Treasury Minister Nicolás Dujovne was in New York this past weekend to assure to American investors that the Argentine government led by Mauricio Macri would maintain all the fiscal promises it made to the IMF after the US $50 billion stand-by agreement was reached.
The main concerns addressed by the American observers were related to how the Argentine government would reach an approval of the 2019 budget in Congress, and how the economy would continue next year, especially with impending presidential elections which could mean, if Cambiemos doesn’t win, that the entire economic plan is withdrawn. The IMF plans works on that way; if the deficit isn’t coming down, the deal breaks, whoever is in charge, and one could assume a Kirchnerista government wouldn’t have the deficit as their priority.
However, Néstor Kirchner for example did pay back the deal he himself did with the international organisation, thus nothing in certain at this point.
The official compromise made by Macri’s government with the IMF is to bring the primal deficit (the one coming before any payments of the debt’s interests) to 2.7 percent of the GDP, which analysts believe is possible. The most difficult step comes later, during the year after, where Argentina’s deficit needs to be under 1.3 percent of its GDP, thus meaning big cuts in government spending. The government said they would focus more on that aspect to save money rather than on increasing taxes.
“The meetings were with all of those who invested in Argentina and in emerging markets in general,” in what is a usual step with investors after a first phone conversation last Monday, a source told El Cronista.
It was the first encounter with the American investors after the agreement was struck with the IMF. The meeting was requested to ensure that Argentina would accomplish its objectives. The decision to go to the international organization for help was met with great enthusiasm, according to the sources, confirming what the Financial Times reported a couple of weeks ago: investors prefer the move to be now than in the middle of a storm, when it might have been too late.
Investors asked many questions on the political aspects of the measures: how the negotiations with provincial governors were going, what the relationship with the opposition is like, inquiring if Argentina could pass the 2019 budget – set with the IMF objectives – or not.
All these doubts are highly justified; for the next year, the government wants to cut the spending on investments to 0.6 percent of the GDP, plus reducing to 0.3 of the GDP the current transfers to the provinces, while still reducing (to 0.4 percent) subsidies.
These measures could create political conflict, like the transfer of some costs between the city of Buenos Aires and the province. “The explanation we gave to the investors was that we’re building bridges between governors and the opposition,” as they’re concerned that Cambiemos’ strategy wont’ be viable in the long term.
Investors also asked about inflation, Lebacs, and other currency policies, which Dujovne mainly avoided, commenting that it was beyond his scope, and more on the Central Bank’s hands. The Americans were also interested in the government’s opinion on the growth for next year, through these months of changes. “We showed them that during the first trimester, we had a 3 percent growth,” says the source to El Cronista, although there was the bad impact caused by the terrible drought. The government hopes for the agricultural sector to make an important comeback next year.
For 2018, the government slowed down its estimation of the GDP’s variation. A month ago, it estimated growth of 1.4 percent, but believe today that it should be closer to 0.5 percent, with possibilities of growth of 1 percent if the international situation stabilizes, or closer to 0 if the latter worsens.
After the meeting, Dujovne flew back to Buenos Aires for a meeting with the rest of his economic team, although two will be missing. Guido Sandleris (consultant coordinator) and Santiago Bausili (Finance Secretary) are in London to meet British investors.