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Risk of agreement with the IMF

In this context, every revision and fulfillment of the program is very important to include public debt services in hard currency and maintain the fragile stability achieved. But the one million dollar question is whether the agreed plan can produce a successful solution.

The road intersection where Argentina is very complex: the peak is the date of GDP from 2011; 10% unemployment on land; We coexist with double-digit annual inflation a decade ago; limited productive investment and poor infrastructure; poverty affects half of young people and public education does not equal opportunities; export levels are limited and concentrated in agricultural products, while dependence on imports is high; tax pressure and fiscal deficit are recorded; and after two years of arrears in debt, public debt in the hands of private and international organizations is almost 50% of GDP, and more than 80% in foreign currencies.

As we discussed, the second agreement with the IMF stabilized the exchange market and included short-term public debt services, but did not guarantee payment. One's own staff Dana has doubts: Argentine debt is classified as sustainable but with a low probability, and warns about agent exposure to the possibility of defaulting to our country. This shows that the political wing of the IMF is imposed on the technical line, which has resulted in symbiosis between Argentine authorities and IMF people: both require plans to work.

The bad news is that even though they are effective, IMF bailouts tend to suppress the economy for several years: breaking the recessive cycle generated by the external and fiscal adjustment process on domestic demand is a difficult and long-term task. Also, it is not clear whether the exit requires debt restructuring in the hands of private creditors.

Unlike Conversion destinations or European countries that are bound by the Euro, our economy has exchange flexibility, which can speed up processing time (good or bad). The dangerous surge in exchange rates increases the ratio of Debt-Products (due to currency incompatibility), but if the acceleration of inflation does not weaken the external competitiveness gained (increasing the real exchange rate), reversing external deficits and restoring activity (through higher exports and import substitution) achieved faster.

Now, can the Argentine economy take this path? Or will the new capital outflow eventually lead to a crisis? IMF disbursement to guarantee repayment of public debt until 2020, plus fiscal adjustments, contractionary monetary policy and the application of a zone without intervention (ZNI), has stabilized the nominal variable. In fact, after the sharp rise in prices due to the exchange jump in late Augustinflation shows signs of slowing down (will close the year below 3% per month).

However, when the hyper condition of global liquidity is extinct, the only way to achieve reopening of external financing is to generate payment capacity. This means that the economy must recover external surplus, and public finance gets a surplus to buy currency from the private sector to cancel foreign currency debt.

The problem of the agreed stabilization plan is the exchange rate band has two defects. The first is that the lower limit implies the real exchange rate around the historical average, which is not enough for the current context. What's more, when increased tax pressure on the sector that can be taken into account is taken into account: an increase in export duties to achieve the primary fiscal balance needed, weakens the generation of foreign currency from the private sector.

Second, 30% of the exchange band amplitude seems excessive given the high distrust of our currency. The lack of a BCRA tool to influence the exchange market on ZNI, implies that the dollar can achieve a sudden jump. This will be relevant in 2019, when we will go through the dichotomous selection process about the future of economic policy.

In short, in the best case this will be the first revision of the agreement with the forthcoming IMF. And, not like late convertibility protection or bailout from countries in the Eurozoneexchange problems will be key to determining plan success or failure.

* Director of Ecolatina

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