Argentina is the emerging country with the lowest amount of net reserves as a percentage of GDP

RIO DE JANEIRO, BRAZIL – Argentina’s net reserves, i.e., those that do not have liabilities as a counterpart, fell to less than US$2.2 billion after the last payment to the International Monetary Fund, according to a recent report by Consultora 1816. Other calculations, such as that of the consulting firm LCG, estimate them at US$3.9 billion.

In any case, the number is still very low. For reference, when Axel Kicillof was forced to devaluate in January 2014, the Central Bank had some US$17 billion net, according to estimates by Empiria economist Juan Ignacio Paolicchi.

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On the other hand, 1816 highlights that of the 24 “large” emerging countries (i.e., whose Gross Domestic Product is over US$100 billion), Argentina is the one with the lowest level of net reserves as a percentage of GDP (0.5%).

The last but one on the list is Ecuador, which has reserves equivalent to 1.3% of GDP, i.e., more than twice as much as Argentina. One step above appears Turkey, with 4 percent.

“On average, the large emerging countries have 20% of net reserves over GDP (in Argentina this would mean having more than US$80 billion) and only three have less than 5% (Turkey, Ecuador, and Argentina)”, stated Consultora 1816.

In addition, the consulting firm stated: “Argentina is poorly ranked among large emerging countries when looking at stocks of public debt in the hands of non-residents. Here that number is 35% of GDP (including 9% with the IMF and 4% of the provincial debt), and we are only surpassed by Ecuador (42%). On average, the governments of emerging countries owe the rest of the world 17% of GDP”.

On the other hand, El Cronista asked Héctor Torres, former Argentine representative to the International Monetary Fund, which are the ratios on which the IMF focuses its attention when working on an agreement.

“For countries with little or unstable access to markets, the Fund mainly looks at the ratio between reserves and short-term debt and also debt over imports”, he explained.

Following the thread of reserves and negotiations with the IMF, a study by the consulting firm Analytica explained: “A substantive part of the discussion with the Fund should focus on finding the best relationship between imports of goods and services with respect to international reserves, on avoiding a drastic recession and a worsening of social indicators”.

The document specifies that imports in Argentina reach between US$6 and US$7 thousand per month because gross reserves are equivalent to six months of imports, in line with the levels reached in Fund agreements with Angola and Egypt.

But the loans are not comparable. “Angola’s refinanced loan was for US$3.7 billion, and it had US$15.4 billion in reserves at the time of signing the agreement, a ratio of 0.25. Egypt’s program, meanwhile, was US$12 billion, with reserves of US$23.6 billion, a ratio of 0.5. This ratio exceeds 1 for Argentina. Some adjustment is required”, Analytica clarifies.

With information from La Nacion