Press Release No. 22/309

IMF Staff and the Argentine Authorities Reach Staff-Level Agreement on the Second Review Under the Extended Fund Facility Arrangement

September 19, 2022

• IMF staff and the Argentine authorities have reached staff-level agreement on the second review under Argentina’s 30-month EFF arrangement. The agreement is subject to approval by the IMF Executive Board, which is expected to meet in the coming weeks. Upon completion of the review, Argentina would have access to about US$ 3.9 billion (SDR 3 billion).
• Recent decisive policy actions aimed at correcting earlier setbacks are helping to restore confidence and strengthen macroeconomic stability, including by rebuilding international reserves.
• IMF staff and the Argentine authorities have agreed that the objectives established at approval of the arrangement will remain unchanged through 2023. Resolute policy implementation remains essential to entrench macroeconomic stability and begin to address Argentina’s deep-rooted challenges, notably high and persistent inflation.

Washington, DC: An International Monetary Fund (IMF) team, led by Luis Cubeddu, Deputy Director of the Western Hemisphere Department and Mission Chief for Argentina, conducted in-person and virtual meetings with the Argentine authorities to discuss policies to complete the second review of the extended arrangement under the Extended Fund Facility (EFF). [1] Mr. Cubeddu issued the following statement in Washington, D.C. today at the conclusion of those meetings:

“IMF staff and the Argentine authorities have reached staff-level agreement on an updated macroeconomic framework and associated policies necessary to complete the second review under Argentina’s 30-month EFF arrangement. The agreement is subject to approval by the IMF Executive Board, which is expected to meet in the coming weeks. Upon completion of the review, Argentina would have access to about US$ 3.9 billion (SDR 3 billion).

“The review focused on assessing progress since completion of the first review, updating the macroeconomic framework and reaching understandings on a solid policy package to continue to strengthen macroeconomic stability and secure sustained and inclusive growth. In this context, it was agreed that key objectives established at approval of the arrangement—including those related to the primary fiscal deficit and net international reserves—will remain unchanged through 2023. Such an approach provides a vital anchor to continue to rebuild credibility and sustain the reinvigorated commitment to implement the program, around the authorities’ pillars of fiscal order and reserve accumulation.

“Most of the revised quantitative program targets through end-June 2022 were met, with the exception of the floor of net international reserves, mainly on account of higher-than-programmed import volume growth and delays in external official support. A subsequent period of FX and bond market volatility has been arrested following decisive policy steps to correct earlier setbacks and rebuild credibility.

“The revised baseline macroeconomic framework reflects the more difficult global environment—ongoing inflationary pressures, tightening of financial conditions, and slowing growth—and recent domestic market pressures. Notwithstanding this, and against the backdrop of resolute actions by the new economic team, market pressures are dissipating, and the growth outlook remains unchanged at 4 percent for this year, before moderating to the potential rate of 2 percent in 2023 and beyond. While inflation pressures remain strong, resulting in upward revisions to the inflation forecast, a gradual moderation is expected during the remainder of 2022 and 2023, reflecting a combination of tighter macro policy settings, reduced uncertainties on account of sustained policy implementation, and the projected evolution of global commodity prices.

“On the fiscal policy front, the program envisages adherence to a primary deficit target of 2.5 percent of GDP in 2022, and 1.9 percent of GDP in 2023, as underscored in the recently submitted draft budget. Improvements in public finances are being underpinned by (i) a better targeting of energy, water, and transportation subsidies; (ii) a re-prioritization of spending to secure execution of critical investment projects and proper protection of poor households; (iii) strengthened expenditure controls, which in turn should help contain expenditure arrears; and (iv) efforts to review corporate tax incentives and strengthen revenue compliance.

“As evidenced by recent actions, the central bank is committed to the continued and more consistent implementation of the monetary policy framework, which is already delivering positive real interest rates. This is necessary to support a reduction in high and persistent inflation, strengthen demand for peso assets, and reduce external pressures. This will be supported by a continued reduction in monetary financing of the fiscal deficit, which will be capped at 0.8 percent of GDP this year (below the 1 percent of GDP target) and limited to 0.6 percent of GDP in 2023.

“More decisive implementation of tighter macroeconomic policies should support a stronger current account balance, external competitiveness, and the continued improvement in reserve coverage. In line with program commitments, net international reserves are programmed to rise by US$9.8 billion during the course of 2022-23.

“On the structural side, steps are being taken to strengthen the peso debt market, monetary policy transmission, public financial management, and frameworks to combat tax evasion and money laundering, complemented by the authorities’ efforts to seek international information exchange agreements. Well-designed incentives to encourage investment and the export potential of strategic sectors, especially energy, remain crucial.

“We thank the Argentinean authorities for the professional and candid discussions and welcome their more decisive commitment to implement the program, which aims to strengthen economic stability, and continue to address Argentina’s deep-rooted challenges.”

[1] Argentina’s EFF arrangement, with access of SDR 31.914 billion (equivalent to US$44 billion, or about 1000 percent of quota), was approved on March 25, 2022.