IMF’s Revised Stand-By Arrangement

Updated on October 26, 2018

  • IMF staff and Argentina have agreed on a strengthened set of policies that will underpin the current Stand-By Arrangement and will help bolster confidence, counter the current market volatility and establish the foundations for macroeconomic stability.
  • The revised package includes: i) an acceleration in the improvement in the fiscal position; ii) a shift to monetary aggregates as the nominal anchor; iii) a floating exchange rate; iv) an increase in the level of benefits in the main social safety net programs.
  • The revised Arrangement approved by the IMF Executive Board allows the authorities to draw the equivalent of about US$5.7 billion, bringing total disbursements since June to about US$20.4 billion, and brings the total amount available under the program to US$56.3 billion by end-2021. The resources available in the program are no longer expected to be treated as precautionary and the authorities have requested the use of the IMF financing for budget support.

Main Message

Argentina’s strengthened economic plan aims to bolster confidence and stabilize the economy through a reduction in the budget deficit, the adoption of a simpler monetary policy framework, and freely floating the exchange rate (with foreign currency intervention limited to cases of an extreme overshooting of the currency). Protecting the most vulnerable in Argentina continues to be a central component of the authorities’ efforts including by prioritizing social assistance spending and planning for an increase in spending on social assistance programs in the event that social conditions deteriorate. The plan is designed to reduce the threat of runaway inflation by ending the creation of money, and to restore a well-functioning floating exchange rate. The central bank has committed to publish data every week that demonstrates it is fulfilling these policies.

Fiscal Policy

The authorities are fully committed to reducing the federal government’s financing needs and placing public debt on a firm downward path. They aim to strengthen the country’s fiscal position by achieving a primary balance in 2019 and primary surpluses starting in 2020. To this end, the government is seeking support in the Argentine Congress for revenue-enhancing and cost-cutting measures that include: introducing taxes on exports, increasing the wealth tax, scaling back inefficient energy subsidies, reprioritizing capital spending, and improving the structure of federal transfers to provinces.

Monetary Policy

To decisively reduce inflation, the Central Bank will shift toward a stronger, simpler, and more verifiable monetary policy regime, temporarily replacing the inflation targeting regime with a monetary base target. At the center of the new framework is a commitment to cap the growth of money to zero percent per month (calculated as the change in the monthly average) until June 2019, with the aim of decisively bringing down inflation and inflation expectations. This framework is supplemented by a commitment not to allow short-term rates to fall below 60 percent until 12-month inflation expectations decisively fall for at least two consecutive months.

Exchange Rate Policy

The Central Bank of Argentina (BCRA) has adopted a floating exchange rate regime without intervention. However, in the event of extreme overshooting of the exchange rate, the BCRA may conduct limited intervention in foreign exchange markets to prevent disorderly market conditions. Such intervention would be unsterilized.

Social Protection and Gender Equality

The draft federal budget strengthens the social safety net. The draft federal budget strengthens the social safety net. The floor on social assistance spending and the framework for adjusting social spending will be maintained. The draft budget increases social spending and preserves health spending (while better targeting health outlays to the most vulnerable). It also includes a 12 percent expansion of public childcare in an effort to raise female labor force participation (particularly for lower income households). With the support of the World Bank, the National Social Security Administration (ANSES) will continue to improve targeting and expand coverage of the universal child allowance (AUH). Finally, the government has also developed a system to improve the monitoring of social conditions to better respond to emerging needs of low income households.

Augmentation and Re-phasing of Fund Resources

Under the revised arrangement, Fund resources for Argentina in 2018-19 have increased by US$19 billion. A total of about US$56.3 billion would be made available to Argentina for the duration of the program through 2021.Fund disbursements for the remainder of 2018 would more than double compared to the original Fund-supported program, to a total of US$13.4 billion (on top of the US$15 billion already disbursed). Planned disbursements in 2019 are also nearly doubled, to US$22.8 billion, with US$5.9 billion planned for 2020-21. The resources available in the program are no longer expected to be treated as precautionary and the authorities have requested the use of the IMF financing for budget support.