IMF Warns Argentina of Ad-Hoc FX Rates Amid 100% Inflation

(Bloomberg) — The International Monetary Fund is urging Argentina to reject unconventional monetary measures like creating multiple exchange rates at a time when inflation is expected to hit 100% by the end of this year.

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IMF Western Hemisphere director Ilan Goldfajn warned Argentine officials about “other FX action or prices or things like that.”

“We continue to believe that this is the right way to go, not taking ad hoc and one-off actions,” Goldfajn told Bloomberg News in an interview on the sidelines of the IMF’s annual meeting in Washington. “If you have them, you should do so temporarily and wind them down in the future.”

His comments come days after Argentina introduced new taxes applied to the official exchange rate for tourism abroad and some music concerts, adding to a long list of informal exchange rates.

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Read more: Argentina whips up foreign exchange rates in a desperate bid to avoid devaluation

While Argentine officials don’t believe the new measures go against the program, Goldfajn is the second IMF official to crack down on the government’s currency strategy, after Managing Director Kristalina Georgieva last week.

The IMF board last week approved an exemption for Argentina’s program over its “multi-currency practices” after the government invented a new exchange rate for soybean exporters only in September. The waiver was approved as the exchange rate was temporary.

Goldfajn also acknowledged that Argentina’s inflation outlook has deteriorated since the start of the $44 billion program in March. Economists polled by the central bank in September expect inflation to hit 100% by the end of this year.

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The fact that inflation expectations “have reached 100% is a problem that wasn’t foreseen at the outset,” Goldfajn said. Regarding the program, “we believe that if implemented well, we want inflation to slowly come down.”

Argentina’s dollar-denominated bonds have fallen to near-record lows of 20 cents per dollar, and investors have been reluctant to raise debt despite the government’s progress in meeting targets under the IMF program. The country’s $16.1 billion in bonds maturing in 2030 rose 0.1 cents to 20.1 cents against the dollar on Friday.

Goldfajn said his focus with Ecuador, another billionaire IMF borrower in Latin America, is on implementing the country’s current lending program rather than negotiating a new one, something President Guillermo Lasso has signaled he is interested in doing next year .

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When asked about El Salvador, Goldfajn said the nation is far from negotiating a program with the IMF based on tax, governance and bitcoin issues, which are “quite a challenge right now.”

More comments from Goldfajn:

IMF staff reports on Argentina

  • “This assessment also contains some forward-looking aspects. We’ll see if the budget is approved, it needs to be approved. If it is approved, that will be another sign that this is happening and we will insist and continue to insist on the implementation of the program.”

Argentina’s 2022 budget target of 2.5% of gross domestic product

(Updates with bond prices in ninth paragraph, more comments from Goldfajn)

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