Argentina to Get $9.8 Billion From IMF After Agreement Approval

(Bloomberg) -- Argentina's government published on Friday the detailed plan for reducing its fiscal deficit and central bank financing as part of its pending $45 billion deal with the International Monetary Fund.

The agreement with IMF staff, announced Thursday, has now been submitted to Argentina's congress and will go before a vote sometime in the coming weeks. The country will receive 7 billion ($9.8 billion) of the IMF's special drawing rights upon approval by lawmakers and the executive board of the Washington-based organization, according to the document.

The memorandum, which comes after two years of negotiations between President Alberto Fernandez's economic team and IMF officials, provides the fine-print detail on economic policy and projections that lawmakers have been waiting for before deciding on their vote. Russia's invasion of Ukraine is increasing uncertainty around the plan's baseline assumptions and may force policies to be “recalibrated” as necessary, it said.

Argentina is seeking to close its 22nd program with the IMF since 1958 before a key payment for about $2.8 billion comes due in late March. The agreement is expected to face tough criticism from radical-left members of the ruling coalition backed by vice-president Cristina Fernandez de Kirchner and would only head to the IMF's board for final approval if congress passes it.

Argentina's $16 billion in bonds due in 2030 slipped 0.7 cent to around 31 cents on the dollar, while securities maturing in 2046 slid about a cent to 28 cents on the dollar, as of 12:30pm in New York.

Some key points in the documents:

Disbursements

If the agreement is passed by congress and the IMF executive board, Argentina would receive 7 billion ($9.8 billion) of the IMF's special drawing rights upon approval. It would receive smaller amounts if it passes the quarterly revisions of the by IMF staff, increasing the total of the program to $45 billion.

Monetary Policy

The central bank aims to boost its foreign reserves by at least $5.8 billion this year and to gradually eliminate money printing to finance government spending, curbing it to zero by 2024. The central bank's dwindling reserves have been a key investor concern, while economists warned that large-scale money printing fueled higher inflation.

Argentina's central bank, which raised its benchmark rate twice in 2022 ahead of the agreement, will also look to have real monetary policy rates.

The memo says it plans to simplify its existing reserve requirements system -- banks' money held by the central bank to back deposits -- for smaller entities as part of a goal to boost the transmission of its monetary policy. Argentina will also consider consider gradually easing the floor on deposit rates and the ceiling on lending rates for commercial banks.

“Even if the program does address Argentina's deficit monetization, the agreement seems very generous for the country,” said Alejo Costa, chief Argentina strategist at BTG Pactual in Buenos Aires. “That's not a good thing, as it could give Kirchnerism the space to continue with unorthodox policies.”

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Energy

In the energy sector, the government will focus on cutting its expensive subsidies bill, with an emphasis on segmenting households. That means the richest 10% would pay full fees for power and natural gas, with subsidies kicking in for poorer families. The savings from peeling back energy subsidies may not be as large as forecast -- 0.6% of GDP this year -- as global energy prices soar amid the Russian invasion of Ukraine, the document says.

The government will also spur investments in energy production and transportation to reduce expensive fuel imports, including by keeping energy bills in line over time with wholesale power and natural gas prices.

On climate, the government recommitted to existing announcements for electric-vehicle legislation and a “green” economy plan that includes supporting the hydrogen industry.

Currency Controls

Argentina aims to continue intervening in currency markets with the goal of boosting its reserves, according to the memo. However, the government also has a plan to gradually relax those controls over time, though more specific timing and implementation wasn't provided.

Officials intend to maintain the real effective exchange rate of the peso this year at the same levels seen in 2021.

Economic Outlook

Argentina's economy is expected to grow 3.5% to 4% this year, with annual inflation landing in the range of 38% to 48%, according to the document. Growth is expected to slow in the coming years as price increases cool too.

The government intends to spend over 2% of GDP on infrastructure over the course of the program.