[1/2]People gather near the presidential palace during a protest as inflation hits 114 percent, hurting wages and purchasing power, with many blaming tighter policies they believe is due to the deal with the IMF, in Buenos Aires, Argentina, June 16, 2023. REUTERS/Miguel Lo Bianco/File Photo
BUENOS AIRES/LONDON, Jul 23 (Reuters) – Argentina on Monday set new, weaker trade-related exchange rates while keeping the official peso rate stable in a bid to meet expectations in its $44 billion deal with the International Monetary Fund while avoiding a politically costly devaluation.
Corn exporters will be able to sell their goods abroad at 340 pesos per US dollar, according to a government decision, a temporary tariff to support exports until August 31. That is about 27% lower than the current rate of 268 pesos per dollar, which remained unchanged.
The government will also introduce a 7.5% tax on some goods imports and a 25% levy on most services imports, with new currency rates of about 288 and 335 pesos per dollar, respectively, a government official said.
The move comes as the country faces delayed talks with the IMF on the fifth review of a $44 billion program, which was scheduled for June.
The measure is “halfway between the IMF-requested devaluation and the political order not to devalue during an election year,” said Roberto Geretto, an economist at Fundcorp.
The Argentine government is struggling with annual inflation rates above 100%, which would be exacerbated by a wider devaluation.
“The fiscal devaluation improves treasury revenues and helps save reserves,” Geretto added, but there are still “points to be resolved” in the negotiations. Both sides have said a deal is close, but an agreement has not yet been reached.
According to data from MarketAxess, the country’s foreign bonds rose as much as 1.4 cents against the dollar. The 2035 dollar bill is trading at 31.8 cents, its highest level since January 2022, though it’s still at a deeply troubling level.
An IMF spokesman said the measures announced by Argentine authorities are “positive to strengthen reserves and consolidate the path of fiscal order, fundamental variables to strengthen economic stability.”
“LARGE PACKAGE OF PAYOUTS”
Argentina faces maturities at the IMF worth some $3.4 billion between July and August, while the central bank’s net reserves are about $6.5 billion in the red.
Buenos Aires hopes to change the economic targets it agreed with the global lender and bring forward some IMF disbursements scheduled for this year as it grapples with a severe financial crisis that could exacerbate a lack of reserves.
An economy ministry source told Reuters that the payout program for the second half of 2023 has been agreed and the staff-level agreement could be sealed on Wednesday or Thursday.
Economy Minister Sergio Massa, who is running for president ahead of the August primary, said in an interview with a local TV network on Sunday that there is a “big package of payouts” under the IMF program in August and November, without providing further details.
Under the current program, the country is expected to receive $4 billion in July, more than $3.3 billion in September, and another $3.3 billion in December. These payouts are primarily intended to pay back a failed 2018 bailout.
Argentina, also facing a significant budget deficit, has taken a significant hit to its foreign exchange earnings as a severe drought has shrunk agricultural output, its main source of exports.
Reporting by Hernan Nessi and Jorgelina do Rosario, additional reporting by Walter Bianchi. Written by Anna-Catherine Brigida. Adapted by Nick Zieminski, Kim Coghill, Jacqueline Wong, Marguerita Choy, Paul Simao and Sonali Paul
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