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November 20, 2020

Econviews Monthly

Argentina: High Hopes on an IMF Program, But the Task Ain’t Easy

BY Miguel A. Kiguel, Andrés Borenstein, Lorena Giorgio, Mariela Díaz Romero, Rafael Aguilar, Isaías Marini

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( 2 mins)

• The Government was successful in lowering the FX spread from a peak of nearly 150% in mid-October to 85% by early November. To do this, it relied on selling dollar bonds at 16-17% yields as well as auctioning dollar-linked instruments to provide devaluation coverage. The government also made a twist to more orthodox policies, indicating it will cut social spending including pensions. In the last days, the parallel dollar heated up again, jumping above 160 ARS, with a spread above 100%.

• Increased restrictions on imports and a calmer FX markets allowed the Central Bank to buy back reserves in the first half of November, although with high volatility in its interventions. Yet, in net terms international reserves have kept falling this month. On 12 November, the CB hiked key rates, after October’s surprise inflation print of 3.76%.

• Joe Biden was elected as president of the United States. The result is unlikely to weigh in the negotiations with the IMF, but Argentina could benefit from a weaker dollar and a rise in commodity prices.

• September posted positive results in term of economic activity, with strong performances from Construction and Industry. In October, preliminary data suggests the recovery lost momentum, but has not backtracked. In early November, the Government officially lifted the lockdown in Buenos Aires.

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