Transcript of the IMF Virtual Press Briefing on the IMF and Argentine Authorities Staff-level Agreement on an Extended Fund Facility (EFF)

March 3, 2022



  • Ilan Golfajn, Director Western Hemisphere Department
  • Julie Kozak, Deputy Director Western Hemisphere Department
  • Luis Cubeddu, IMF Argentina Mission Chief
  • Maria Candia Romano, Communications Officer

MS. ROMANO: Welcome to this IMF virtual press briefing on the IMF and Argentine authorities staff level agreement on extended fund facility. We have published a press release on our website. And we are having today Ilan Goldfajn, Director of the Western Hemisphere Department and Julie Kozak, Deputy Director of the Western Hemisphere Department and Luis Cubeddu, IMF Argentina Mission Chief. And they will discuss the details of the staff level agreement and will also be answering your questions. Ilan will give some brief remarks and then we'll go to your questions. So Ilan, thank you so much.

MR. GOLDFAJN: Thank you, Maria. Thank you all, it's a pleasure to be here. Pleasure because we have reached staff level agreement on an extended fund facility. We have reached this agreement on a pragmatic, realistic program with credible economic policies to strengthen macroeconomic stability. We expect that over time, this program will start addressing Argentina's deep-rooted challenges to sustainable growth.

There are a few elements to this program. Let me start with addressing persistent, high inflation through a multi-pronged strategy that involves the reduction of monetary financing of the fiscal deficit. The fiscal deficit as you know from our understanding a few weeks ago we have a program of reducing the fiscal deficit also through the program and monetary financing will be less given that reduction. This is one item on this multi prong (inaudible).

We have other items, for example. The new framework for monetary policy implementation which will deliver positive real interest rates to support domestic financing and help with the inflation issue. Both less monetary financing and positive real rate in a framework of monetary policy combined with other measures will help to promote a steady decline in inflation over time.

Equally important will be the program emphasis on credibly improving public finances. This will be based on a balanced set of revenue policies with an emphasis on progressivity, efficiency, compliance and expenditure policies which will reduce untargeted subsidies. And we will reorient them towards more productive social and infrastructure investment to strengthen debt sustainability while supporting the recovery.

As you realized, part of these efforts is to improve public finances is based on the reduction of energy subsidies. We expect to reduce energy subsidies by 0.6 percent of GDP in a way that protects the poor, not in an uniform way, in a way that can generate the savings and be progressive and socially responsible.

The next steps are going to be having after the staff level agreement is going to be sent through the Argentine National Congress that will approve the economic and financial program embodied in the memorandum of economic and financial policies and related documents that will be shared with lawmakers by authorities. This legislative consideration is required by the Argentine domestic law. Later, this staff level agreement still will be subject to the approval of the IMF Executive Board which has been briefed informally on the element of the proposed program today.

The Executive Board is expected to discuss the request of the IMF supported program after the Argentine National Congress. So the program is a program which has requested access to $45 billion. So that is the beginning, is the introduction. We will be very happy to answer your questions both Mission Chief Luis. We have Julie responsible for the program so we are ready to answer your questions.

MS. ROMANO: Thanks, Ilan. We have a few questions online. I see David Lawder if he wants to come in. David, can you hear us?

QUESTIONNER: Hi there. Just a quick question in terms of the energy subsidy.

MR. GOLDFAJN: Yes, we can hear you.

QUESTIONNER: Getting on camera too, sorry. In terms of the energy subsidy reductions, you say it's a reduction of 0.6 percent of GDP. How is that going to be achieved and you say it's designed to protect the poor. What's the mechanism by which it will achieve that?

MR. GODLFAJN: So I'm going to start answering and then I'll pass it to Julie and Luis. Basically, you won't have the increases in the tariffs in a uniform way it's going to be in a progressive way. Which means that you will reduce these subsidies at the top much more than at the bottom which will have lower indices of price increases. This is going to be done under the Argentine system so I'm going to pass to Julie to explain the details.

MS. KOZAK: Thank you, Ilan. So, the decline in the energy subsidy bill as Ilan said is done in a progressive manner and it involves both the reduction in costs and an increase in energy tariffs. And that increase in energy tariffs as Ilan said will be done in a progressive manner.

So that the lower income segments of the population would be more protected and those with a higher payment capacity would have their subsidies eliminated. And this progressive way of increasing energy tariffs will help free up resources within the budget to reorient spending to more productive areas of investment.

And on the cost side, there are also steps underway to begin to reduce energy costs including through plan gas and there will be work underway in conjunction with the program. Work undertaken jointly between the authorities and the World Bank to develop a medium-term plan for the energy sector which will involve improving efficiency, conservation of energy consumption and other methods to help contain and reduce energy costs. Luis, did you want to add anything?

MR. CUBEDDU: Maybe the only point worth adding is that the 0.6 percent of GDP reduction in the subsidy bill is basically I would say underpinned by assumptions with regards to the evolution of energy prices globally. Also, considerations with regards to climate change and to what extent can hydroelectricity in Argentina be, you know, be improved. So, this is a baseline projection.

Obviously, these baselines are subject to risks and those risks depend very much on the evolution of energy prices. Argentina imports LNG as you know. So, what we're doing with the authorities is basically working on a program that tries to reduce energy subsidies but also very conscious of the evolution of, you know, the market for energy. And working with them to try to adjust in a way that these savings can be achieved.

MS. ROMANO: Thank you, Luis. I see Patrick Gillespie from Bloomberg and then we'll go to Paula from Clarin.

QUESTIONNER: Hi, Julie and Luis and Ilan and Maria. Thank you so much for your time. I have a couple of short questions if you can hear me, I hope you can.


QUESTIONNER: My first question is what are the projections in the staff level agreement for inflation and GDP for this year and next year. Second, does the staff level agreement have any policies to detail the unwinding of currency controls in Argentina. And lastly, does the staff level agreement include a primary fiscal deficit in the year 2025.

MR. GOLDFAJN: So, do you Luis want to start answering about the macro framework and inflation and GDP and then maybe Julie, you can talk about the primary deficit.

MR. CUBEDDU: Very good. Good to see you, Patrick. So what we're predicting is a reduction in end of period inflation from close to 51 percent in 2021 to basically an average between 38 and 48 percent for 2022. And then an additional 5 percentage points decline from that in '23, '24 in the medium-term.

So what we envisage is a gradual reduction in inflation. This is a variable that is subject to some uncertainty. As you know in Argentina, inflation is unanchored still and under the program the idea is to anchor those expectations. There's a great deal of inertia and the process is a difficult one and we recognize that there are uncertainties on their side. So therefore we see inflation falling for 2022 to 38 to 48 percent.

On the growth side, what we see is growth slowing. It's, you know, it ended in 2021 a bit over 10 percent more than recovering what was lost during the pandemic. And we see growth basically converging to three and a half to four and a half this year. And then slowing further to a mid-point of three and over the medium term, closer to two which is in line with Argentina's historical average.

Again, we would like to point to the issue that there are uncertainties in the baseline, that's why we're working with ranges. Let me pass it on to Julie and she can detail a bit the fiscal path that we have agreed with the authorities.

MS. KOZAK: Thanks, Luis. So the primary fiscal deficit path that we have agreed in the staff level agreement is a primary fiscal deficit in 2022 of 2.5 percent of GDP, 1.9 percent of GDP in 2023, 0.9 percent of GDP in 2024 and 0 in 2025. And Patrick, you also asked a question on currency controls. And here we are aiming to find ways in the program to improve the framework for currency controls. So that the framework is both strengthened in terms of achieving its goal of helping the economy improve reserves which will then ultimately open the door, pave the way for an easing of those controls over time. And the program will also feature a plan for easing controls over time as the country shifts ideally to a framework of macro prudential regulation.

MS. ROMANO: Thanks, Julie. Paula?

QUESTIONER: Thank you. Why hasn't the memorandum on policies been released yet. Are you still working on details? Why not. And another question, what was the biggest difficulty the IMF have in the negotiation with authorities? Thank you.

MR. GOLDFAJN: Let me start with the last one. We did not have difficulties, we had very productive and constructive conversations, negotiations. I know that Julie and Luis have been negotiating and having these for almost two years, in the last month, two months has been very close relations. We are basically (inaudible) and constructing the best program possible in the sense that it is pragmatic, realistic and credible. And Julie please, I think the question about the documents being released, no?

MS. KOZAK: Yes. So Paula, just to clarify. Typically, when we reach staff level agreement, we would issue a press release as we have today. Now in the case of Argentina, because the documents, the memorandum and the accompanying documents will be sent to the Congress, those documents will be published at the time when they are sent to the Congress. But that is an unusual process and that is related to the fact that the program will be discussed in the Argentine Congress before it is presented to our executive board for approval as Ilan discussed earlier.

QUESTIONER: Okay another follow-up. What will happen if the Congress does not approve the agreement? Do you have to negotiate another? The details again?

MR. GOLDFAJN: We have full confidence on the authorities to deal with this and have the political support. And we will not enter into domestic politics on that but we have the full confidence of the authorities.

MS. ROMANO: Thanks, Ilan. I see that Raphael and Patricia also want to ask. Rafael Mathus from La Nacion do you want to come in?

QUESTIONER: Yes, thanks. This is the 22nd arrangement between the Fund and Argentina and the program is already under criticism. It has been called soft, light, weak. Why do Argentines should be confident that this time will be different? That this program will actually yield results and not end in a failure and a bigger economic crisis like previous ones.

MR. GOLDFAJN: Because it is based on realistic goals, it is based on a pragmatic approach and it is based on the ownership of the program by the authorities. It's something that can be achieved, is realistic, have learned from past experiences and now looks at Argentina knows that we will start addressing the deep-rooted imbalances and we will steer Argentina in the right direction. So realistic, pragmatic and credible. And that's what we can offer the Argentine people.

QUESTIONER: And if I may, a small follow up.


QUESTIONER: Have you secured financing from other international institutions like the IDB and the World Bank?

MR. GOLDFAJN: Yes, the IDB and the World Bank will participate. I would like to ask Luis to tell us about the numbers on the institutions. And this is still work in progress but Luis will tell you what has already been secured.

MR. CUBEDDU: Yes, very good thanks, Ilan and Rafael, nice to see you. With regards to the support from multilateral development banks, the IDB, the World Bank, the CAF, we've had deep engagements with them regarding obtaining financing assurances. The expectation is that these multilateral development banks will be able to contribute approximately 0.4 percent of GDP annually over the course of the program. This is on a net basis.

So this obviously will work in terms of providing budget support and will also be instrumental in the process of helping to reduce reliance on monetary financing. And in addition to this financing, there will be technical support in areas that are critical in the program, for example, energy as well as social protection.

MR. GOLDFAJN: And this number that Luis mentioned is on a net basis which means that the flows will be larger but then you'll have payments too. So the 0.4 is net.

MS. ROMANO: Thanks, Ilan. Patricia, do you want to come in?

QUESTIONER: Hi, how are you.


QUESTIONER: I was wondering if you could provide some detail regarding the first disbursement. What's the size of the first amount of financing in the first year. And also if could there be a possibility that the Congress step takes longer given the date of the 22nd of this month that Argentina has to make a payment. If it takes longer, could there be some sort of waiver or what's the mechanism in that case.

MR. GOLDFAJN: Let me start with the last question and then I'll pass to Julie on the disbursements. We are working with the authorities to be able to finish this on time before the date and we still believe that this is the case. So, at the moment, this is the plan. Julie.

MS. KOZAK: Thank, Ilan. The schedule of disbursements will be included in the document. The schedule of requested disbursements will be included in the document. But I just want to highlight that that disbursement profile is subject to approval of our Executive Board.

MS. ROMANO: Thanks, Julie. We have Mariano Spina from Bloomberg en Linea, is that right?

QUESTIONER: Yes, that's right, thank you very much. My question was more or less already asked by Patricia. It was about the time that you expect the Congress to approve the agreement. Also, the time of the Board to approve that agreement. Do you expect that in the last days of March regarding the debt that the government has to pay at that time. Thank you very much.

MR. GOLDFAJN: Thank you. It's good that we have answered before.

MS. ROMANO: Do you want to add anything, Ilan?


MS. ROMANO: Thanks, Mariano. And I think we have one last question from Steven. Can you hear, Steven and identify yourself?

QUESTIONNER: Hi, yes thank you very much. Steven Bodzin from Redd Intelligence. Yeah, my question is simply whether the IMF is anticipating or is encouraging any reduction in export duties or an increase in export duties rather of soy and corn or any other Argentine commodities.


MS. KOZAK: Thanks very much for the question. So I just want to highlight before I turn to Luis that there has been many export taxes that have declined especially taxes for value added exports in Argentina. In terms of the goals of the program, I also want to emphasize that one of our goals is, of course, fiscal deficit reduction which will require continued support on the revenue side including revenue measures and tax compliance measures in order to reach the deficit target. I don't know if you want to add anything, Luis.

MR. CUBEDDU: I think you've answered.

MS. ROMANO: Great thank you. Thank you, Steven. I think we do not have more questions coming in so I appreciate that you have joined us today. You can follow up if you have any direct questions to media and thank you again Ilan, Julie and Luis for joining us today.

MR. GOLDFAJN: Thank you, Maria and thank you all for being here. We always will be at your disposal trying to answer all your questions through Maria or talking to us. Thank you very much.

MS. ROMANO: Thank you. Have a good afternoon.


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