Argentina Debt to Peak at 65 Percent of GDP
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Argentina Debt to Peak at 65 Percent of GDP
The International Monetary Fund expects Argentinaâs government debt to peak by the end of 2018 and then fall as the country cuts its deficit as part of its $50 billion deal with the fund, according to a document published on Friday.
Debt is forecast to peak at 65% of GDP before falling to 56% by 2021, the last year of its program, IMF staff wrote in a document prepared before the fundâs board approved the deal. The report had not previously been released, Reuters reported.
A run on the peso curr ency earlier this year amid a worldwide investor retreat from emerging markets and concerns about the Argentine governmentâs ability to fight inflation prompted Argentina to request a stand-by arrangement from the IMF in May.
The IMF report also lays out policies it said the government could take to reduce the deficit. Some of those were not included in Argentinaâs letter of intent last month, where it outlined the steps it would take to reduce the deficit.
IMF policies that were not in the letter include keeping soy product export taxes at an average of 25.5%, and delaying implementation of parts of last yearâs tax overhaul.
In a statement released with the report, IMF mission chief for Argentina Roberto Cardarelli said the South American countryâs economy would shrink in the second and third quarters. The report forecasts growth of 1.5% in 2019 and âaround 3%â in 2020.
Delays to Tax Reform Plan
Argentina may delay implementing elements of a tax reform passed last year to meet its fiscal deficit goals as part of a deal with the IMF, according to a government official and the fund document.
Delaying parts of the bill, such as cuts to employersâ social security contributions and a deduction for a financial transactions tax, would trim the deficit by 0.3% of gross domestic product in 2019, IMF staff wrote in a report dated June 13.
A government official who spoke on the condition of anonymity said those delays were possible if efforts to cut spending proved insufficient, but said that President Mauricio Macri had ruled out another policy laid out in the IMF documentâ"maintaining taxes on soybean exports.
âOur priority is to go the way of cutting spending,â said the official. âIf we see that we are not reaching our targets with spending cuts, then we could go more slowly with the tax reform.â
A run on the countryâs peso currency earlier this year amid a worldwide investor retreat from emerging mark ets and concerns about Buenos Airesâ ability to fight inflation prompted Argentina to request a $50 billion stand-by arrangement from the IMF in May, which the fundâs board approved on June 20.
Shortly after taking office in December 2015 after winning election on a market-friendly platform, Macri eliminated export taxes for corn and wheat and began gradually reducing them for soy products. Argentina is the worldâs top exporter of soybean meal and soybean oil and the No. 3 shipper of raw soybeans.
The IMF expects Argentinaâs government debt to peak at 65% by year-end and then fall as the country narrows its fiscal deficit.
In order to do so, the government will freeze hiring and cap public sector salaries, extend cuts to energy subsidies and delay infrastructure projects deemed non-essential.
The official said the projects that will be delayed include a $2.2 billion hydroelectric dam that would have been built by Germanyâs Vo ith GmbH, and two nuclear reactors that would have been financed 85% by Chinese institutions and 15% by Argentinaâs Treasury.
In a statement released along with the report, Cardarelli said the South American countryâs economy would shrink in the second and third quarters of 2018.
The deal also limits the central bankâs ability to intervene in the foreign exchange market by placing a floor on growth in reserves, according to the document.
Thousands of Argentines took to the streets on the nationâs independence dayâ"July 9â"to protest the governmentâs extreme austerity measures and recent IMF loan.
Marchers yelled, "The homeland will not give up" and carried signs that read: "INDEPENDENCE CAN'T BE NEGOTIATED" and "NO TO THE IMF" as they symbolically marched along Buenos Airesâ main avenueâ"9 de Julioâ"which bears the countryâs date of independence.
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