Argentina: walking a tightrope
The recent staff-level agreement Argentina reached with the IMF on the 2Q review, under the Extended Fund Facility arrangement, was not surprising. This staff-level agreement lays the way for the formal approval of the IMF´s board of directors (expected to meet on October 7) and with it, the third SDR 3bn cash disbursement.
Despite the approval's having been expected and that it corresponds to the quarter before Sergio Massa's appointment as Economic Minister, it still represents a political victory for him. It also represents a step forward in his attempt to steer the Argentine economy toward more stable macro conditions, or at least to gain more time, in the hope that activity indicators maintain their recovery path, even in the face of the monetary and political storm that is currently unfolding.
In this report, we will review risk factors such as the BCRA debt dynamic, which is not helping to stabilize inflation or devaluation expectations, and the political shockwave of Cristina Fernández de Kirchner's public prosecution, amidst a perplexing assassination attempt.
On the bright side, Massa's hope that the economy will continue to grow is in part reaffirmed in the recently published Q2 activity data, which was better than expected, despite the volatility in the financial market. This suggests that the real economy has more resilience (or rebound capacity) than expected. Also, the better-than-expected BCRA FX acquisition, based on the temporary agreement with the soy sector, has given Massa a small breather.
The question that remains open is how much longer this resilience would last if political and monetary conditions were to deteriorate further.
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