The managing director of the IMF, Kristalina Georgieva, recently praised President Javier Milei for his pragmatic approach in withdrawing the fiscal chapter of the Omnibus Law and adopting measures to help Argentina overcome its difficulties. Georgieva commended the Argentine Head of State for being open to advice and for making decisions that are not ideologically confined, but rather focused on finding ways for the country to overcome its challenges.
Georgieva also expressed satisfaction with the contingency plan put in place by the Argentine government following the withdrawal of the fiscal chapter. The IMF has been supporting the Argentine people and will continue to do so. The organization recently approved the disbursement of USD 4.7 billion as part of the extended facilities program signed with Argentina, which involves refinancing the debt taken by the government of Mauricio Macri in 2018.
The IMF’s staff report projects that inflation in Argentina will accelerate before beginning a process of gradual decline, with the annual index expected to reach around 150 percent by the end of the year. The organization’s technical team estimates that the monthly price increase should return to single-digit levels at some point in the second quarter of the year. However, the IMF also projects that inflation will remain above 25 percent monthly in January as relative price imbalances and other price controls are eliminated.
The IMF believes that fiscal consolidation, improvements in the monetary policy framework, and a reduction in business profit margins are essential for slowing down inflation. The organization also expects real wages to remain moderate during 2024 and gradually improve with economic recovery.
In fiscal terms, the IMF recognizes that the tax chapter of the omnibus law has been withdrawn from the project, but the government is seeking to implement a plan B to complete the adjustment and reach zero deficit. The unfreezing of the tax on liquid fuels is expected to compensate for the loss of potential revenue from the suspended tax increase. The Argentine economic team is also working on improving the income tax system for individuals and eliminating the current distorting pension indexation mechanism while preserving the real value of pensions through discretionary bonuses.
Overall, the IMF is optimistic about Argentina’s economic prospects and is committed to supporting the country’s fiscal trajectory and objectives. The organization believes that the Argentine government’s pragmatic approach and openness to advice will help the country overcome its difficulties and achieve economic stability.
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