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Argentina has implemented a new economic plan med at restoring confidence in the country's financial markets and alleviating pressures on its ability to manage bills, backed by a $50 billion Stand-By Arrangement from the International Monetary Fund IMF. The program seeks not only to stabilize the economy but also to foster growth that benefits all sectors.
Roberto Cardarelli, head of the IMF mission for Argentina, provides insight into the key aspects of this plan:
Why Did Argentina Turn to the IMF?
In mid-May, a series of economic shocks and vulnerabilities triggered concerns in financial markets. This led to significant capital outflows from the country, increased sovereign risk premiums, and a shortage of short-term liquidity. The government faced difficulties financing its commitments for the remnder of the year.
What Does the Plan m To Accomplish?
The plan targets restoring market confidence and gradually easing pressures on Argentina's debt management capacity by curtling public sping, lowering borrowing levels, stabilizing public debt trs, reinforcing the central bank's indepence in setting monetary policy, and mntning flexible exchange rates. The overarching goal is to establish conditions for a sustnable recovery that benefits all Argentinians.
Reducing Fiscal Deficits
The mn objective of Argentina's economic program is achieving a primary balance by 2020 - balancing revenues with expenses without including interest payments on debt.
To accomplish this, the government plans to cut non-interest public sping. This includes decreasing subsidies for energy, reducing civil service salaries, and limiting transfers to provincial governments and state-owned enterprises SOEs. The strategy also involves curtling previously announced tax cuts.
Protecting Vulnerable Populations
The plan seeks to shield Argentina's most vulnerable citizens from negative impacts by safeguarding certn social programs that reach a large portion of the poor. For instance, it guarantees minimum sping on conditional cash transfers and allows for budgetary adjustments in case the economy deteriorates further.
Strengthening Monetary Policy
The Argentine Central Bank commits to inflation targeting with flexible exchange rates as part of its new policy framework. The government plans several measures, such as introducing a revised path for inflation targets e.g., adjusting the target from 5 to a higher rate and ensuring that these targets are met consistently.
Recovery Timeline
In response to significant agricultural production disruptions caused by droughts and economic uncertnties following the market turmoil, Argentina's economy is expected to experience negative growth in both Q2 and Q3 of 2018. However, growth stabilization is anticipated by Q4.
The IMF expects a gradual recovery beginning in 2019 and continuing through 2020 as confidence grows, the cost of capital falls alongside inflation, exports expand due to strong growth in Argentina's key trading partners Brazil, USA, and China, and social stability improves.
How Has Argentina Changed Since Before?
The current situation contrasts with that preceding Argentina’s recession from the early 2000s. With a floating exchange rate regime replacing a fixed one, banks and private sectors operate without foreign currency debt risks. Business-frily reforms have also helped drive solid growth over the past seven quarters.
The IMF has adapted its approach as well by incorporating measures to strengthen social safety nets and increase women's labor force participation in its support for Argentina's plan. Recognizing the importance of these actions, both for ethical reasons and their crucial role in securing acceptance among all stakeholders for economic stability plans.
This article is reproduced from: https://www.imf.org/en/News/Articles/2018/06/29/na062918-argentinas-economic-recovery-8-answers-to-explain-the-plan
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IMF Support for Argentinas Economy Economic Recovery Plan in Argentina Fiscal Deficits Reduction Strategy Strengthening Central Bank Independence Flexibility in Monetary Policy Adjustment Protecting Vulnerable Populations in Crisis