It’s a matter of accounting but also real paper money – whether the incoming dollars obtained are from exports, advances, or tied to a debt that will have to be paid at some point.
These are the famous debates about whether reserves are net or liquid or not. This may seem like just semantics at this point, although it could perfectly be the heart of the discussion and the decisive point when the Argentine economic team sits down with officials responding to Kristalina Georgieva at the International Monetary Fund (IMF). .
In a few weeks, the IMF will begin its second review of Argentina’s $44.5 billion debt deal, the approval of which will depend on the installment to meet the next debt payment of more than $6 billion. Even if there is finally fumata biancathe battle ahead should not be underestimated.
The government is already taking for granted that there will be a lot of tension although it has one trump card in its favor – focusing on the second quarter when Martín Guzmán was leading the economy and will not be there to take all the blame. Instead, the negotiator will be Economy Minister Sergio Massa who will take full responsibility for the third revision (covering a period still ongoing) and where there will be much more tension.
From September, the IMF will aim its missiles at galloping inflation, but especially at the low reserves of the Central Bank under Miguel Pesce, who engaged in creative accounting and bet on the exchange of Chinese currencies, the collection of cashed dollars and the reduction of energy expenditure. now at $2.4 billion per month. And also the Repos (repurchase agreements) that the government hopes to sign soon with European, Asian and North American banks to buy back debt and increase reserves. This would be a mechanism (still under discussion) similar to the one used in 2016 but aimed at a longer term.
It is further hoped that the tranches of international organizations pending since the first half of the year can be accelerated to the tune of a few billion dollars. The Central Bank is also looking to maintain a long stance that it claims to have maintained since this government took office in late 2019, although if inflation were lower, capital controls could be enforced more robustly.
The economic cabinet sees data that it considers encouraging in the trade balance. For example, in the second week of this month, the soybean crop began to be cashed with the new special 70/30 exchange rate, allowing these agricultural transactions to be maintained at a daily average of 160 million US dollars this month.
From the economic cabinet’s perspective, the trump card will be signals of fiscal austerity, promising to cut red ink to 2.5% of gross domestic product by the end of the year. But this is precisely where tensions within the ruling coalition come into play as not all sectors want to be tied to funding cuts.
The other indicator under the IMF’s magnifying glass will undoubtedly be inflation. As with Central Bank reserves, this future review promises to be more complex than the review of the second quarter accounts from next month, although when it comes to prices they are likely to take a more benevolent, given the global surge in inflation. due to the pandemic and the energy costs of the ongoing war in Europe.
In reality, this international context would give the IMF more leeway for benevolence in its final communiqué. But when it comes to reserves, more so than in the case of double-digit inflation (a national phenomenon), this rhetorical leniency would become more difficult to sustain at the national level in terms of political endorsements and internal audits.
by Alejandra Gallo, Profile
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