Press Release No. 21/401

IMF Executive Board Discusses the Ex-Post Evaluation of Argentina’s Exceptional Access Under the 2018 Stand-By Arrangement

December 22, 2021

Washington, DC : The Executive Board of the International Monetary Fund (IMF) met today to discuss the Ex-Post Evaluation (EPE) of Argentina’s Exceptional Access Under the 2018 Stand-By Arrangement.

An Ex-Post Evaluation is required in all cases of IMF lending above normal borrowing limits to review performance against original program objectives, discuss whether the program design was appropriate, and assess whether the program was consistent with Fund policies. This EPE reviews the experience under Argentina’s program, supported by the Stand-By Arrangement, and covers the period from June 2018 through to August 2019. It examines weaknesses and vulnerabilities of the Argentine economy, objectives and policies under the program, the balance of financing and adjustment, and the justifications for exceptional access to IMF financing by Argentina. The EPE also includes an appendix laying out the authorities’ reaction to the report and views on the 2018 Stand-By Arrangement.

In early 2018, Argentina, like other emerging market economies, was experiencing challenging external financing conditions. The government announced in May 2018 that it would seek an IMF arrangement. In support of an economic program, the Executive Board approved in June 2018 the largest stand-by arrangement in the Fund’s history. After an augmentation in October 2018, access under the arrangement amounted to US$57 billion (1,227 percent of Argentina’s IMF quota).

The program aimed to restore confidence, reduce balance of payments and fiscal imbalances, and bring down inflation. Restoring confidence would, in turn, allow time for the authorities to return to dealing with longer-term challenges facing the Argentine economy. The strategy, underpinned by the large financial support from the Fund, centered on fiscal and monetary tightening, combined with targeted structural reforms, to catalyze renewed capital inflows. The program also included specific measures to support vulnerable segments of the population and to address gender inequality.

The Ex-Post Evaluation report concludes that relevant Fund policies and procedures, including those relating to financing, safeguards and program design, were adhered to. The report also finds that the program did not deliver on its objectives, despite significant modifications of economic policies. Mounting redemptions, along with capital flight by residents, put considerable pressure on the exchange rate. Despite FX interventions beyond program provisions, the exchange rate continued to depreciate, increasing inflation and the peso value of public debt, and weakening real incomes, especially of the poor. In sum, the report concludes that the program did not fulfil the objectives of restoring confidence in fiscal and external viability while fostering economic growth. The program went off track in August 2019 with only four of the planned twelve reviews completed by the Executive Board. The authorities decided to cancel the arrangement on July 24, 2020.

Executive Board Assessment [1]

Executive Directors welcomed the comprehensive ex-post evaluation (EPE) of exceptional access to Fund financing under the 2018 Stand-By Arrangement (SBA) with Argentina. While the EPE draws a number of important lessons, they noted that several of them are not new. Looking ahead, Directors emphasized that the EPE findings should inform the ongoing discussions on a potential follow-up program with Argentina.

Directors regretted that the 2018 program did not deliver on its objectives of restoring market confidence, bringing down external and fiscal imbalances, reducing inflation, and protecting the most vulnerable segments of the population. They considered that the program’s strategy and conditionality was not sufficiently robust to address Argentina’s deep-seated structural problems, including fragile public finances, dollarization, high inflation, weak monetary policy transmission, a small domestic financial sector, and a narrow export base.

Directors noted that the then government’s redlines on certain policies may have ruled out potentially critical measures for the program. Among those measures were a debt operation and use of capital flow management measures. A number of Directors, however, questioned the feasibility of implementing these measures when a key objective of the program was to restore market confidence. Directors recognized that the emphasis on government ownership may have also led to overly optimistic forecasts, which weakened the program’s robustness.

Directors noted that the SBA has created substantial financial and reputational risks to the Fund. Most Directors concurred that agreeing with the authorities upfront on contingency plans could have reduced risks to the program and to the Fund, but a few Directors noted the difficulties of handling such plans in practice given market sensitivities. Directors emphasized that better communication by the authorities could have boosted the catalytic effect of the program. They also underscored that greater burden sharing with other official creditors would have provided additional financing and signaled broader support from the international community, both of which could have bolstered confidence.

Directors generally agreed that the SBA was consistent with Fund policies and procedures but recognized that the application of some of these policies involved considerable judgment. A few Directors, however, questioned such consistency. While standard procedures to assess risks to the Fund were followed, Directors considered that broader risks could have featured more prominently, and the Board could have been involved earlier and more deeply in the process. Many Directors considered that an evaluation of the 2018 SBA with Argentina by the Independent Evaluation Office could complement the EPE findings. While the revised Exceptional Access Framework was followed, they noted that the application of the criteria on debt sustainability, market access, and capacity to implement the program was not straightforward and came down to finely balanced judgments.

Directors highlighted several lessons for Fund-supported programs. First, it is essential that they incorporate realistic assumptions. Second, programs should be tailored to country circumstances, including political economy considerations, which could entail using unconventional measures if standard macroeconomic policies are unlikely to deliver. Third, the analysis of risks underlying key judgments made when applying the Exceptional Access Framework should be clearly laid out and communicated to the Board. Fourth, ownership, which should be understood in a broader societal sense, should not preclude a candid assessment of possible better policy choices and program outcomes. Fifth, effective external communication is essential in securing proper buy-in at different levels and the intended catalytic effect. Finally, an appropriate burden sharing is needed when entering into exceptional access arrangements.