IMF Executive Board Discusses the Ex-Post Evaluation of Argentina’s Exceptional Access Under the 2018 Stand-By Arrangement
IMF News, December 22, 2021
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Bibliographic details
- Authors: Arrangement IMF Executive Board Discusses
- Published: December 22, 2021
Summary
- Date of Board discussion: December 22, 2021.
- The Ex-Post Evaluation (EPE) reviews Argentina’s program supported by the 2018 Stand-By Arrangement (SBA), covering the period from June 2018 through to August 2019.
- The EPE concludes that Fund policies and procedures were adhered to but that the program did not deliver on its objectives despite significant policy modifications.
Background and program design
- Context: In early 2018, Argentina faced challenging external financing conditions.
- Request and approval:
- Government announced in May 2018 it would seek an IMF arrangement.
- Executive Board approved in June 2018 the largest stand-by arrangement in the Fund’s history.
- After an augmentation in October 2018, access under the arrangement amounted to US$57 billion (1,227 percent of Argentina’s IMF quota).
- Program objectives:
- Restore confidence.
- Reduce balance of payments and fiscal imbalances.
- Bring down inflation.
- Allow time to address longer-term challenges.
- Core strategy:
- Fiscal and monetary tightening.
- Targeted structural reforms.
- Specific measures to support vulnerable segments of the population and to address gender inequality.
- Strategy relied on large financial support from the Fund to catalyze renewed capital inflows.
Key findings of the Ex-Post Evaluation
- Overall conclusion:
- Relevant Fund policies and procedures, including those relating to financing, safeguards and program design, were adhered to.
- The program did not fulfil the objectives of restoring confidence in fiscal and external viability while fostering economic growth.
- Macroeconomic dynamics and outcomes:
- Mounting redemptions and capital flight by residents put considerable pressure on the exchange rate.
- Despite FX interventions beyond program provisions, the exchange rate continued to depreciate, increasing inflation and the peso value of public debt, and weakening real incomes, especially of the poor.
- The program went off track in August 2019 with only four of the planned twelve reviews completed by the Executive Board.
- The authorities decided to cancel the arrangement on July 24, 2020.
- Program design and feasibility:
- The strategy and conditionality were not sufficiently robust to address deep-seated structural problems: fragile public finances, dollarization, high inflation, weak monetary policy transmission, a small domestic financial sector, and a narrow export base.
- The then government’s redlines on certain policies may have ruled out potentially critical measures (examples cited include a debt operation and use of capital flow management measures), though some Directors questioned the feasibility of such measures given the goal of restoring market confidence.
- Emphasis on government ownership may have led to overly optimistic forecasts, weakening program robustness.
Executive Board assessment and lessons
- Board views:
- Directors welcomed the comprehensive EPE and noted it draws important lessons, some of which are not new.
- EPE findings should inform ongoing discussions on a potential follow-up program with Argentina.
- Most Directors considered the SBA consistent with Fund policies and procedures, though some questioned aspects of that consistency and the judgment involved in applying criteria on debt sustainability, market access, and capacity to implement the program.
- Directors observed that the application of policies involved considerable judgment and that broader risks could have featured more prominently; the Board could have been involved earlier and more deeply in the process.
- Risks and burden sharing:
- The SBA created substantial financial and reputational risks to the Fund.
- Most Directors concurred that agreeing with the authorities upfront on contingency plans could have reduced risks to the program and to the Fund, though some noted practical difficulties given market sensitivities.
- Directors underscored that greater burden sharing with other official creditors would have provided additional financing and signaled broader international support, potentially bolstering confidence.
- Communication and catalytic effect:
- Better communication by the authorities could have boosted the catalytic effect of the program.
- Complementary evaluation:
- Many Directors considered that an evaluation of the 2018 SBA with Argentina by the Independent Evaluation Office could complement the EPE findings.
Specific lessons highlighted by Directors
- Programs must incorporate realistic assumptions.
- Programs should be tailored to country circumstances, including political economy considerations; this could entail using unconventional measures if standard macroeconomic policies are unlikely to deliver.
- The analysis of risks underlying key judgments when applying the Exceptional Access Framework should be clearly laid out and communicated to the Board.
- Ownership, understood in a broader societal sense, should not preclude a candid assessment of better policy choices and program outcomes.
- Effective external communication is essential to secure buy-in at different levels and achieve the intended catalytic effect.
- Appropriate burden sharing is needed when entering into exceptional access arrangements.
IMF Press Release No. 21/401, December 22, 2021.