After definitively closing the seventh review of the agreement with Argentina, the International Monetary Fund (IMF) published the so-called staff report. The report functions as a kind of “roadmap” that shows its evaluation of the Argentine economy in general and the progress of the program in particular.
One of the central parts of the extensive document released this Thursday by the organization points to the impact that the fiscal adjustment plan promoted by the Government, which aims to achieve a primary surplus of 2% of GDP in 2024, will have on lower-income people.
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“The plan focuses on establishing a strong fiscal anchor – consistent with a large initial adjustment of around 5 percentage points of GDP –, along with key actions to rebuild reserves, boost trade balance (to achieve twin surpluses), correct large and extensive relative price imbalances, strengthen the balance sheet of the Central Bank and create a simpler, rules-based and market-oriented system,” the letter indicates.
This objective, always according to the IMF, will imply, first of all, that inflation will suffer an acceleration in the short term as a result of the elimination of price controls and the ordering of relative prices, which would lead to a recovery of the economy only for end of 2024.
THE IMF warned about the impact of the adjustment plan on vulnerable sectors and called for extending social assistance.
The Fund warns that, as a result of this economic crisis scenario, “a further expansion of social assistance may be necessary as conditions evolve.”
“There are risks that the policy package may not initially meet its objectives, requiring agile policy formulation, contingency planning and the need to further expand social assistance,” the report maintains. And later he insists: “The stabilization program must include a temporary expansion of specific social support to protect the most vulnerable from the initial jump in inflation and the contraction of activity.”
In this sense, he points out that the aid must be “timely”, that is, that the Executive must take early and simultaneous measures to mitigate the consequences, for example, of the increase in energy rates. This reinforcement should be aimed at middle and lower class households to overcome the impact of the “large initial correction of relative price imbalances (fuels, public services, health insurance, etc.).”
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If this aid does not materialize, the Fund assures that social conflict could worsen. “Given the delicate social situation and the fact that the stabilization plan will take time to materialize, the risks of social unrest cannot be ruled out, even with some strengthening of the social safety net,” he says.
The multilateral credit entity also emphasizes that social assistance must be “adequate and well focused.” For this reason, it indicates that the current database of social programs must be reviewed, an action that would be developed together with the collaboration of the World Bank.
Inflation, poverty and unemployment, the harsh scenario that the IMF foresees
The IMF's warnings about the need to reinforce social items are explained by the critical scenario it foresees due to the crisis. In the short term, the economy is expected to maintain a period of stagflation and the price index is projected to remain around 25% in January, as in December.
“Inflation will reach single-digit levels – in its monthly measurement – during the second quarter of 2024 and will be conditional on the supposed fiscal consolidation,” says the report, which also estimates that the price index will close at 150% in 2024.
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The IMF describes that there will also be an impact on employment figures, as the labor market already shows precarious conditions in terms of income, especially for the informal sector.
“The rise in inflation has also caused a further contraction in average real wages, with especially sharp falls for workers in the informal sector. In fact, real wages are now 23% below 2016 levels,” the document reads.
The IMF and Argentina sealed the seventh review of the debt agreement.
The greatest consequence of this panorama will be seen in the poverty figures, which according to the latest INDEC numbers for the first half of 2023, are at 40.1% and it is estimated that the numbers will be worse at the end of 2023. and the first section of 2024.
“Argentina has seen a trend of increasing poverty, amid accelerated inflation and a fall in real wages. Preliminary estimates (based on World Bank models) suggest that overall poverty has increased around 45% more recently, driven by increases in the price of basic basket products and falls in the real wages of informal workers. projects the IMF.