Transcript of the IMF Press Conference on the IMF’s Executive Board Approval of Argentina’s Stand-By Arrangement
IMF News, June 21, 2018
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- Authors: Arrangement Transcript Resources Christine Lagarde Related Links Argentina
- Published: June 21, 2018
Program approval and size
- Executive Board approved Argentina's request for a 36 months stand by arrangement in the amount of 50 billion dollars.
- Approval framed as evidence of the international community's trust in Argentina's reform drive and support for the government economic plan.
Four core pillars of the program
- Fiscal consolidation
- Accelerate pace of federal government's deficit reduction.
- Goal: restore the primary balance by 2020 (one year earlier than the initial plan).
- Expected outcomes: lessen government financing needs, put public debt on a downward trajectory, create path for improved confidence and inclusive growth.
- Inflation reduction
- Achieve lower inflation through an independent central bank that can set realistic inflation targets.
- Commitment to a flexible and market-determined exchange rate.
- Protection of vulnerable groups and social priorities
- Ensure spending on social assistance as a share of GDP does not decline during the next three years of the program.
- Provisions to increase budget allocation for social priorities if social conditions worsen.
- Reforms in the tax code and social legislation to boost female participation in the labor force.
- Balance of payments and reserves
- Rebuild international reserves and reduce vulnerability to pressure on the capital account.
Conditionality, ownership, and governance
- Program described as designed and owned by Argentine authorities and tailored to domestic circumstances.
- IMF emphasized need for continued ownership and commitment by Argentine authorities for success.
- IMF staff engaged directly with new central bank governor (Mr. Caputo) to ascertain full support for program directions and policies negotiated with the IMF.
Monetary policy and exchange rate framework
- Monetary regime: inflation targeting with a freely floating exchange rate.
- Acknowledgement of limited, targeted interventions:
- Interventions permissible under "very high volatility and disorderly market conditions" to address rapid exchange rate moves, low volumes, or dysfunctional market conditions.
- Such interventions are consistent with a floating exchange rate and macro fundamentals.
- Regional precedents cited: Colombia, Brazil, Mexico and other emerging markets use flexible exchange rates plus occasional interventions to manage shocks.
Debt, disbursement, and repayment mechanics
- First tranche has been disbursed "as of today".
- Remainder of the program resources intended to remain precautionary; authorities expressed intention to maintain the program as precautionary.
- Program is 36 months; disbursement and usage of resources to be reassessed at each quarterly review.
- Uncertainty acknowledged: "It is clearly too early to anticipate how much of the resources are going to be disbursed."
Domestic debt instruments and rollover risk
- Program includes plan to gradually reduce the stock of Lebacs and address rollover risks.
- Government announced exchanges of marketable bonds for central bank-held bonds to allow gradual reduction of Lebacs in the market and improve amortization schedules for central bank and sovereign debt.
- Authorities reportedly ahead of the program path in the first few weeks for the initial months.
Growth outlook and trade-offs
- Tight macro policies and financial market volatility expected to slow growth in the current year.
- Staff view: growth will pick up "next year and even more the year after once the major stabilization is achieved."
- Trade-offs noted: macro stabilization will take a toll on growth in the short term but is intended to lay groundwork for rebound through higher private investment and stronger exports.
Monitoring, reviews, and contingencies
- Quarterly reviews to assess targets, disentangle missed targets, negotiate remedial measures or redesign targets as needed.
- IMF staff view: targets are expected to be met; however, some targets depend on external circumstances and will be addressed in reviews.
- Emphasis on strong political commitment from authorities, including explicit presidential support.
Communications and public concerns
- IMF response to concerns about returning to Argentina and risk of a repeat of the 2001 crisis:
- IMF framed its support as undertaken with humility and attention to domestic circumstances.
- Reiterated that the program is Argentine-owned and, if implemented, has a strong chance of success.
Transcript of the IMF Press Conference on the IMF’s Executive Board Approval of Argentina’s Stand-By Arrangement — June 21, 2018, IMF Communications Department