Journal Issue

Statement by the Staff Representative on the Article IV Consultation December 18, 2017

International Monetary Fund. Western Hemisphere Dept.
Published Date:
December 2017
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This note reports on information that has become available since the staff report was issued and does not alter the thrust of the staff appraisal.

Economic outlook. A few indicators suggest the economy is losing some of the momentum achieved in Q3, in line with staff forecasts. The monthly indicator of economic activity slowed to 1.2 percent (saar) in September from 2.4 percent in August. An alternative private indicator shows no seasonally adjusted growth in October. After rising rapidly through September, consumer confidence stabilized in November. Industrial indicators have been mixed, but those for construction remain robust and formal employment growth picked up in September. The trade deficit worsened further (and more than expected by staff) in October, as imports continued to accelerate (the REER appreciated 2 percent in November compared to the previous month, and is up by about 6 percent since August).

Monetary policy. Inflation expectations for end-2018 from the BCRAs’ survey inched up by about 0.6 percentage points in December, and are now at 16.6 percent, close to staff forecast. This the announced adjustments in utility tariffs during the month (which led to a 45 percent average increase in gas prices and a 44 percent average increase in electricity tariffs). Wage growth of private sector employees was running at 28½ percent (y/y) in September.

Fiscal policy. The primary deficit of the federal government reached 2.5 percent of annual GDP in October, 0.8 percentage point less than the first ten months of 2016. In real terms, primary spending has fallen by about 1½ percent during this period, driven by lower energy subsidies. Tax revenue continued to grow robustly in November at 30 percent (y/y) (excluding one-off revenues from the tax amnesty late last year). This suggests that the federal government may close 2017 with a better-than-targeted primary fiscal deficit, although authorities could also decide to bring forward some of next year’s spending to facilitate reaching the (more ambitious) 2018 target.

FX reserves and Debt issuances. International reserves reached US$55 billion in December, mainly reflecting public debt placements. The province of Rio Negro made its first global issuance in early December, becoming the 14th province to issue in international markets since the holdout settlement in April 2016. Moody’s upgraded Argentina’s rating to B2 from B3, with stable outlook, citing the improved prospects for reforms.

Legislative progress. The Senate approved and sent to the lower house the fiscal pact, fiscal responsibility, and pension indexation reform laws, while the labor market reform bill is still under discussion. The approved indexation formula would update pensions by a weighted average of consumer prices (0.7) and wages (0.3) each quarter, instead of solely on the CPI. The tax reform and asset recovery bills are being discussed in the lower house. In turn, the lower house has approved the competition and capital markets laws, and sent them back to the Senate. The government has called for extraordinary sessions of Congress in late December to seek approval of many of these bills and of the 2018 Budget.

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