Argentina: IMF Deal Relaxed; The New Agrodollar
The IMF has agreed to relax the FX accumulation target of the Argentina deal by reducing it in USD 1.6 Bn, reflecting the effect of lower production of grains in 2023. We believe the IMF will continue to be flexible which means that even if other targets of the deal are not met the disbursements will continue. Additionally, Economy Minister Sergio Massa announced the Agrodollar which will allow agricultural producers to liquidate their exports at a more favourable exchange rate.
IMF Deal Relaxed
The IMF has concluded the fourth review of their deal with Argentina. On the document, they stated that all the targets set for the program for the Q4/2022 were fulfilled, namely, the primary target of 1.9% of the GDP, the ceiling for the monetary financing of the Treasury at 0.8% of GDP and the net FX accumulation of USD 5.4 Bn. This will allow Argentina to disburse around USD 5 Bn helping the country to manage their scarce reserves.
However, moving forward the outlook is a bit gloomier. The severe droughts on the rural areas will affect the 2023 harvests and as grain exports are one of the main exports of Argentina, this will affect the capacity of the Central Bank of Argentina (BCRA) to accumulate FX. The IMF estimates that the effects of a worse than expected harvest will reduce Argentine exports by USD 6bn. This effect would be partially offset by a net USD 1.5 Bn reduction on gas imports, reflecting lower natural gas prices.
In response, the IMF has relaxed the net FX accumulation target for 2023. In December, the target set was a USD 4.4 Bn net accumulation for 2023, while the new target was set at USD 2.6 Bn. It is interesting to note that the IMF is predicting that the Argentine economy will grow between 1.5% and 2.5%. Our forecast is the Argentine economy will grow 0% in 2023 while markets are forecasting 0.8% growth. Lower growth will make things more difficult to the Argentine economy to reduce the deficits to 0.9% of the GDP, even more on an electoral year. However, the IMF has been showing they will be flexible with the deal targets. Therefore, even if targets are unmet the disbursements are set to continue in 2023.
New Agrodollar
Economy Minister Sergio Massa has revealed a new set of measures to boost FX accumulation during 2024. Similar to the “Soybean Dollar” (here) the measure will allow the producers of soybeans, rice, wine and peanut to liquidate their exports at a more favourable exchange rate, set at 300 ARS/USD. Currently the official exchange rate is at 211, while the Blue Dollar (black market) is at 380. The measure will incentive the producers to liquidate their harvest earlier instead of holding their production to wait for new FX devaluations. However, it is important to remember that in 2023, the effect of this measure will be severely constrained by the lower production.