Guides to think about 2023

In less than 24 hours, the Argentine economic scenario went through three highly significant events, but they give contradictory signals. The approval of the goals for the third quarter by the IMF was accompanied by praise for the economic management, questions of the policy of multiple exchanges, but also the confirmation of a disbursement of US$6 billion in the coming days. Just a couple of hours before that news, Minister Sergio Massa reported on the progress of a new stage of the Gas.Ar Plan, perhaps the one that most satisfies the Fund's aspirations  Monetary to see that natural resources are placed primarily at the service of foreign capital so that it yields more dollar income to the country. A few hours later, already on this Friday,

In announcing the results of its assessment of Argentina's performance under the extended facilities program, the IMF's Executive Board "determined that all quantitative performance criteria had been met by the end of September 2022, thanks to prudent macroeconomic management." of the new economic team".

It was not the only praise for the leadership exercised by Sergio Massa. More explicit was the first deputy managing director of the IMF, Gita Gopinath (Kristalina Georgieva's "number two"), who pointed out that "the continuous actions of defined policies are beginning to bear fruit. In a more challenging external and internal context, the determined implementation of policies, including the tightening of fiscal and monetary policies, is leading to a reduction in inflation, as well as improvements in the trade balance and reserve coverage!".

Thus, he placed the "tightening of fiscal and monetary policies" as a key factor in the development of the policy supported by the Fund. He reinforced Gopinath's concept by stating that "fiscal consolidation will be necessary according to budget to support disinflation and reserve accumulation processes, alleviate financial pressures and strengthen debt sustainability."

The relevance that the Fund gives to the fiscal adjustment translates as a threat to the conditions in which the Argentine Economy will develop during 2023. But there is something else, in the same document published by the IMF the "number two" of the organization makes another A statement that deserves special attention: “Positive and sustained real interest rates continue to be essential to reduce persistently high inflation and strengthen the demand for assets in pesos."

In line with what is expressed, in private, by key members of Massa's team, such as the Secretary of Economic Policies, Gabriel Rubinstein, interest rates are not an instrument of productive policy, but a variable that depends on another factor than the current economic policy considers a priority: if the fiscal deficit falls, then the national Treasury will have less need to seek funds in the market to finance itself and thus the interest rate will fall. If along the way, the productive apparatus suffers from an intolerable cost of money, that will be one of the "unwanted" costs of the adjustment program that the government is fully willing to pay. And with the support of the Fund.

This was expressed in the last report of the Executive Board of the IMF Gopinath, the Indian/American economist, who at this point became a key figure in monitoring the Argentine case, just as Georgieva was in the time of Minister Martín Guzmán.

The IMF official herself issues a final warning about the behavior that the Argentine government should adopt in the face of eventual difficulties in meeting the goals. "Further action may be needed to safeguard macroeconomic stability if downside risks materialize. Broad political support for program policies remains critical going forward."

Meeting next year's goals will mean lowering the fiscal deficit to no more than 1.9% of GDP, a ceiling six tenths lower than that of the current year. Argentina will have to continue adding reserves, for which it will no longer count as up to now, with a positive net result in quarterly disbursements from the IMF (the money it lends is greater than that of the debt maturing with the IMF in the same quarter). , but the balance will become negative as of the second quarter of 2023. The sum of capital plus interest that matures each quarter becomes greater than the disbursements committed in the same quarter. 

To make matters worse, the Board of Executive Directors has already announced its opinion against the reconsideration of the collection of surcharges to Argentina, as a result of a meeting two weeks ago, considering that there is a degree of risk of no lesser payment of the debt, which makes it convincing to maintain the surtax. Said cost means an additional outlay of 900 to 1000 million dollars per year.

The announcement of a new stage of the Gas.Ar Plan, after the results of the tender for the supply of natural gas for the next five years (volume and prices), was celebrated by Minister Sergio Massa, due to the savings that it will mean after 2023 in terms of foreign exchange, and due to the prospect of converting the gas sector into an exporter with a weight in the trade balance similar to that of the entire soybean complex.

The result of the tender commits the producers in the Vaca Muerta field (Neuquén) to ensure the supply of gas in the coming years to fill the transport capacity of the Néstor Kirchner Gas Pipeline (the first section will be operational at the end of June 2023, the second at the beginning of 2025) and for self-sufficiency and provisioning of the surplus for export.

The impact on the productive matrix will mean ceasing to depend on the import of liquefied natural gas (LNG) as of 2024, whose import price is more than ten times what will be paid to the local producer, according to the result of the bidding. While imported LNG would cost US$40 per million btu (caloric unit of measurement), that produced in Vaca Muerta will be paid on average at US$3.75 per million btu. 

The result, in figures, is compelling. It is celebrated by the government but also by the IMF, which considers it an essential additional source of foreign currency so that Argentina can meet its commitments in the coming years. What persists as an unaddressed discussion is what is the national development model that the country should adopt and what mechanism it gives itself to exploit its resources. Having cheap and abundant gas can be an important basis for obtaining more foreign currency by exporting it, or an equally important basis for the development of the Economy based on cheap energy that is projected in the transformation of the productive structure. Clearly, the option presented by the government and promoted by the IMF is the first.

On the other hand, continuing to tie interest rate and exchange rate policy decisions to the behavior of speculative financial actors can be just as dangerous. The evolution of the last hours demonstrates it. Despite the news favorable to the prospects in the level of reserves (IMF disbursement in the short term, results of the Gas.Ar Plan in the medium and long term), the exchange market reacted more based on very short-term speculative interests printing a jump to the alternative prices of the dollar. 

The projections did not matter, but the opportunity to make differences in the very short term. Whether it was due to a greater demand for dollars from the public with pesos in their pockets for the Christmas bonus, or from future travelers abroad who were made more expensive to exchange for purchases abroad (Qatar dollar), or from those who speculate on the pressures of the Fund for the exchange rate reunification in the short term. A petty behavior, yes, but highly attended by those who define public policies in monetary and exchange matters.

The result of the tender commits the producers in the Vaca Muerta field (Neuquén) to ensure the supply of gas in the coming years to fill the transport capacity of the Néstor Kirchner Gas Pipeline (the first section will be operational at the end of June 2023, the second at the beginning of 2025) and for self-sufficiency and provisioning of the surplus for export.