Some interpretations ahead of the IMF debate in Congress
Last Friday, after some back-and-forth between the government and the main opposition regarding the final wording of the bill that will be debated this week in Congress, the full IMF agreement was finally presented to the Lower House and thereby disclosed to the public. Despite the frictions we describe in our report, our base case scenario remains that the IMF agreement is approved by Congress, which should be considered (even after potential profit-taking) supportive of Argentina´s asset values.
The government is going to face that their own and others are going to try to avoid the political cost of openly endorsing an economic program that Minister Guzman and his team negotiated with the IMF. We say "their own" meaning the Kirchnerists, because the program represents the fiscal adjustment of a debt they consider unjustifiable. And "others" are the hawks in Juntos por el Cambio, because the IMF disbursements are somewhat front-loaded in the coming year and a half, and because the implicit local peso debt issuance required to finance the remaining fiscal deficit, with dwindling BCRA monetization, anticipates some hardship on the domestic debt market for the next government.
The quantitative targets are, roughly speaking, in line with what Economic Minister Martin Guzman announced a month ago. The main macro challenge will be the combined decrease in the fiscal deficit, while simultaneously reducing central bank financing and accumulating net international reserves. This requires fluid access to domestic capital markets, ideally supportive export prices, and ideally, reducing capital controls, at least for FDI and real trade flows, in order to incentivize FX accumulation.
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