07/30/2023 – 7:53 am
Like the lyrics of the songs by Carlos Gardel (1890-1935), the most famous tango singer in history, the Argentine economy seems to live an endless drama. Not even the change of government, in December of this year, brings any encouragement to the social and economic future of the country, which faces inflation of 115.2 in 12 months — the highest in 30 years — and a vertiginous increase in poverty, which today affects 42% of the population. According to the National Statistics and Census Institute (Indec), core inflation (main items in the basket that make up the index) approached 130% in July.
For all this and a little more, the legacy of the current president, Alberto Fernandez, will be a devastated and indebted economy. On Sunday (23), the Ministry of Economy of Argentina and the International Monetary Fund (IMF) signed an initial agreement on the renegotiation of the country’s debt and a credit of US$ 44 billion.
the help package of the entity will be divided into two parts, between August and November. “The aforementioned agreement aims to consolidate the fiscal order and strengthen reserves, recognizing the strong impact of the drought, the damage to exports and the country’s tax revenues,” said the government, in a note published on Twitter.
The IMF bailout for Argentines worsens the country’s long-term scenario but, as in any loan operation for debtors, it resolves short-term problems. The country suffers from scarce international reserves (less than US$ 34 billion) and a sharp devaluation of the Argentine peso, while the government and the Argentine Central Bank implement measures to try to regularize the economy and the country’s public debt.
In recent years, Argentina reached an agreement with the IMF while still under the government of Mauricio Macri, in 2018, in the amount of US$ 50 billion, also due to fiscal difficulties. In March 2022, President Fernández renegotiated this agreement with the fund, in the amount of US$45 billion.
Even so, the country almost defaulted. In early July, with no net reserves in dollars and owing to private investors, Argentina negotiated with the IMF the payment of all its July installments.
The measure is foreseen in the agreements with the IMF and therefore is not considered a delay, but it points to the government’s difficulty in obtaining more money in the midst of the crisis.
As part of the agreement with the IMF, Argentina will make a series of changes in some essential dollar rates for the country, in an attempt to contain the outflow of foreign currency.
In an interview with the C5N channel, the Minister of Economy, Sergio Massasaid the negotiation will guarantee enough dollars for the government to be able to meet all financial obligations by the end of this year.
Massa pointed out that, in return for what was agreed with the IMF, the Central Bank of Argentina should implement a dollar collection plan to stabilize the economy.
“The Argentine government is taking the necessary measures to adjust its economy and stabilize markets.”
Kristalina Georgieva, c.head of the IMF
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One of the main measures to be adopted will be the collection of Tax for an Inclusive and Solidarity Argentina (PAIS), of 30% on some imports, with the purpose of preventing the exit of American currency from the country. With the change, the dollar for purchases abroad will be quoted at 350 pesos (R$ 6.10).
The head of the IMF, Kristalina Georgievasaid after his last meeting with representatives of the Casa Rosada that the “Argentine government is taking the necessary measures to adjust its economy and stabilize markets.”
However, Raphael Leite CorreaChief Economist at the brokerage firm Ripiostates that the measures in the agreement aim to avoid an exchange rate race, while at the same time implying a covert devaluation of the Argentine peso.
In a very practical way: every time a person buys the dollar at the official exchange rate, he will be paying 30% of PAIS tax on the base price. “With this measure, Sergio Massa is devaluing the Argentine peso to honor expectations and the agreement with the IMF. At the same time, it aims to stimulate the internal economy, when it makes products from outside Argentina more expensive”said the economist.
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