IMF forecasts further contraction of Argentina’s economy, but lower inflation in 2024 

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By LatAm Reports Staff Writers

The International Monetary Fund (IMF) on Monday worsened its growth forecast for Argentina, a contraction of 3.5 percent in 2024, and improved that of average annual inflation to 233 percent, but warned of the risk that the recession will continue “feeding social tensions.”

The financial institution published a detailed report in which it is satisfied with the “bike” plan of ultra-liberal President Javier Milei to drastically cut state spending, but he makes some objections and calls for more tax reforms.

“Amazing progress has been made to achieve the overall fiscal balance and priority must now be given to further improving the quality of the adjustment,” said Gita Gopinath, the number two of the IMF, after the agency’s executive board approved Thursday the eighth review of the credit agreement agreed with the South American country.

This approval allowed for an immediate disbursement of about $800 million.

“There should be continued efforts to reform the income tax” of individuals, “rationalize subsidies and tax expenses and strengthen controls on public spending,” he adds in a statement published Monday, in which he believes that “dee deeper reforms of tax, pension and income-sharing systems will be needed.”

In addition, in his view “monetary and exchange rate policies must evolve to continue to strengthen the disinflation process and further improve the coverage of monetary reserves.”

In the latest update, the growth data for Gross Domestic Product (GDP) for this year worsens, from -2.75 % forecast in April to -3.5 %. But a trend change is expected during the second half, “as the winds are attenuated against fiscal consolidation, real wages begin to recover and investment is gradually recovered.”

Overall, the Fund is satisfied with the evolution of the economy and inflation.

The average annual price increase forecast is from almost 250 per cent to 232.8 per cent, according to the latest report.

Monthly inflation drops by up to 4 per cent and will decrease “even more in the medium term,” says the IMF. And it expects reserves to remain unchanged.

“Social consensus”

The risks of the credit program under which the South American country receives $44 billion to 30 months in exchange for an increase in its international reserves and reduces the fiscal deficit, “have moderated, but remain high,” the Fund warns.

The IMF believes that Milei’s government has “strongly removed the economy from a total crisis and hyperinflation” but the picture is not without risks.

External conditions can become less favourable and “the recession could drag on, fuelling social tensions and complicating the implementation of the program,” he warns.

Milei won Senate approval last week, by a narrow margin, to a package of controversial reforms, but will still have to pass the filter in the lower house.

The IMF is concerned that further legislative delays will occur “because they could undermine stabilization and recovery efforts,” but believes that “social consensus” should be sought given “the fragile social and political landscape.”

Half of the population lives in poverty, thousands of people lost their jobs and inflation eat the pensions and purchasing power of households.

This article has been translated after first appearing in Diario El Mundo