Argentina: How to blame the IMF

The original Argentina-IMF program agreed in 2018 with the Macri administration is coming under growing scrutiny as a replacement arrangement is being negotiated once more. Last week, legislators sent a letter to IMF Managing Director Georgieva to complain about the Fund’s involvement with Argentina, apparently broken into 31 different points

In particular, Senators are suggesting the Fund broke the Article VI of the IMF’s Articles of Agreement in the original program, under pressure from Macri via the Trump administration, and that as a result the Fund should accept responsibility for the failure—including by setting no conditionality in the program under negotiation.

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The balance of payments of the European Commission

THE EUROPEAN COMMISSION sits as non-resident to the euroarea in the convention of EU balance of payments (BOP) accounting, and has its own BOP published by Eurostat. Transactions between the euroarea and the Commission as part of the EU Budget or due to occasional EU borrowing operations, therefore, registers in their respective balance of payments. And this matters for forecasting the euroarea current account in the period ahead—a concept not yet grasped by either the IMF or, as today, the European Commission.

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A note on public debt sustainability under secular stagnation

A quick note on public debt sustainability in a world where i < g defined here as secular stagnation. There are a number of observations here relative to standard analysis when i > g.

For example, the primary balance does not depend on the bequeathed public debt stock at all, only on the future stock. So, there is no need to worry about stabilizing the backward-looking stock. Instead the focus should be the sustainable stock at some point in the unknown future when secular stagnation comes to an end.

In addition, it is possible to redefine public debt sustainability during secular stagnation as depending on the ratio of possible needed primary balance adjustment to the change in average interest rate on debt expected during normalisation.

I don’t have time to work on this properly, so if anyone wants to recycle this to influence the debate on fiscal policy, feel free.

Revised version posted 4th Nov 2020.

Don’t believe the WEO

ITS USEFUL to be reminded once again of the flaws that underpin the IMF’s World Economic Outlook (WEO) publication—as well as the fact that the Fund continues to fail to pursue her global multilateral surveillance responsibilities. Indeed, last week’s WEO provides yet more ammunition for those who claim the Fund peddles style and not substance, lacks an analytical basis for meeting her obligations.

But first the good news. This blog noted in a belligerent style how the April WEO assumed the global current account moved from a surplus “discrepancy” of USD375BN in 2019 to deficit of nearly USD375BN. The discrepancy itself is a puzzle that we need not solve here. But that doesn’t mean it can be assumed away. 

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Argentina in the WEO: Hold your nose and look away. Again.

YOU CAN change the mission chief, but you can’t stop the bullshit. That ought to be the IMF’s motto. 

While numerous crucial macro variables of concern for international investors have been purposefully suppressed in the IMF’s WEO database relating to Argentina, presumably to spare various blushes, there is enough there for us to smell the nonsense that the international monetary system—whatever that is—will be expected to swallow in the next 3 months as a new program is negotiated. 

Continue reading “Argentina in the WEO: Hold your nose and look away. Again.”

Argentina and the Fund: Time for a “Hail Mary” pass?

PDF version with annex.

It’s fair to say that the macroeconomic stabilization of Argentina, first during the Macri administration, including on the IMF’s watch, and now under President Fernandez, has failed. 

There have been many mistakes over many years on the way to this outcome—indeed, too many to recall here—as well as some bad luck. Rather than relive these mistakes, including the recent failure of the debt exchange to bring about macro-financial stabilization, we might ask instead what policy options are now available. What policies should the authorities and international community pursue to stabilize the Argentine economy in a time of COVID? 

In short: it’s time for a “Hail Mary” pass. And four features of the macroeconomic situation provide necessary background to this unlikely intervention.

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Are reserve managers gaming the Eurosystem?

European Central Bank (ECB) non-monetary policy meetings are understandably less interesting than their monetary policy counterparts—there’s seldom much to whet the appetite amongst the various technical Decisions on swap lines, audit results, and feasibility reports. And there’s no press conference. 

Glancing through the output from these non-monetary meetings is like rubbing sandpaper into one’s eyes. 

Not so in today’s summary of non-monetary Decisions taken in August and September, which indeed offers something a little different. 

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BCRA balance sheet update

It’s now roughly 4 months since we last lamented here the continuing monetary madness in Argentina and the failure of the authorities to address the sustainability of monetary policy as part of the debt restructuring negotiation. The restructuring is over, but the monetary mayhem continues.

In May we constructed a forecast of BCRA balance sheet liabilities through end-2020. At that time BCRA liabilities were expected to reach ARS5 trillion in the first week of October, with YoY growth in liabilities reaching 100% shortly thereafter. 

Where are we today compared to the forecast then? 

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The ECB: Inflation and the euro

The ECB’s policy meeting last week received scrutiny for the apparent lack of activism given the weak August core inflation print (0.4%YoY, the lowest on record) and recent euro strength. Indeed, the FT’s editorial board lamented “the ECB’s lukewarm euro intervention.”

There were two key issues to confront in last week’s meeting, therefore. The first was what to do about the euro. The second how to interpret the August inflation print. Let’s go through each in turn.

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Greece: Macro management and COVID-19

Greece has been a clear winner in the painful game of watching the COVID-19 health emergency unfold.

Learning quickly from Italy, Greece locked down early and effectively to contain the virus. When the ECB unveiled the Pandemic Emergency Purchase Program (PEPP) on March 18, restrictions on the purchase of Greek assets by the ECB were lifted for the first time, making the small universe of GGBs available for Bank of Greece (BOG) purchases at last. And now the European Union’s (EU’s) EU Budget and Recovery fund (Next Generation EU, NGEU) looks set to make Greece one of the biggest winners in terms of access to grants and loans over the recovery period ahead. Continue reading “Greece: Macro management and COVID-19”