Argentina failed to meet its reserve requirements, the IMF gives it more time and a mission arrives this Tuesday

Despite the difficulties in meeting the reserves target, the government expects new support from the International Monetary Fund in the meetings scheduled for this week with officials sent from Washington. According to Clarín, the officials will arrive in Buenos Aires this Tuesday to review the economic program , their first mission to the country after granting Argentina a US$20 billion loan in April.

In meetings with the delegation led by Luis Cubeddu, Economy Minister Luis Caputo and his team will present the key initiatives of reducing inflation to 1.5% in May, adjusting public accounts, and measures to accumulate reserves through debt issuance . This initiative generated "satisfaction" within the organization, but was questioned by Cristina Kirchner, who called the government "drug addicted" and warned that the model "is going to collapse" following her house arrest.

On the fiscal front, the government will report that in the first five months of the year it accumulated a primary surplus of 0.8% of GDP, above the June target with the Fund, despite the sharp drop in revenue collection in real terms. The decrease in revenue is due to the high comparison base for the income tax, but also to the reduction in corporate taxes (elimination of the PAIS tax, the reduction of tariffs and withholdings, and the reduction of the Personal Asset Tax).

Although the data show a less favorable trajectory than last year, the Ministry of the Economy has informed the public that there will be no further reductions in withholdings "until the fiscal targets are met." Meanwhile, Caputo shared on social media that Javier Milei asked them at the last cabinet meeting for an additional adjustment to achieve the fiscal surplus of 1.6% of GDP promised by the President, a more demanding guideline than the 1.3% agreed upon with the IMF.

The most subtle discussion will revolve around maintaining a "cheap dollar" scheme, which, along with debt payments, puts pressure on reserves. The Central Bank was supposed to raise US$4.7 billion to meet the target agreed upon for June 13. The agreement also provided for purchases within the bands. But since the government chose not to intervene to avoid putting pressure on inflation, the reserves target was not met, and the Fund postponed it to July to give it more leeway.

In this context, Caputo announced two weeks ago a package of measures to accumulate reserves through debt issuance: a loan with international banks (the expansion of the REPO by US$2 billion), the elimination of capital controls, and the placement of bonds with dollar subscription (US$1.5 billion) at an annual rate of between 28 and 30% , which will allow the country to cover US$4.5 billion in maturities with bondholders on July 9.

Despite the changes, analysts and experts who have served in public office believe the government will still miss the target in July and would have to request a waiver, although the Fund is likely to adopt a more lenient stance. "There are still some more financial placements needed. They'll get closer to the target, but it's difficult for them to meet it. The IMF will still be more vocal about the issue after October . They don't want to make a fuss during the pre-election period," said a former Central Bank official.

For former Finance Secretary Daniel Marx, "the first step in a mission of this type is a review of the status of the accounts in relation to the scenario envisaged in the program." "In parallel, there is an exchange of views between the IMF and local authorities on the status and outlook, including policies already implemented. Let's keep in mind that, a few weeks ago, a probable postponement of the verification of the commitments was announced," he stated.

The disbursement of US$2 billion, which was scheduled for June 15 and could now arrive in July before the board meeting, depends on the approval of the first review. " I don't think they'll block the disbursement ; with the fiscal figures and having secured the REPO and two debt placements in pesos against dollars, and the possibility of paying debt maturities, they are obtaining market financing ," said Marina Dal Poggetto, head of the consulting firm EcoGo.

In the City, they believe the government didn't touch the US$12 billion it received from the IMF and will pay off private debt with "financial dollars," but at a higher cost than if it had purchased foreign currency on the foreign exchange market. " The strategy of rebuilding reserves with debt is not sustainable in the medium term , and even with the improvement in the stock, the June review could result in a waiver by the IMF," FIEL warned in its June report.