The agreement with the IMF opens an opportunity

La Nación – The agreement reached between the national government and the International Monetary Fund (IMF) brings some tranquility to the country’s committed economic and financial process and opens an opportunity to develop the necessary corrections and reforms. The magnitude of the credit for 50,000 million dollars, granted in the standby mode, has been greater than expected and, therefore, it extends the time available to implement the required measures and would reach to reach the end of the mandate of Macri without having to resort to the market with new debt placements.

The speed of the approval and the size of the aid confirm the excellent will towards Argentina from the big countries. The displacement of a populist government through elections is a very meritorious fact. The success of the management of Macri and of Cambiemos is fundamental for the developed world, whose permanent institutions warn with concern the advance of populist traits in their own nations.

The announcements still have to be completed with the greater details of the agreed thing. There is, however, enough material to affirm that they have worked with professionalism and that the agreement with the IMF is a positive step. It could be said that it was necessary in face of the certain risk that a currency exchange run would reoccur, which in a new version could lead to a fall in deposits and a flight of money. This risk justified facing the political cost of returning to an organism that is considered by a good part of the Argentines as Satan himself. By the way, this is an ideological appreciation, driven by the role that the IMF played in previous crises of fiscal distress and balance of payments that demanded adjustments. From 1958 until today, 11 Argentine governments, including three from Peronist extraction, signed 27 financing agreements with the international organization.

The new agreement proposes more ambitious goals to reduce the fiscal imbalance. For 2019, a primary deficit of 1.3% of GDP is projected, correcting the one so far expected, which was 2.2%. This rate of reduction would lead to the disappearance of the primary deficit in 2020. If this were achieved without increasing the tax pressure, the cumulative reduction in spending in the three years (2018, 2019 and 2020) would reach more than 4 points of GDP. It does not seem an ambitious goal if one takes into account that between 2002 and 2015 the aggregate public expenditure of the country went from 30% to 46% of GDP.

The prudence in minimizing the social effects is observed in the condition of not reducing the percentage devoted to social spending and that if poverty rises, social spending will increase by 0.2% of GDP. A forecast of this kind was not observed in the traditional agreements with the IMF and allows to confirm a change in the policies of the agency regarding its concern for the social effect of the adjustment programs.

The Government has shown some signs of cuts, such as the elimination of 25% of hierarchical positions in different agencies. There have been talks of suppressing public works. A freezing of vacancies and a voluntary withdrawal regime were arranged. These are roads that will at least yield some reduction in spending with less union resistance. It is also trying to limit the wage increase in the public sector to percentages lower than real inflation. This is less feasible and more objectionable. A reform should be carried out based on a redesign of the public administration based on efficiency rules, promoting the availability of surplus personnel, with maintenance of wages for a set period of time, with compensation and incentives for reintegration into the private sector. This process requires attractive conditions to create employment, boosting private investment. Among them, a labor reform that reduces risks and cost overruns and a reduction of excessive tax pressure. It is essential that the provinces collaborate in reducing unproductive spending. The very light federal pact signed in 2017 should be renegotiated and make it possible to eliminate non-automatic transfers. The projection of these for the current year reaches something more than 1% of GDP in view of what has already been transferred in the first five months.

The fiscal aspects of the agreement are complemented by conditions in the monetary order. The balance of the Central Bank will be cleaned up and the fiscal deficit will not be allowed to be financed. Within a reasonable period, it will absorb the stock of Lebac with funds that the Treasury will pay for the non-transferable letters that it has provided to compensate the transfers received. To do this, the Treasury will issue debt in pesos and dollars, but these will be sold in the market and not the Central Bank. All this aims to reduce inflation and quasi-fiscal expenditure. The agreement plans to lower inflation to less than 10% per year in 2021.

It’s time for the truth. The conditions of the world and the insufficiency of results after more than two years showed that this gradualism was not sustainable. The Government must now act with determination and reduce the effects on those who have less. The opposition must avoid destroying by mere ambitions of power and leave aside the irrationality of child appeals against supposed enemies or conspirators.

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