The government and the IMF have not reached an agreement about the fiscal path the country should follow—the government is opposed to pursuing the fiscal tightening that the IMF is pushing for. Argentina wants to reduce the deficit while still pursuing countercyclical fiscal policy, i.e. through an economic expansion that increases revenues. The government estimates that this strategy would imply a gradual reduction of the primary deficit and that primary surpluses would only be seen in 2028.
Meanwhile, the IMF wants a reduction of spending in real terms. Guzman believes the strategy proposed by the IMF would very likely stop Argentina’s economic recovery. The government adopted a harsh stance, with Guzman even suggesting that sending the country to recession is convenient to some outside Argentina. Notably, Guzman ties the pace of reduction of the deficit monetization to getting financing from other multilateral credit organizations, once again making very clear that reducing spending is not an option.
According to Guzman, growth of around USD3-4bn per year for international reserves and a “systematic” reduction of the Central Bank’s financing of the fiscal deficit are points of common ground between the IMF and the government. Guzman suggested ARS depreciation would be part of the plan by saying that the government wants a real FX consistent with a trade surplus. We note, however, these points of common ground are dependent on the fiscal target. In other words, there is disagreement on the core issue. Guzman also suggested that a positive real interest rate will be targeted and that capital controls may be eased but not removed, in line with our expectations.
A Complex Geopolitical Scenario
Guzman said that the government's proposed plan does not have the full support of the international community, but added that “it’s important that we act with the appropriate firmness”. President Alberto Fernandez adopted this tough stance too, expressing confidence that “we will continue to negotiate in this line and we will most likely reach agreement”.
Notably, the government presented a plan that is not fully backed by the IMF staff even though it had initially said at this point the plan would reflect the understanding reached with the IMF staff, which they expected to happen in early December. As we expected, the government was too optimistic about the timing. Time will likely prove that the government is overestimating its bargaining power. An agreement with the IMF staff is probably a pre-requisite for wide support at a national level, so what this all implies is that there is still a far distance from reaching an agreement.