Argentina Seeking to Change IMF Reserve Target

Argentina is looking to change its IMF Net Reserve Target for a third time

Argentina has been in discussions with the International Monetary Fund regarding a new program to address growing economic challenges in the country. In meetings last month, Argentine government officials sought to lower a target for net reserve accumulation as it continues to face high inflation and a large debt burden.

The country’s central bank, BCRA, previously agreed to a net reserve accumulation target of US$7.8bn (CA$10.6bn) for Q1 2023. This goal is critical to maintaining a healthy level of international reserves and supporting the country's economic stability.

International reserves have been impacted by payments of US$4.7bn (CA$6.4) so far this year to the International Monetary Fund (IMF) and other multilateral and private bondholders. The BCRA has been selling in the FX market to cover payments coming due, such as a US$292m (CA$397) payment for a US$1.3bn (CA$1.7) LNG purchase.

Although a treasury debt auction raised AR$416bn (US$2.15bn/CA$2.92bn) last month, debt maturities continue to accumulate with an average of US$11bn maturing each month after March.

Inflation was higher than expected in January, driven by hikes in public utility tariffs, seasonally higher tourism costs, and food and beverage prices. CPI rose 6% m/m and 98.8% y/y, higher than the 5.6% m/m projected by the BCRA. The government now expects its 3% monthly inflation target to be reached by the end of 2023. 

The BCRA has to increase its reserves by more than US$6bn (CA$8.2bn) by the end of March to meet its IMF goal. This raises the likelihood of new measures being put into place to tackle the economic issues.

Argentina and Brazil Joint Currency 

Brazil and Argentina are reportedly preparing to launch a joint currency. The countries' leaders, Brazil's president Luiz Inácio Lula da Silva and Argentine leader Alberto Fernández, both support the idea of a common currency as a way to boost trade in South America.

Despite the possibility of a euro-like project, it remains likely that the IMF will need to lower Argentina’s Q1 international reserves target for a third time.

Our Advice

With the decrease in reserves, we anticipate that it may lead to stricter currency controls or at least the maintenance of current controls for the near future.

Overall, the situation in Argentina remains challenging and the success of the government’s efforts to address the issues remains uncertain. 

As always, we will continue to monitor the situation closely and keep you updated on any further developments. We understand the importance of having a stable currency and will work closely with our clients to ensure their needs are met in this challenging environment.

If your company is trying to repatriate pesos in Argentina, we recommend you consider your available options now because FX restrictions may become more severe in the future. 

The future is uncertain which is why it is beneficial to work with a broker that has experience in Argentine peso solutions.

Please do not hesitate to reach out to us if you have any questions or concerns. Call us at +1 604.643.0101 or email cashgroup@cgf.com.