Press Release No. 18/362

IMF and Argentina Authorities Reach Staff-Level Agreement on First Review Under the Stand-By Arrangement

September 26, 2018

The International Monetary Fund staff and Argentina authorities have reached an agreement on a set of strengthened economic policies that will underpin the 36-month Stand-By Arrangement (SBA) approved on June 20, 2018. Subject to IMF Executive Board approval, the revised Arrangement front loads IMF financing, increasing available resources by US$19 billion through the end of 2019,  and brings the total amount available under the program to US$57.1 billion through 2021. The resources available under the program would no longer be treated as precautionary and the authorities intend to use IMF financing for budget support. 

IMF Managing Director Christine Lagarde issued the following statement on the staff-level agreement:  

“Argentina has developed a strengthened economic plan that is aimed at bolstering confidence and stabilizing the economy. At the core of the new plan is a fiscal policy aimed at strengthening its fiscal position and having a sustainable, appropriately financed budget, a strong monetary policy focused on reducing inflation, a floating exchange rate policy without intervention. 

“A central element of the authorities’ plan will be to reach budgetary balance by 2019, one year earlier than previously intended, and to move to a 1 percent primary surplus in 2020. These decisive steps will reduce the government’s financing needs and bring down public debt. Congressional approval of the 2019 budget will be an essential next step. 

“Persistently high inflation continues to erode the foundation of economic prosperity in Argentina and the burden of high inflation is predominantly borne by society’s most vulnerable. To tackle inflation, the authorities will shift towards a stronger, simpler, and verifiable monetary policy regime, replacing the inflation targeting regime with a monetary base target. This new framework will contain the supply of money, and keep short-term interest rates at their currently high levels, aiming to bring down inflation and inflation expectations decisively and rapidly. 

 “The Central Bank of Argentina has decided to adopt a floating exchange rate regime without intervention. 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. More details of this revised framework will be announced by the BCRA today. 

“From the beginning, the Argentine authorities have made protecting the most vulnerable people in society a top priority in their economic reform plan. This remains a crucial component of this revised plan and is fully supported by the IMF. As part of this commitment, social assistance spending will need to remain above a certain level. The authorities will also expand the coverage of the government’s universal child allowances and of health plans for lower income households. Additionally, if social conditions were to worsen, the budget allocation for social priorities will be further increased and accommodated within the Stand-By Arrangement.  

“The Fund remains fully committed to helping Argentina tackle the challenges it faces. I support Argentina’s revised reform plan and believe it will be instrumental to restoring market confidence in the government’s ambitious economic agenda and to protecting the most vulnerable from the burden of the needed policy adjustment. 

“I will seek the approval of this strengthened proposal with the IMF’s Executive Board. 

“A great deal of work remains to be done if Argentina is to respond effectively to the current challenging circumstances. That effort is just beginning. The IMF is committed to continue supporting the Argentine authorities in their efforts.”