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The IMF approved the plan and sends US $ 24,000 million to face the recession

October 28, 2018 - By Joseph Taylor

The Executive Board of the International Monetary Fund (IMF) approved yesterday in Washington the renewed stand-by agreement that will grant a total of 56,300 million dollars for Argentina and that accelerates the disbursement of some 24,000 million dollars that the Government may have in the next 6 months, when a severe recession is anticipated.

On the third floor of the IMF building on 19th Avenue, the directors of the member countries met from 10.30 in the morning (Argentine time) to discuss the agreement, whose thick line was presented a month ago in New York by the minister Nicolas Dujovne and the head of the Fund, Christine Lagarde. What was approved yesterday is a revision of the commitment reached in June, which did not stop the financial turbulence.

Although the new program already had the public approval of Lagarde and several governments of the main powers, the formal endorsement of the board was required to enter into force. As reported yesterday, in total, the IMF will lend 53,600 million dollars to Argentina (equivalent to 10,710 SDR, the currency of the Fund). It is a little less than the 57,000 million dollars announced last month because it is calculated with the current price.

According to the new schedule, in a few days some 5,700 million dollars (equivalent to 4,100 million SDR, the currency of the IMF) will enter the Treasury coffers; in December some 7,700 million (5,500 SDR) and in March 11,000 million (7,800 million SDR). That is why there will be a total of 24,000 million dollars that will arrive in Argentina in the worst recessive period. In the IMF they calculate that the GDP will contract 2.6% this year and 1.6% in 2019, although they expect that the economy will be afloat in the middle of next year.

An official of the IMF remarked that they were attentive to the times that come at a time of macroeconomic adjustment. “It’s not just December. The economy is in recession and will continue like this for months. The impact of the recession is something that worries the authorities a lot. ” Therefore, they stressed that the program includes “a fiscal space” to mitigate the blow among the most vulnerable, which is 0.2% of GDP.

While generally the Fund has been and is complimentary to Macri’s measures, the report written by the technical staff headed by Roberto Cardarelli outlined some criticisms for the failure of the first agreement. “The markets doubted the government’s commitment to the program,” he wrote. And they also highlighted the “initially timid communication strategy around the stabilization plan, as well as an unclear and, at times, inconsistent foreign exchange intervention strategy of the Central Bank.”

The Executive Board is made up of 24 representatives from all member countries (some directors represent a group of nations), but the votes of the most powerful economies, which contribute the most money to the body, including the United States, weigh more heavily. Japan, China, Germany, Canada, France, Great Britain, Italy. It was ruled out that the agreement would be approved because these central countries have already given political support to the agreement, through declarations and communiqu├ęs. In fact, President Donald Trump personally endorsed the Argentine negotiation with the IMF and the reforms undertaken by President Mauricio Macri.

In general, the administration of Mauricio Macri commits to zero deficit next year, a surplus of 1% in 2020 and definitively abandons the system of inflation targets, which had defended from the Central Bank Federico Sturzenegger and had deactivated, although without admit it, the resigning Luis Caputo. With Guido Sandleris at the head of the BCRA, they will now use the method of “monetary aggregates”, with a band of flotation for the dollar between 34 and 44 pesos.

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