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August 31, 2021

The Week at a Glance

Argentina: Agreement With the IMF: One More Round Is Missing

BY Alejandro Giacoia, Andrés Borenstein, Miguel A. Kiguel, Lorena Giorgio, Isaías Marini

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This week, Argentine financial asset prices soared. Some say that the polls are bad for the government and that is good for the markets. Others attribute the rally to the versions that circulated in the press about an imminent agreement with the IMF. Our base scenario was always that the agreement between the IMF and Argentina was going to arrive. But it seems to us that it is not imminent. It does seem to us that there are broad outlines of the agreement already discussed in terms of a deficit reduction path and some other issues.

The Fiscal Convergence Underway

Martín Guzmán will send the Budget project to congress in two weeks, but here we preempt by estimating how 2021 will close and what 2022 will be like from a fiscal perspective. Spolier: there is improvement. From a primary deficit of 6.37% in 2020, we estimate that this year could close something below 3.5% (3.33%) of GDP that once the SDRs sent by the IMF are accounted for, it will be corrected to 2.3%, but since the SDRs do not finance spending the relevant number is 3.3%. For next year we expect the primary deficit to fall to 2.5% of GDP with an interest burden of 1.6%, so the government will have to seek financing for 4.1% of GDP plus debt repayments for USD 43 billion.

Looking at the Glass as Half Full: In 2020 National Savings Were the Highest Since 2008

We all know the story by now: the pandemic – and the eternal quarantine – hit production and workers’ income hard. During the harshest months of restrictions, people could not leave their homes except to buy essential goods, and even supermarkets limited the supply of products so as not to generate “unfair competition”. Construction works were paralyzed, industries severely limited their operations (or directly stopped completely, such as the automotive industry) and many people lost their sources of income. But those who did not, could not spend either: everything was closed and you could not leave your house. And the (partial) reopening took time.

The Only Debt That Matters: The Social One

The economic debate in the last week revolved around the size of the debt that the current administration is accumulating and those left by the previous ones. But, beyond the multiplicity of approaches that can be given to the public debt data, with a poverty that it is above 40%, the only debt that should matter is the social one. The result of having, for many years, a number of poor people above 15 million is the growing number of transfer programs, conditional or unconditional, that now is 7 times than at the beginning of the century.

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