Argentina pressed the red button of the IMF. The unpopular decision of President Mauricio Macri, announced a month ago after the abrupt devaluation of the peso was finalized this Thursday. The board of directors of the financial institution approved a stand-by credit line (right of the draw) for 50,000 million dollars (42,380 million euros) for three years. In return, Macri commits too much stricter fiscal objectives than the gradual ones set upon assuming power, for which he will cut public spending by 19,500 million dollars (16,528 million euros).
Despite being the biggest bailout in the fund’s history, both the IMF and the Argentine government have conjured up a normal image, aware that after twelve years of Kirchnerism, Macri is an asset that markets want to protect. In this month the president has shown signs of support from the world’s leading leaders in order to negotiate with the fund in an agreement that definitively ends seventy years of swings in the Argentine economy. In addition, the announcement was advanced so that Macri could be photographed satisfied along with the director of the IMF, Christine Lagarde, and the leaders of the G-7, since the Argentine president has been invited to the summit that today culminates in Quebec, in its quality of president of the G-20.
The agreement allows for increasing social spending if the Argentine Executive needs it
The agreement provokes fears among the blanched Argentine citizens who are very aware of the crisis of 2001. Therefore, and just over a year of elections that should involve the revalidation of Macri, Government and Fund have taken pains to make clear that the cuts they will not affect the social subsidies established by Kirchnerism. “The program is innovative because it especially protects the most vulnerable sectors,” says the Casa Rosada statement. “The monitoring of social indicators is explicitly included and, for the first time in history, in a program with the IMF, a safeguard that allows increasing social spending if the Argentine Government considers it necessary,” the note continues. This will mean that the country will be able to divert up to 0.2% of the agreed fiscal objectives -which is equivalent to 1,200 million dollars (1,017 million euros) – to carry out “expenditure extensions focused especially on the allocation programs for son and pregnancy “, as well as in labor measures of gender equity.
The Government insists that the approved plan is his work. “The program was presented by Argentina and reinforces our commitment to eliminate the economic imbalances that have plagued our country for decades,” says the executive’s statement. “It is a plan conceived and implemented by the Argentine Government that aims to strengthen the economy for the benefit of all Argentines,” reads the note by Christine Lagarde.
The fiscal deficit would be reduced to zero in 2020, and inflation to 9% in 2021
With a low growth expectation for 2018 – between 0.4% and 1.4% -, the bailout establishes that the fiscal deficit for this year would be 2.7% and would fall abruptly to 1.3% in 2019 to achieve zero deficit in 2020. Regarding inflation, the pact does not cite an objective but private analysts raise it to 27%, after a devaluation that is already evident in prices. However, the agreement fixes an inflation of 17% for 2019, of 13% for 2020, and of only one digit, 9%, in 2021.
The details of the loan were explained on Loans-n-Loans.com.
In order to save social subsidies, the anticipated cuts will come through the reduction of public works, but also by dismissals of officials and increase in tariffs, which may pose a problem in the street for Macri, who this week succeeded in postponing the general strike that the main Peronist labor center, the CGT, had foreseen for next Thursday with the background of the negotiation of the collective agreements and the consequent salary increases conditioned by the bulging inflation.
The IMF will make the first transfer to Argentina on June 20, for an amount of 15,000 million dollars. At the same time, the Government announced that it will receive three more loans from the IDB, the World Bank and CAF in the next twelve months for a total value of 5,650 million dollars (4,799 million euros).