Argentina projects 10% growth for 2021 and recognizes persistence of inflation

RIO DE JANEIRO, BRAZIL – The Argentine Minister of Economy, Martín Guzmán, ratified an economic recovery of 10% for this year and 4% in 2022.

However, he also acknowledged the “greater persistence” in the level of inflation, for which he indicated that he is seeking with international creditors “the greatest possible financing” to reduce the monetary financing of the fiscal deficit, in a context in which he is renegotiating the debt with the International Monetary Fund (IMF).

Guzmán ratified that he revised upwards the growth for this year to 10%, which is a recovery after the 9.9% fall Argentina suffered in 2020 and closed three years of recession when defending the Budget 2022 before the Budget and Finance Committee of the Chamber of Deputies.

However, the Minister did not modify the inflation forecast of 33% for 2022 that he had presented last September 15, which aroused the disbelief of the deputies present, when last October’s inflation was 52.1% per year after 29% had been budgeted for this year.

The survey of expectations carried out by the Central Bank shows 52.1% for 2022.

For 2022, Guzmán acknowledged that the inflationary dynamics “were not fully aligned” with the Budget presented last September 15 and that “this adds a factor of greater persistence to the dynamics for next year”.

Nevertheless, Guzmán said that “it is a central objective of the economic policy to attack the inflationary problem”.

The Minister indicated that inflation has “multiple causes”, which include financing the fiscal deficit through monetary issuance by the Central Bank.

Guzman indicated that the primary deficit would be reduced from 6.4% in 2020, a level reached due to the spending generated to contain the effects of the pandemic, to an estimated 3.5% in 2021.

By 2022, the Minister targeted a primary deficit of 3.3% and a fiscal deficit of 4.9% of GDP.

The financing of this fiscal deficit will be made up of funding of 1.8 % of GDP by the Central Bank, which will imply a “significant reduction” with respect to the monetary financing carried out in 2021 and 2020; 2 % of GDP in public securities, and 1.1 % of GDP from “official international creditors, because it includes bilateral ones”, said Guzmán.

“In this process of international negotiations, we are seeking greater financing from international organizations, multilateral development banks, so that we can reduce monetary issuance,” Guzmán said.

MULTIANNUAL PLAN

The 2022 Budget project was designed assuming that Argentina will reach an agreement with the IMF and, therefore, will not have to face the debt maturities with that organization next year foreseen in 2022.

Argentina has been negotiating since last year with the IMF to refinance debts that currently stand at around $43.3 billion derived from a bailout agreement signed in 2018 between the agency and the then government of conservative Mauricio Macri (2015-2019).

According to what has agreed three years ago, the South American country should pay the IMF, between capital and interest, $19.02 billion next year, $19.27 billion in 2023, and $4.856 billion in 2024.

Guzman recalled that “there is no way” that anyone can consider that Argentina “can have the capacity to amortize” the maturities with the IMF “in the terms in which they were agreed” in the 2018 standby.

The “negotiation of a nation-state with more than 190 nation-states”, Guzmán recalled, to carry out the “public policy program we want without having the conditionalities” that the debt with the IMF “has historically entailed”.

According to a law passed this year, Congress must approve the IMF program being negotiated by the government of Alberto Fernandez. At the same time, the President committed to send to Congress a “multi-year plan” associated with the IMF agreement.
The President also committed to sending to Congress a “multi-year plan” associated with the IMF agreement.