program pillars (summarized)
- Restore market confidence:
- Fiscal adjustment to achieve federal government primary balance by 2020.
- Significant up-front adjustment to secure a primary deficit of 1.3 percent of GDP in 2019.
- Protect society’s most vulnerable:
- Strengthen social safety net by redesigning assistance programs and protecting social spending.
- Accommodate additional spending on pre-identified, high-quality, means-tested social assistance projects if needed.
- Measures to increase female labor force participation.
- Strengthen central bank credibility:
- Institutional and operational independence and autonomy for the central bank.
- New credible disinflation path to single-digit inflation by end-2021.
- Plans to ensure central bank healthy balance sheet and full financial autonomy; diminish vulnerability from short-term peso denominated debt (LEBACs).
- Lessen balance of payments strains:
- Rebuild international reserves and reduce vulnerability to capital account pressures.
Key projections and selected indicators (highlights from Table 1)
- GDP at constant prices (annual percentage change):
- 2015: 2.7
- 2016: -1.8
- 2017: 2.9
- 2018 (Proj.): 0.4
- 2019 (Proj.): 1.5
- 2020 (Proj.): 2.5
- 2021 (Proj.): 3.1
- 2022 (Proj.): 3.2
- 2023 (Proj.): (value not provided for 2023 in GDP series beyond 2022)
- Domestic demand (annual percentage change):
- 2015: 4.2
- 2016: -1.3
- 2017: 6.3
- 2018 (Proj.): -1.4
- 2019 (Proj.): 0.5
- 2020 (Proj.): 2.0
- 2021 (Proj.): 2.8
- 2022 (Proj.): 3.0
- Nominal GDP (bn Argentine pesos):
- 2015: 5,955
- 2016: 8,189
- 2017: 10,558
- 2018 (Proj.): 13,240
- 2019 (Proj.): 16,068
- 2020 (Proj.): 18,746
- 2021 (Proj.): 21,227
- 2022 (Proj.): 23,191
- 2023 (Proj.): 25,135
- CPI inflation (end-of-period, year-over-year % change) path shown in table:
- 2016: 24.8
- 2017: 27.0
- 2018 (Proj.): 17.0
- 2019 (Proj.): 13.0
- 2020 (Proj.): 9.0
- 2021 (Proj.): 5.0
- 2022 (Proj.): (value not provided)
- Exports f.o.b. (goods, bn US$):
- 2015: 56.8
- 2016: 57.9
- 2017: 58.4
- 2018 (Proj.): 66.4
- 2019 (Proj.): 71.6
- 2020 (Proj.): 75.3
- 2021 (Proj.): 80.1
- 2022 (Proj.): 84.9
- 2023 (Proj.): 89.6
- Imports f.o.b. (goods, bn US$):
- 2015: 57.6
- 2016: 53.5
- 2017: 64.0
- 2018 (Proj.): 65.7
- 2019 (Proj.): 67.7
- 2020 (Proj.): 72.2
- 2021 (Proj.): 77.4
- 2022 (Proj.): 82.1
- 2023 (Proj.): 86.8
- Total external debt (percent of GDP):
- 2015: 27.9
- 2016: 34.2
- 2017: 37.0
- 2018 (Proj.): 51.3
- 2019 (Proj.): 52.6
- 2020 (Proj.): 52.0
- 2021 (Proj.): 50.8
- 2022 (Proj.): 50.0
- 2023 (Proj.): 49.2
- Gross international reserves (bn US$) memorandum:
- 2015: 25.6
- 2016: 39.3
- 2017: 65.4
- 2018 (Proj.): 69.0
- 2019 (Proj.): 79.7
- 2020 (Proj.): 88.4
- 2021 (Proj.): 96.0
- 2022 (Proj.): 103.8
Fiscal and public finance indicators (selected)
- Primary balance (percent of GDP):
- 2015: -4.2
- 2016: 1.2
- 2017: 1.3
- Federal government primary balance (percent of GDP):
- 2015: -3.8
- 2016: 0.9
- Structural federal primary balance (percent of potential GDP, memo):
- 2015: -4.5
- 2016: 0.6
- 2017: 1.4
- Overall balance (percent of GDP):
- 2015: -5.8
- 2016: -6.4
- 2017: -6.5
- 2018 (Proj.): -5.1
- 2019 (Proj.): -2.6
- 2020 (Proj.): -2.4
- Revenues (percent of GDP):
- 2015: 35.4
- 2016: 35.1
- 2017: 34.8
- 2018 (Proj.): 35.0
- 2019 (Proj.): 35.6
- 2020 (Proj.): 35.8
- Primary expenditure (percent of GDP):
- 2015: 39.8
- 2016: 39.0
- 2017: 37.8
- 2018 (Proj.): 36.9
- 2019 (Proj.): 34.9
- 2020 (Proj.): 34.3
- 2021 (Proj.): 34.0
- Total public debt (federal, percent of GDP):
- 2015: 55.1
- 2016: 53.3
- 2017: 57.1
- 2018 (Proj.): 64.5
- 2019 (Proj.): 60.9
- 2020 (Proj.): 57.4
- 2021 (Proj.): 55.8
- 2022 (Proj.): 54.1
- 2023 (Proj.): 53.0
Monetary and financial indicators (selected)
- Monetary base (eop, y/y % change):
- 2015: 31.7
- 2016: 21.8
- 2017: 25.9
- 2018 (Proj.): 21.3
- 2019 (Proj.): 18.0
- 2020 (Proj.): 14.5
- 2021 (Proj.): 14.2
- M2 (% change):
- 2015: 28.2
- 2016: 30.4
- 2017: 25.8
- 2018 (Proj.): 22.5
- 2019 (Proj.): 18.6
- Credit to the private sector (eop, y/y % change):
- 2015: 35.7
- 2016: 31.2
- 2017: 21.9
- 2018 (Proj.): 23.8
- 2019 (Proj.): 16.9
- 2020 (Proj.): 16.2
- Interest rate (eop) (note 4/):
- 2015: 32.2
- 2016: 23.9
- 2017: 28.8
- 2018 (Proj.): 37.2
- 2019 (Proj.): 15.8
- 2020 (Proj.): 9.7
Source: IMF Executive Board press release, "IMF Executive Board Approves US$50 Billion Stand-By Arrangement for Argentina", June 20, 2018.
