Transcript of the IMF Press Conference on the IMF’s Executive Board Approval of Argentina’s Stand-By Arrangement

June 21, 2018

MR. RICE: Hello everybody, and welcome to this press conference on behalf of the International Monetary Fund. As you may know, this morning our Executive Board met to discuss the loan, the stand by arrangement for Argentina so we are here to give you a bit more detail on that decision. And I'm very pleased that we have with us this afternoon the Managing Director of the IMF, Madame Christine Lagarde. We also have with us the director of the Western Hemisphere department, Alejandro Werner and the IMF mission chief for Argentina, Roberto Cardarelli.

I'm going to ask Madame Lagarde to make a few opening remarks. You have the press release from this morning and after your remarks, we will take a few questions. Madame Lagarde.

MS. LAGARDE: Thank you so much and good afternoon to all of you. So I'm pleased to announce that the IMF's executive board today has approved Argentina's request for 36 months stand by arrangement in the amount of 50 billion dollars.

The approval today is clear evidence of the international communities trust in Argentina's reform drive and support for the government economic plan backed by the Fund. The IMF is contributing to this effort by providing financial support which will bolster market confidence and give the authority time to address a range of long standing economic vulnerabilities.

This is a plan that was designed and which is owned by Argentine authorities. It takes into account their domestic situation. It is geared towards strengthening the economy for the benefit of all Argentines and it does so through four core pillars and I'm going to announce each of the four pillars.

First pillar, it strengthens Argentina's fiscal position by accelerating the pace at which the federal government's deficit is reduced. The goal here is to restore the primary balance by 2020, so that is one year earlier that the initial plan. And this measure will ultimately lesson the governments financing needs, put public debt on a downward trajectory and create the path for improved confidence and inclusive growth going forward.

The second pillar is to actually reduce inflation. And we know that inflation generally affects the most vulnerable people in society and it impacts confidence and prosperity as well. This inflation goal will be achieved through an independent central bank that can set realistic inflation targets and is committed to a flexible and market determined exchange rate. These measures are key for a credible central bank going forward.

The third pillar is to protect societies most vulnerable by ensuring that spending on social assistance as a share of GDP does not decline during the next three years of the program. Additionally, if social conditions were to worsen, there are provisions to further increase the budget allocation for social priorities. It also strengthens the effort to level the playing field between Argentine men and Argentine women notably by introducing reforms in the tax code and social legislation to boost female participation in the labor force.

Fourth pillar, it lessens the strains on the balance of payment. This involves rebuilding international reserves and reducing Argentina's vulnerability to pressure on the capital account. Now clearly, the success of this program hinges on the ownership of the plans that have been an announced by the Argentine authorities and the commitment of all parties concerned to continue efforts to improve the future of all Argentines.

We are encouraged by the measures announced by President Macri and his entire economic team and as much as we have worked very well together of the last few weeks, we very much look forward to working with them and to support their plans.

With that I'll be very happy to take a few questions. Not all your questions because I will have to disappear to catch a plane to go to Luxembourg and to attend the Euro group meeting.

MR. RICE: Thank you, Madame Lagarde. So let's try and take quickly a few questions in the room and then after Madame Lagarde goes we will take questions on line because I see a large number of people watching us online. But let's take a few questions in the room.

QUESTIONER: Thank you. I would like to know if during the discussions in the board there was any kind of particular concern about the program itself or the situation in Argentina.

MS. LAGARDE: We had a very good board discussion on the topic of the Argentine stand by arrangement request and that discussion was lucid but extremely supportive of the Argentines plan of reforms. Their determination to implement the reforms that they have tailored, that they have decided and clearly on the basis of those four pillars.

MR. RICE: Okay. Let's take the question right here in the front please.

QUESTIONER: Thank you. Good afternoon, Madame Lagarde.

MS. LAGARDE: Good afternoon.

QUESTIONER: How did the board and how did you evaluate the appointment of former finance minister Caputo of the central bank replacingMr. Sturzenegger particularly considering that one of the commitments that Argentina assumed in the letter of intent was to strengthen the independence and the autonomy of the central bank and Mr. Sturzenegger was one of the co-signers of that letter. Thank you.

MS. LAGARDE: You know, when that kind of situation occurs, what we need to do as IMF is to ensure that what has been negotiated before is actually supported wholeheartedly by whoever is the new head of the new personnel in charge and that is something that we have ascertained. Each of us individually of course. Roberto Cardarelli who is the mission chief for Argentina, Alejandro Werner who is the head of the Western Hemisphere department and myself. So we have had those conversations with the new governor, Mr. Caputo to make sure that he fully supports and fully endorses the directions and the policies that are included in the program and it's because we are fully reassured that this is the case that we rely very strongly on the policies and the recommendations that were negotiated between the central bank and the IMF.

QUESTIONER: Thank you What would you say to the Argentinians who are worried about the IMF going back to Argentina and who think that this agreement, new agreement could lead to a new crisis like the one Argentina had in 2001?

MS. LAGARDE: Well, first of all I would say that we embraced this support with great humility and great attention to the domestic situation of all the people of Argentina. Number two, the Argentine authorities have designed, conceived and taken full ownership of the program of reforms that is being proposed.

Number three, we have clearly negotiated with the authorities to fully understand the ramifications of their plan, to fully appreciate that it has every chance to be a success if it is well implemented and it is in that spirit of partnership and cooperation that we have worked together. As I said on the basis of a program that is theirs and that we believe if implemented will be a success.

MR. RICE: Thank you very much, Madame Lagarde. We are going to turn to a few questions online that perhaps we can pick up with Alejandro and Roberto.

MS. LAGARDE: Thank you so much.

MR. RICE: Thank you very much. Thank you Alejandro. We do have a couple of questions online. in the letter of intent, the Argentine government said that it is fully agreed with the idea that the external exchange rate will be determined by the market. But it also says the government agreed targets in terms of external currency reserves. How is it possible to reach both targets?

MR. CARDARELLI: So clearly the plan of the authorities have discussed with us is based on a monetary policy regime which is an inflation targeting regime where the exchange rate floats freely.

At the same time, we do recognize that there are particular circumstances where markets are experiencing very high volatility and disorderly market conditions as we generally call it where the exchange rate moves very, very rapidly, low volumes, trade in the market and other conditions that may justify some form of intervention. And the program has some room for that kind of intervention which is consistent with the fact that the exchange rate needs to be free to respond to market conditions in terms of levels which are consistent with macroeconomic fundamentals.

So we don’t see a contradiction if you will. The program has been very carefully designed around the monetary policy regime which again it's an inflation targeting regime where the exchange rate is floating freely with those targets that I just mentioned.

MR. WERNER[from Spanish]: I would just like to add that when we look at flexible regimes in the region which have been very successful, these regimes are consistent with the characteristics described by Roberto. There is a floating exchange rate and the central banks intervene to very seldomly to eliminate situations where we have dysfunctional financial markets.

And we see this in countries like Columbia, Brazil, Mexico, as well as other emerging markets in other continents. And this combination of a central bank and inflation targeting, flexible exchange rate, international reserves and not very frequent interventions have worked very well to handle these regimes and this serves as an adjustment to external shocks. And this is what the central bank of Argentina is implementing in accordance with its program.

MR. RICE: One more factual question online from Associated Press and then I will come back in the room if there are additional questions here.

By when does Argentina need to start repaying the loan and at what terms? Does it need to pay back the full 50 billion or only the amount that is actually withdrawn?

MR. CARDARELLI: So the program is structured in a way that the first tranche is going to be disbursed, has been disbursed as of today actually and as we communicated over the last few weeks, the rest of the program is intended to be -- to remain as precautionary. The authorities have expressed the intention to maintain it as precautionary. And, you know, we are going to revise these conditions along the way as the program continues at each review. In these circumstances the program is a 36 months program and we will see, you know, how it goes.

It is clearly too early to anticipate how much of the resources are going to be disbursed but as of now the intention of the authorities is to again as I said use the first tranche which has been disbursed as of today and maintain the rest of it on a precautionary basis.

QUESTIONER: The yields of central bank bonds keeps rising. I was wondering if this is an issue of concern for you and how do you think this will impact growth in the next coming years?

MR. WERNER: I think, I mean, a very important part of the program is basically to deactivate and to significantly reduce the rollover issue of the Lebacs. This is going to be done gradually because there is no other way to do it.

The government already announced that part of the exchange of marketable bonds for the transfer of the bonds that the central bank has in its balance sheet is going to take place and this will allow the central bank to gradually start reducing the amount of Lebacs in the market and gradually will allow the country to have a much better amortization schedule of both central bank and sovereign debt. So this will take time, it's an important pillar of the program and it has been implemented at least in the first few weeks faster than we have in the program so my colleague can be a little bit more specific but with what the government has announced, at least what we have program for the first four months of the program is pretty well advanced in terms of being accomplished.

MR. CARDARELLI: Yes, as Alejandro was saying an important part of the program is to gradually to just absorb the stock of the Lebacs and the program has a certain path for that to happen gradually over time and I guess the authorities ae very much in line with even over achieving that kind of path that we have in the program.

So I guess that tight monetary policy conditions are part of the macro stabilization plan which is built in the program we will expect this, you know, to see this for the time being, given the need for macro stabilization, you know, for and the policy that are built in the program. Part of those policies involve as you well know an acceleration in the place of reduction of the fiscal deficit and monetary conditions we need to remain consistent with the reduction of inflation according to the targets we have in the program.

Clearly it is impacting on growth, I mean, if you have seen the projections that we have, growth is we assume is going to slow down this year from last but we do think that the growth is going to pick up, at a decent pace I will say next year and even more the year after once the major stabilization is achieved. All conditions are therefore going to resume at the fast pace in the next few years and even more in the medium term. I mean, private investment is presumed to be going to benefit from the macro stabilization. The exports is going to benefit from a strong trading partners’ demand.

We think that the effect, the negative affect of the psyche of the growth this year is going to be completely reversed next year so it is going to add to growth. So this year growth is going to be, is going to slow down. We have projections that we have in the staff report. And that’s a combined result of the tightness of the macro policies and the volatility in the financial, in the financial market we have seen so far. So, there is these volatility that we have seen so far is going to affect that is without question.

And the macro stabilization will take a toll on growth but we think that it is also going to see the, you know, the -- it is going to lay the ground for the recovering growth next year and the year that follows. You are not going have macro stabilization without having some cost in terms of growth but it's important to achieve the stabilization to create the conditions for a rebound and growth in the years to come.

MR. RICE: Okay. We are going to take the last question online a Is it possible that Argentina would not meet its targets under the plan and what will be the impact for disbursements were that to happen?

MR. WERNER: Well, I mean, what we have seen is a very strong commitment for the -- from the authorities even from the president of Argentine to fulfill the program that as the Managing Director said, it’s a program that was designed by the Argentinian authorities, that it has a full ownership by the Argentinian government and as I said before by the President. And in that sense, we feel encouraged that there is a very important sense of the benefits that the program will entail for the Argentinian economy and for Argentina society in the medium term and there that the authorities both at the central bank and at the treasury will do what they have in their program.

On the other hand, there is obviously some targets that depend both on actions by the authorities and external circumstances, the evolution of the economy, et cetera. And that is a role of our quarterly reviews to disentangle some of these targets that are not going to be met, what should be their remedial measures, how targets should be redesigned to continue to move forward and those things if they happen will have to be negotiated in these quarterly reviews. That’s a little bit how the programs are designed.

But I would say with a what we have now, what was discussed at the board and what the Argentinian representative said today that it represents a very strong commitment with the program. A very strong commitment with the policies that are laid out in the letter of intent and that the government put out last week and I think a full understanding by the government that this path is going to be a path that will help to put the Argentinian economy back to the trend that it was a couple of months ago before international financial conditions tightened, before the volatility that we have seen in the market generated the situation that brought the authorities to recalibrate their policies, to ask for financial support from the international community through the IMF and therefore to go back to a path of economic reforms, economic growth, investment, employment generation and obviously the improvement of living conditions of the Argentinian society as a whole.

MR. CARDARELLI: We think that the targets are going to be met.

MR. RICE: Okay. On that note, we are going to wrap and thanks to Alejandro Roberto, Madame Lagarde. Thanks to all of you for coming today and thanks to the many near 50 journalists we have online. We will see you soon.

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