May 19, 2022 7:09 pm

“Real adjustment”: what Martín Guzmán said about the deficit cut requested by the IMF and that he finally accepted

Martin Guzman he spoke with the solemnity of one who promises heroic resistance. “This is simple: here what we are doing with the President is negotiating everything that is going to matter for all the coming years. We put on the Argentina shirt and everyone has to define which shirt they have on”.

A dozen governors listened to him attentively at the Casa Rosada, on January 5, when he offered a 55-minute exposition to summarize the state of the negotiations with the International Monetary Fund (IMF). That oratory piece stands out today, less than a month later, due to the notable contrast between what the Economy Minister said about the main disagreement with the agency and what he finally accepted in the understanding reached last Friday.

January 5: Martín Guzmán explains that the 0 deficit in 2025 implied “a real adjustment”

Guzmán said, next to the president Alberto Fernandez, at the beginning of the month: “What the IMF is asking for is different from what we have presented, and the difference between what the Fund proposes and what we propose from the Argentine government consists in differentiating between a program that with a high probability would stop growth, and that is essentially a real tuning program, versus a program that gives continuity to this strong recovery process that we are experiencing”.

While Guzmán was speaking, a giant screen displayed a table with the Government’s proposal to gradually reduce the fiscal deficit: the line it started with 3% in 2022 and broke even in 2027. The IMF called for a greater reduction for this year (2.5%) and to achieve a zero deficit in 2025.

Guzmán said that this path exposed Argentina “to the need for good luck to continue to recover.” He placed special emphasis on the fact that in that point lay the main difference with the IMF. In the debate that followed, he listened as the governor of Buenos Aires, Axel Kicillo, suggested that “review the strategy” if the negotiation led to an adjustment situation.

Interestingly, when the pre-agreement was announced on Friday, the deficit numbers were identical to those previously ruled out, although there was an unsubtle attempt to hide it. The President said in his recorded message in the gardens of Olivos that the Fund “does not ask for a zero deficit”. And Guzmán explained that he will commit to a deficit of 2.5% in 2022; 1.9% in 2023, and 0.9% in 2024. said no more. But, for the avoidance of doubt, the number two of the IMF, Gita Gopinath, completed hours later on Twitter that the 2025 goal is… zero.

The tweet of Gita Gopinath, number two of the IMF

“Real spending does not fall, but on the contrary grows,” Guzmán said on Friday. “There was a time when the conditions under which an agreement could be reached were adjustment conditions, and we considered that this was not a viable way forward”, he added, without clarifying what had changed in just over three weeks so that the unacceptable became virtuous.

The rest of the points of the understanding are similar to those that were whitewashed on January 5. The plan establishes a brake on the reduction of monetary assistance to the Treasury, which in 2021 involved issuing pesos for the equivalent of 3.7% of GDP. “It is pointed out that in 2022 it will be 1% of GDP, that in 2023 it will be 0.6% of GDP and that in 2024 it will be close to zero, to converge to a situation where there is no more monetary financing”, said Guzmán.

Regarding the interest rate, he insisted on the need to “develop the local capital market” for which he defined that progress will be made towards a “real interest rate structure that results in positive values, in order to strengthen the demand for assets in our currency”.

He also explained that the agreement establishes a reserve accumulation goal, “which is important to promote resilience on the external front and contribute to the stability of expectations.” In that sense, the guideline for 2022 is that BCRA reserves grow by US$5 billion. To a large extent, they could come out of the return that the IMF would make of the capital payments made last September and December.

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