Agreement with the IMF: Even if USD 9.8 billion comes to the Central Bank, meeting its goals became very difficult

The approval of the agreement with the IMF in the Senate means that it automatically opens the door for its treatment in the agency's board of directors, which could happen next week. If the expected time is met, USD 9.8 billion should be paid in the next ten days, which will increase net reserves, which had fallen to almost zero since the end of last year.

But beyond financial relief, market doubts involve meeting fiscal and financial goals, which become more complicated by changing international conditions. Russia's invasion of Ukraine implies more foreign exchange income due to high agricultural commodity prices. But at the same time it will be much more expensive to import energy during the winter, which will represent a high fiscal cost. A report by the ACM consultancy considered the agreement to be “compliant, but not without challenges.” “Achieving a deficit of 2.5% of GDP seems like an achievable goal, even if there is no adjustment of 0.6% in subsidies.” According to these estimates, the year is already starting with significant savings from expenditures on Covid-19 and elections, which would allow the proposed goal to be achieved.

In the case of the monetary target, which proposes to drop from 3.7% of GDP to only 1%, this would be a more complex objective. “This happens because it means increasing the savings in pesos to a considerable extent.” “It is good that the agreement prevents the economy from falling into a very complicated situation that is difficult to overcome,” said the consultancy firm.

The agreement is for a total of USD 45 billion, which will be disbursed as the targets set out in each quarterly review are met. But this first tranche of the agency's credit has a twofold objective: to repay the USD 2.8 billion due next week and at the same time to improve the level of reserves. This will be possible because the Fund actually returns the last cancellations of maturities made by the Government.

The BCRA thus enters the “high season” in terms of foreign exchange inflows. In addition to the Fund's payments, from April the dollars of the coarse harvest will come in, with the addition of international prices sky-high due to the war. Soybeans, for example, remain above $600 and remain at their highs of the last decade.

The short-term effect of the agreement with the Fund will represent an improvement in the exchange rate balance. The fall in the exchange rate gap from 100% to levels below 80% also reflects greater peace of mind on the part of investors. The fall in financial dollars began just at the end of January, when the Government confirmed that there was finally an understanding with the agency. However, the exchange rate seems to have found a floor and yesterday the free dollar bounced back to $202 and the “liquidated spot”, which had ended below $190 by the end of last week returned to $195 levels.

On the other hand, the expectation also points to the evolution of inflation, since the agreement stipulates a range of 38% to 48% by 2022, which then falls by 5 percentage points per year. It is, however, an indication that does not represent a goal that must necessarily be met. The start of inflation in the first months of 2022 already indicates that the inflation rate for the year will be comfortably above 55%, much higher than the calculation contained in the agreement.

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