Argentina - 2021 - Bundle SR - SEC - 61C3ABF200012CD53F400003

IMF Country Report No.
[21/XX]
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EX POST EVALUATION OF EXCEPTIONAL ACCESS
December 2021
UNDER THE 2018 STAND-BY ARRANGEMENT—
PRESS RELEASE AND STAFF REPORT
The following documents have been released and are included in this package:
 A Press Release summarizing the views of the Executive Board as expressed during its
December 22, 2021 consideration of the staff report.
 The Ex-Post Evaluation of Exceptional Access Under the 2018 Stand-By

Arrangement prepared by a staff team of the IMF for the Executive Board’s
consideration on December 22, 2021. The staff report was completed on
December 8, 2021.
The IMF’s transparency policy allows for the deletion of market-sensitive information and
premature disclosure of the authorities’ policy intentions in published staff reports and
other documents.
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© 2021 International Monetary Fund

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EX-POST EVALUATION OF EXCEPTIONAL ACCESS UNDER THE
December 8, 2021
2018 STAND-BY ARRANGEMENT
EXECUTIVE SUMMARY
On June 20, 2018, the Executive Board approved the largest stand-by arrangement
in the Fund’s history, in support of Argentina’s 2018-21 economic program. After an
augmentation in October 2018, access under the arrangement amounted to US$57 billion
(1,227 percent of Argentina’s IMF quota). The program saw only four of the planned
twelve reviews completed, and did not fulfil the objectives of restoring confidence in fiscal
and external viability while fostering economic growth. The arrangement was canceled on
July 24, 2020.
The government elected in late 2015 rapidly opened the capital account and
borrowed abroad, while adopting a gradual approach to addressing economic
imbalances—particularly fiscal deficits—setting the stage for a sudden stop and the
SBA request. Upon assuming office, the government sought to strengthen relations with
the international financial community, including the Fund. Capital inflows to Argentina—
mainly portfolio flows—surged after its capital account was reopened. Meanwhile,
macroeconomic imbalances and structural distortions persisted. The government relied on
external borrowing to finance public deficits, in support of a deliberate choice of policy
“gradualism” designed to limit adverse effects of fiscal consolidation. By early 2018,
Argentina, like other EMs, was experiencing more challenging external conditions,
resulting in the government announcement in May 2018 that it would seek IMF financial
support.
The program was designed to deal with a temporary liquidity shock by catalyzing
renewed capital inflows. The strategy, underpinned by the large financial support from
the Fund, centered on fiscal and monetary tightening combined with targeted structural
reforms. The program also included specific measures to support vulnerable segments of
the population and to address gender inequality.
Government ownership was given high priority and, with that, potentially critical
measures—notably a debt operation and reintroduction of capital flow management
measures—were ruled out from the beginning. The complicated history of Argentina’s
relations with the Fund and the government’s perception of limited political space in the
run-up to the general elections in October 2019 severely constrained fiscal and structural
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policy choices. The IMF accepted the authorities’ preferred macroeconomic projections, which
proved too optimistic; assessments of exceptional access criteria were finely balanced; and fiscal
consolidation was low quality and structural reforms unaspiring. Importantly, the authorities ruled
out a debt operation and reintroduction of capital flow management measures, and there was no
“Plan B” agreed with the authorities upfront.
The SBA represented substantial financial risks to the IMF, which increased with the enlarged
and more frontloaded access approved at the First Review. With the exception of the
disbursement at approval, the 2018 SBA was conceived as precautionary. Early disbursements were
very large, owing to the overall size of the arrangement. Deteriorating financial conditions quickly
prompted a switch to a fully disbursing arrangement. The resulting increase in access and
frontloading incorporated at the First Review raised further the financial risks to the Fund.
Ultimately, the program’s strategy proved too fragile for the deep-seated structural
challenges and the political realities of Argentina. The fundamental problem was lack of
confidence in fiscal and external sustainability. Weak public finances with rigid budgets and revenue
sharing arrangements, high dollarization, feeble monetary policy transmission, a small domestic
financial sector, and a narrow export base limited the economic policy options available in the short
run. Standard consolidation measures were likely to be problematic—currency mismatches implied a
vicious circle by which fiscal and monetary tightening had the potential to lower growth, raise risk
premia and weaken the currency, worsening balance sheet positions and putting viability further out
of reach. The authorities’ redlines added to the constraints on policies. Moreover, truly restoring
confidence would have required not only improving public finances, expanding the export base, and
addressing other structural challenges, but also showing that the reforms to these ends would be
durable—a complex challenge given Argentina’s history and political economy.
As a result, the program did not succeed in improving confidence and delivering on its
objectives. Despite the size of the arrangement, Argentina had to borrow considerable amounts in
the markets—with little burden sharing and without a debt operation, it met rollovers at increasingly
shorter maturities and higher interest rates until market access was lost in August 2019. Mounting
redemptions, along with capital flight by residents, put considerable pressure on the exchange rate.
Despite FX interventions beyond program provisions, the exchange rate continued to depreciate,
increasing inflation and the peso value of public debt, and weakening real incomes, especially of the
poor. Consequently, the program’s growth and inflation objectives were missed.
Steps could have been taken to increase the program’s chance of success. The program was
well understood to be high-risk—from the beginning, public debt was assessed to be “sustainable
but not with high probability.” Given this assessment, an early debt operation, combined with
reintroduction of capital flow management measures, could have delivered a more robust program.
And more consistent communication by the authorities could have boosted the catalytic effect.
Instead of the decade-long hiatus ahead of the program, maintaining closer collaboration between
Argentina and the Fund—a two-way street, requiring stronger engagement by the country
authorities—could have helped better align analysis and communication. Finally, greater burden
2 INTERNATIONAL MONETARY FUND

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sharing with other official creditors could have, besides providing additional financing, signaled
broader support from the international community, both of which could have supported confidence.
The experience with Argentina’s 2018 SBA highlights lessons from earlier Fund-supported
programs, but also points to new lessons. In hindsight, general lessons include the importance of:
i. Ensuring robustness of the program by using conservative yet plausible baseline assumptions
and testing the sensitivity to alternative assumptions and explanations of the crisis. The aim
would be to make programs more robust to possible exogenous shocks and forecast errors,
given the high levels of uncertainty prevalent in crises. Programs also need to guard against
assumptions of unrealistic returns from reforms, especially when the political environment
is uncertain. In some cases, agreement on contingency plans from the outset is warranted.
ii. Tailoring the program to country circumstances, even if that means embracing
unconventional measures when the policy space offered by traditional policies is limited.
Unconventional policies may be called for when circumstances are not “textbook,” as is the
case in many emerging market contexts. For instance, the Argentina program might have
been more solid had it featured capital flow management measures.
iii. Sharpening the application of the Exceptional Access Framework (EAF). Exceptional access
cases inevitably involve technical judgments, especially given the elevated uncertainties and
rapidly shifting sentiment characterizing crisis environments. This is particularly so for the
assessment of a country’s access to capital markets, notably in the context of the
assessment of debt sustainability, and a government’s political and institutional capacity to
implement programs. The experience of the 2018 SBA highlights the importance of laying
out the analysis and risks underlying key judgments as fully as possible when applying the
EAF.
iv. Carefully balancing ownership against the quality and appropriateness of program policies
and risks to the Fund’s reputation. Ownership of a Fund-supported program by the
authorities is crucial for its success, but the Fund should nevertheless question policy
“redlines” that could compromise program objectives. This would, in some cases, require
efforts to expand the political space so as to encompass a wider range of policy options. In
particular, ownership should be understood in a broader societal sense, especially when a
government has fragile political support.
v. Ensuring effective external communication, so that a program is well understood by the

population and in financial markets and has the intended catalytic effect. Country authorities
need to play the central role in communicating their Fund-supported program. This calls for
a shared understanding facilitated by close policy dialogue with the Fund in normal times.
vi. Revisiting the Fund’s internal processes for assessment and mitigation of broader risks
associated with large-scale Fund arrangements. The goal would be to bring sufficient
information to the Board to facilitate a robust discussion of program assumptions and
INTERNATIONAL MONETARY FUND 3

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alternative policy strategies in response to shocks, before a program is approved. Especially

for high-risk programs, agreement with country authorities on contingency plans that
define triggers and actions in the event of a shock that could derail a program would be
imperative.
vii. Considering the broader implications for the Fund’s role in the global financial safety net,
including burden sharing with other IFIs and private creditors. Being the largest creditor to a
relatively large country is both exceptionally risky to the Fund and potentially self-defeating
to the purpose of catalyzing a return to market access. The Fund therefore needs to take a
stand on burden sharing when entering into exceptional access arrangements, a
consideration that raises important questions on when the Fund should be prepared to
“pull the plug” on programs whose objectives can no longer realistically be met within the
existing financing envelope or not enter into new programs.

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Authorized for Prepared by an interdepartmental team consisting of

distribution by Odd Per Brekk (lead, APD), Juliana Araujo (SPR),
WHD and SPR Olivier Basdevant (FAD), Henrique Chociay (FIN),
Gunes Kamber (MCM), Frederic Lambert (WHD), Nan Li (RES),
and Alasdair Scott (APD). Agnes Isnawangsih (APD),
Alice Mugnier, and Adriana Veras (WHD) assisted in the
production of the report.
CONTENTS
Acronyms _________________________________________________________________________________________ 7
INTRODUCTION __________________________________________________________________________________ 8
PROGRAM STRATEGY: OVERVIEW ______________________________________________________________ 8
PROGRAM DESIGN ISSUES AND OUTCOMES ________________________________________________ 16

A. Timeline: Program Approval and Reviews ____________________________________________________ 16
B. External Communication______________________________________________________________________ 18
C. Macroeconomic Targets, Projections and Outcomes _________________________________________ 19
D. Fiscal Policy___________________________________________________________________________________ 27
E. Monetary and Exchange Rate Policy __________________________________________________________ 32
F. Social Protection and Gender Policies ________________________________________________________ 38
G. Structural Policies, Financial Sector Reform, and Governance ________________________________ 40
CONSISTENCY WITH FUND POLICIES AND PROCEDURES ___________________________________ 43

A. Financing _____________________________________________________________________________________ 43
B. Application of the Exceptional Access Framework ____________________________________________ 47
C. Risks to the Fund _____________________________________________________________________________ 55
D. Lending Into Arrears _________________________________________________________________________ 58
E. Technical Program Design ____________________________________________________________________ 58
ASSESSMENT ___________________________________________________________________________________ 59
A. Did the IMF Diagnose the Problem Correctly? _______________________________________________ 60
B. Was the Program Well Designed? ____________________________________________________________ 61
C. Why Was the Program Not Successful? ______________________________________________________ 62
D. What Could Have Been Done to Improve the Program? _____________________________________ 62
E. Were Fund Procedures Followed Properly? ___________________________________________________ 64

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GENERAL LESSONS ____________________________________________________________________________ 65

References ______________________________________________________________________________________ 94
BOXES
1. Inflation Dynamics ____________________________________________________________________________ 22
2. FX Intervention Under the 2018 SBA _________________________________________________________ 35
3. Vulnerabilities Arising from LEBACs __________________________________________________________ 36
4. Pension Reform_______________________________________________________________________________ 40
5. Structural Conditionality Under the 2018 SBA ________________________________________________ 41
6. Market Access During the 2018 SBA _________________________________________________________ 51
FIGURES
1. Comparison of Actual and Projected Scenarios ______________________________________________ 26
2. Actual, Baseline and Adverse Scenarios ______________________________________________________ 27
3. Debt Indicators _______________________________________________________________________________ 50
4. Public Debt Issuances ________________________________________________________________________ 52
ANNEXES
I. History of Fund-Supported Programs _________________________________________________________ 68
II. Debt Sustainability Analysis Heat Maps During the 2018 SBA ________________________________ 69
III. Application of Exceptional Access Framework under 2018 SBA______________________________ 70
IV. Performance Criteria under the 2018 SBA ___________________________________________________ 75
V. Structural Benchmarks Under the 2018 SBA__________________________________________________ 77
APPENDICES
I. Economic Developments Leading Up to the Request for the 2018 SBA ______________________ 78
II. The IMF and Argentina, 1991–2001—Summary of IEO Evaluation Report____________________ 84
III. 2003 Stand-By Arrangements—Summary of Ex-Post Assessment and Ex-Post Evaluation __ 89
IV. The Authorities’ Views on the Ex-Post Evaluation of Exceptional Access Under the 2018
Stand-by Arrangement__________________________________________________________________________ 97

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Acronyms
The following acronyms are used in the text and defined here.
AML-CFT Anti-Money Laundering/Combating the Financing of Terrorism

ARA Assessing Reserve Adequacy
AREAER Annual Report on Exchange Arrangements and Exchange Restrictions
BCRA Banco Central de la República Argentina
BoP Balance of Payments
CAC Collective Action Clause
CFM Capital Flow Management Measure
CGFN Cumulative Gross Financing Needs
DSA Debt Sustainability Analysis
EAC Exceptional Access Criteria
EAF Exceptional Access Framework
EFF Extended Fund Facility
EM Emerging Market
EMBIG Emerging Market Bond Index Global
EPA Ex-Post Assessment
EPE Ex-Post Evaluation
FX Foreign Exchange
FXI Foreign Exchange Intervention
GRA General Resources Account
ICC Inflation Consultation Clause
IEO Independent Evaluation Office
IFI International Financial Institution
IMF International Monetary Fund
IT Inflation targeting
LEBAC Letras del Banco Central
LECAP Letras Capitalizables
LELIQ Letras de Liquidez
LETES Letras del Tesoro de la Nación
LIA Lending Into Arrears
MEFP Memorandum of Economic and Financial Policies
NDA Net Domestic Assets
NIR Net International Reserves
ORM Office of Risk Management
PFM Public Financial Management
PRGT Poverty Reduction and Growth Trust
SBA Stand-By Arrangement
SDR Special Drawing Right
TA Technical Assistance

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INTRODUCTION
1. This report reviews Argentina’s 2018–21 Fund-supported program against its
objectives and applicable Fund policies.
• The Stand-By Arrangement (SBA) supporting the program was approved by the
IMF’s Executive Board in June 2018, with the final purchase to become available in June 2021.
The SBA was augmented in October 2018, providing Argentina with access to Fund financing of
SDR 41 billion (equivalent to US$57 billion, or 1,277 percent of quota), the largest disbursing
arrangement in Fund history. Implementation of the program went off track in August 2019,
after only four out of the twelve planned reviews had been completed and with SDR 32 billion
(currently US$45 billion) disbursed. The arrangement was cancelled by the authorities in July
2020.
• As required in exceptional access cases, this Ex-Post Evaluation (i) reviews performance against
original program objectives; (ii) discusses whether the program design was appropriate; and
(iii) assesses whether the program was consistent with Fund policies. The report reviews the
experience under the program from its adoption in June 2018 through to its effective
suspension. It examines weaknesses and vulnerabilities of the Argentine economy, objectives
and policies under the program, the balance of financing and adjustment, and the justifications
for exceptional access. 1 0F
2. The report proceeds as follows. After describing the program’s goals and strategy, the
report analyzes in detail program outcomes and design issues. It then evaluates whether the
program was consistent with IMF policies and procedures. The penultimate section contains an
overall assessment of the program, while the final section suggests lessons of general relevance.
Appendices provide a detailed account of economic developments and policies leading up to the
program request (Appendix I), summarize the 2004 Independent Evaluation Office report (Appendix
II) and the 2006 Ex-Post Assessment and Ex-Post Evaluation on Argentina (Appendix III), and present
the authorities’ views on the EPE staff team’s assessments (Appendix IV).
PROGRAM STRATEGY: OVERVIEW

The program supported by the SBA aimed to galvanize investor confidence, on the assumption that
Argentina was facing a temporary liquidity crunch. To that end, fiscal and monetary policy would be
tightened to demonstrate commitment to eliminating underlying imbalances, and substantial
financing would be provided by the IMF. Considerable emphasis was placed on the administration’s
1 In line with the Guidance Note on Ex-Post Evaluations, the report does not review the decision-making process and
the roles of management, staff, and the Board of the IMF, this being the more appropriate role for the
Independent Evaluation Office. See Ex Post Evaluation of Exceptional Access Arrangements—Revised Guidance Note
(February 25, 2010).

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ownership of program policies, with explicit provisions made for social protection. The program was
considered risky from the outset, but contingency plans were not incorporated into the program
upfront.
3. Policy decisions and economic imbalances set the stage for a “sudden stop” in the
spring of 2018. (Appendix I provides an overview of economic developments and policies from
2015 through to the program request.) Capital inflows to Argentina—notably in the form of
portfolio debt flows—surged after its capital account was reopened at the end of 2015, boosted also
by easy global financial conditions. Meanwhile, the government pursued a deliberate policy of fiscal
“gradualism” in an attempt to limit adverse effects of consolidation, notwithstanding some progress
in cutting subsidies. Structural distortions remained. The authorities aimed to lower inflation under a
nascent inflation targeting regime, despite persistent fiscal deficits, extensive dollarization, weak
monetary transmission, and unanchored inflation expectations. Sovereign borrowing steadily
increased to finance fiscal and external deficits. By early 2018, Argentina, like other emerging market
economies, was experiencing more challenging external conditions. With foreign investors already
concerned about sovereign debt sustainability, a tipping point seems to have been the
implementation of a tax on financial assets in April 2018, which caused a sell-off, firstly of central
bank bills (LEBACs) that had been the object of a profitable carry trade, then spreading to a more
general run on Argentine assets. Facing a sharp exchange rate depreciation and rapidly worsening
access to external financing, the government announced in May 2018 that Argentina would seek an
IMF arrangement.
4. The program aimed to restore confidence, reduce balance of payments and fiscal
imbalances, bring down inflation, and protect society’s most vulnerable. 2 Restoring confidence
1F
would, in turn, allow time to return to dealing with longer-term challenges facing the Argentine
economy. Specifically,
• To restore market confidence, the goal was to lessen short-term government financing needs
substantially by providing Fund support to Argentina and putting public debt on a firm
downward trajectory. The target in the program adopted in June 2018 was to reduce the federal
government primary deficit from 3.8 percent of GDP in 2017 to 1.3 percent in 2019, and to
achieve primary balance by 2020. After the First Review in October, more ambitious fiscal
adjustment targets were adopted, aiming for primary balance already in 2019 and a surplus by
2020. (See paragraphs 11, 16, and 19–24 below for more details on fiscal policy.)
• To protect the most vulnerable, the program sought to strengthen the social safety net through
redesigned assistance programs and also featured measures to increase female labor force
participation. On the former, the level of social spending was protected through program
conditionality in the form of spending floors and measures to support more effective and better
targeted social safety nets (¶32–35). The latter included the elimination of tax disincentives and
improvement in state-provided childcare.
2
IMF Press Release 18/245 and IMF (2018a).

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• To strengthen monetary policy, the program called for institutional and operational
independence of the central bank and a flexible exchange rate, to underpin the formal inflation
targeting framework. The goal was to achieve single-digit inflation by the end of the three-year
program. Plans to strengthen the balance sheet of the central bank were also laid out. After the
First Review, formal inflation targeting was replaced by monetary base targeting, to provide a
simpler and more easily communicated anchor. Monetary base targeting was initially combined
with a commitment on short-term policy interest rates, which were not to fall below 60 percent
until inflation expectations had clearly declined. The rules on foreign exchange intervention (FXI)
were adapted to provide more clarity on FXI and limit the scope for ad hoc interventions
(¶11, 15, 25–31).
• To mitigate risks to the balance of payments, the central bank would rebuild foreign exchange
reserves so as to have sufficient precautionary foreign currency liquidity (¶16).
• In comparison to other programs, the program included relatively few undertakings relating to
structural reforms and the financial sector (¶36–38).
5. Argentina's complicated history with the IMF motivated a strong emphasis on

government ownership in the design of program policies. Considerable deference was given by
the Fund to the authorities’ views on macroeconomic prospects and policies.
• The relationship between Argentina and the IMF had often been contentious (Appendices II and
III). Prior to the 2018 SBA, Argentina had 21 programs supported by IMF arrangements,
increasing in size over time, but only a few of these arrangements were fully disbursed (Annex I).
Relations were distant for a decade from 2006—the authorities did not consult with the
IMF Arrangements with Argentina

(Percent of quota)
1,400 1,400
Disbursed Approved
1,200 1,200
1,000 1,000
800 800
600 600
400 400
200 200
0 0
SBA (1958)
SBA (1959)
SBA (1960)
SBA (1961)
SBA (1962)
SBA (1967)
SBA (1968)
SBA (1976)
SBA (1977)
SBA (1983)
SBA (1984)
SBA (1987)
SBA (1989)
SBA (1991)
SBA (1996)
SBA (2000)
SBA (2018)
EFF (1992)
EFF (1998)
SBA (Sep 2003)

SBA (Jan 2003)

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Fund under Article IV until 2016; Fund support for capacity development was minimal; in 2011,
the Executive Board of the Fund found Argentina to be in breach of its obligations under Article
VIII of the Articles of Agreement due to provision of inaccurate data; and the Fund's resident
representative office was closed in 2013 (and reopened only in 2018). The image of the IMF in
Argentina suffered from program involvement during the country's earlier economic crises,
starting with the first IMF arrangement in 1958. This history limited the opportunities for the
Fund to work with the authorities in analyzing economic developments and policy options, to
engage with the Argentine public, and to address negative perceptions.
• Mindful of the public backlash that had accompanied previous programs, the Fund stressed the
administration’s ownership of the 2018 program, the message being that the government had
requested IMF support to implement its own policy plans to address longstanding
macroeconomic vulnerabilities, make debt sustainable, reduce inflation, and boost growth. 3 The 2F
program’s conditions to safeguard spending on social protection were also highlighted. 4 3F
• In the same vein, the IMF moved quickly to provide rapid and substantial financing, but without
the usual preliminary missions to resolve technical issues. It did not seek far-reaching changes in
the government’s economic policy plans or secure financial support from other IFIs. As the
program was designed to restore confidence and deal with temporary illiquidity, structural
reforms were not considered a priority for the short term, and so the program involved relatively
limited structural policies.
6. The strategy was further shaped by domestic political considerations. The

administration’s perception of limited political space—together with the view that the economy was
primarily facing acute liquidity pressures, rather than solvency issues—implied that faster fiscal
consolidation would neither be feasible nor appropriate. Similarly, the administration judged that
aiming for extensive structural reforms would risk making the program hostage to its fragile position
in the legislature—such reforms were expected to be added to the policy agenda and SBA after the
general election—and did not seek to build a broader coalition in support of reforms or the
program more generally. The initial program had no prior actions, as these were viewed as inimical
to ownership. 5 Critically, the administration ruled out reintroducing capital flow management
4F
measures (CFMs), engaging in a public debt operation, or introducing incomes policies.
7. The program was supported by a stand-by arrangement that was, in absolute terms,
the largest in IMF history.
3
See Staff Report for the SBA Request, pp. 2, 3, 39, and the MD’s press releases 18/216, 18/234 and 18/245.
4
Attempts to safeguard social protection had been made in other programs—see, for example, the Staff Report for
the 2009 SBA Request for Latvia, pp.16, 23-24, 30, and 67-68.
5 Fund policies call for policy measures—“prior actions”—to be taken to underpin the upfront implementation of
important measures when critical for the successful implementation of the program.

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• Access was initially set at SDR 35.4 billion (approximately US$50 billion, or 1,110 percent of
Argentina’s Fund quota), and was increased to SDR 40.7 billion (approximately US$57 billion, or
1,227 percent of quota). This was the largest arrangement in IMF history in absolute terms
(excluding Flexible Credit Lines), although other arrangements, including some during the euro
area and Asian crises, had been larger in percent of quota (based on the country’s quota at the
time of the approval of the arrangement). Early disbursements were very large in SDR terms,
giving the appearance of a front-loaded arrangement, but this reflects the exceptional size of
the SBA; in fact, the relative size of early disbursements to the total arrangement was about
average, even after the augmentation. (Although the shift to a disbursing arrangement and
increase in access at the First Review made the arrangement more frontloaded—see ¶49.)
Comparison of Arrangement Size

(Largest 20 access/quota ratios, excluding FCL and PCL/PLL; SDR billions)
50 50
40 Reduction Disbursement Augmentation Original 40
30 30
20 20
10 10
0 0
Comparison of Arrangement Access

(Largest 20 Programs, excluding FCL and PCL/PLL; percent of IMF quota)
3,500 3,500
Disbursement Augmentation Original

3,000 3,000
2,500 2,500
2,000 2,000
1,500 1,500
1,000 1,000
500 500
0 0

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Phasing of Access1
(percent of total access)
100
80
60
40
20
0
0 6 12 18 24 30 36 42 48
Months from Arrangement Approval
Full range Interquartile range Augmented 2018 SBA Original 2018 SBA Median
1/ Comparator ranges are based on the other 19 arrangements among the Fund’s largest 20 arrangements (excluding FCL and
PCL/PLL). Augmented phasing is considered when applicable.
• The SBA has been the workhorse IMF lending instrument for emerging and advanced
economies, allowing the Fund to support a country’s adjustment policies with short-term
financing. The choice of an SBA was consistent with the diagnosis of a sudden liquidity shock.
The SBA was also seen as the most suitable instrument to accommodate a request for urgent
support under the IMF’s Emergency Financing Mechanism. Given the shared diagnosis of
Argentina’s balance of payments problem, an Extended Fund Facility arrangement—which
would have offered a longer repurchase period—was not requested, as that instrument is
designed to support programs addressing structural challenges.
8. The SBA was initially to be treated as principally precautionary, to catalyze lending to

Argentina from other sources, but was soon turned into a fully disbursing arrangement. The
aim was to restore confidence by providing access, if needed, to substantial funds while giving the
Fund’s imprimatur to the administration’s economic policies. Like with the program’s policies, this
approach was consistent with the initial belief that the shock to liquidity would not be persistent.
Accordingly, at the outset, the bulk of the access was intended to be treated as precautionary: only
the initial drawing (SDR 10.6 billion, or US$15 billion) was predicated on an actual balance of
payments need, concentrated in the period from June to December 2018. 6 Access to the remainder
5F
of the Fund resources (SDR 24.8 billion, or US$35 billion) was to be evenly phased based on twelve
quarterly reviews. As the program did not have the intended catalytic effect in the period
6
Half of the proceeds of the initial disbursement (US$7.5 billion) was used by the authorities for budget support to
cover the fiscal financing gap through December 2018, assuming between 75 and 100 percent debt rollover; the
other half was used to bring gross reserves to about 100 percent of the ARA metric by end-2018.

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immediately following the approval in June, access was augmented in October 2018, in the context
of the First Review, to US$57 billion; the augmentation entailed some frontloading and was
combined with a shift to a disbursing arrangement, the proceeds of which the authorities used for
budget financing.
9. From the outset, the program involved considerable risks.
• As with all programs, Argentina’s 2018 SBA was susceptible to forecast errors, implementation
risks, and political and external developments. General elections were scheduled for October
2019, effectively halfway through the program period, and some regional elections—a
bellwether of public opinion—would take place only 11 months after the program was put in
place. In terms of the macroeconomic strategy, the program faced a difficult balancing act: to
pull back from excess borrowing without an overly-austere fiscal policy; to bring down inflation
while not tightening financial conditions too much; and to let the exchange rate find its
equilibrium without allowing inflation to surge. Most important, especially given Argentina’s
history of economic instability, was the assumption that the economic policy strategy and
financial support under the program would restore confidence and reverse capital flight.
• Several of these risks were recognized from the outset, including those to macroeconomic
projections, debt sustainability, and the political environment (IMF, 2018a). Less well appreciated
at the time the program was adopted was the structure of debt. First, the Fund took assurance
from estimates that only a fraction of existing foreign currency-denominated public debt would
come due before 2020. 7 But available data obscured the short maturity of this foreign-currency
6F
debt. Despite its size, the SBA did not take Argentina fully out of the market—with little burden
sharing and without debt reprofiling, the need to roll over debt and the consequent sequence of
redemptions (along with capital flight by residents) put considerable pressure on the exchange
rate. Inability to address persistent exchange rate pressures arising from high FX debt rollover
needs and capital flight in turn undermined monetary and fiscal adjustment and damaged real
incomes, given the high pass-through to inflation arising from extensive dollarization and
indexation. Second, some of the existing debt instruments would prove highly problematic. The
vulnerabilities arising from central bank liabilities (LEBACs) were not well understood at the time
of the program request. Later, it would emerge that collateralized arrangements made by the
government in 2016 and 2017 (so-called “repos”) would not only have to be rolled over at
higher rates in 2018 and 2019, but were also subject to margin calls and termination clauses,
draining reserves and further undermining confidence at the height of the crisis.
10. Although the overall risks were well recognized, there were no contingency plans
incorporated into the program early on. The staff reports for the SBA request and each of the
program reviews laid out risks associated with the program, but it proved difficult to engage the
authorities in contingency planning.
7
The Fund initially estimated that 20 percent of existing foreign currency-denominated public debt held by the
private sector would come due before 2020; by the time of the First Review, this was revised up to one quarter
(about US$37 billion).

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• An IEO Report prepared in 2004 (summarized in Appendix II) noted that earlier IMF
arrangements with Argentina had lacked contingency plans for when programs went off track,
and recommended that such plans be included—with explicit triggers—at the outset of any
future programs. 8 Developing a contingency plan early on could have helped to raise the
7F
authorities’ awareness of policy alternatives and prepare Fund staff to respond to adverse
developments. Nonetheless, contingency plans were not incorporated until the Fourth Review of
the 2018 SBA, although the adverse scenario in the Staff Report for the SBA Request aimed to
illustrate the consequences of downside risks materializing.
• The Fund recognized that if the program did not restore sufficiently favorable market access, a
reassessment of the strategy would be required. But no easy option was available: in principle,
the Fund could either have increased access further to eliminate the need for market borrowing
for an extended period; suspended or delayed reviews, in effect pausing the program; or
continued with the program only once the authorities agreed to embark on a debt operation.
However, the additional financing required to eliminate the need for market access until after
the October 2019 elections would likely have been beyond the IMF’s tolerance, ruling out the
first option. Exercising the second option would mean that the IMF had “pulled the plug” on the
program, as it did in 2002, and would likely have worsened the crisis. 9 The need for a debt
8F
operation was not clear at the outset of the program, neither on the basis of the debt
sustainability assessments at that time nor the diagnosis that the problem was a temporary
liquidity shock. A debt operation would likely have required complementary CFMs to prevent
further capital flight, but both debt operations and CFMs were ruled out by the administration.
• Within the Fund, deliberations on a “Plan B” began soon after the initial program was approved.
In addition to identifying fiscal measures that could be deployed if the primary balance target
appeared at risk, exercises were conducted to estimate “stop-loss” thresholds (such as minimum
rollover rates) at which point additional sources of financing and/or a debt reprofiling would be
required. The work recognized that reintroduction of CFMs would have been essential to
buttress a debt operation; CFMs could also, by containing capital within the country, have
limited the need for increases in interest rates. There were continuous efforts by the Fund,
throughout the duration of the program, to engage the authorities in contingency planning.
However, while the authorities acknowledged to the IMF Executive Board early in the program
that a more fundamental rethink of policies to ensure debt sustainability would be required if
financing conditions did not improve as envisaged, an understanding between staff and the
authorities on the steps to be taken in such an event was not reached until the Fourth Review in
July 2019.
8
This was also a recommendation in a 2003 IMF Independent Evaluation Office report on the role of the IMF in
capital account crises. In addition, the 2004 IEO Report recommended that, when debt and/or exchange rate
sustainability are in doubt, IMF support should be conditional upon a meaningful shift in the country’s policies.
9
See Appendix II, ¶¶5, 11.

ARGENTINA
PROGRAM DESIGN ISSUES AND OUTCOMES

The program was fragile from its inception and did not durably restore market confidence. Inconsistent
policy implementation and communication missteps were partly responsible. More fundamentally, the
authorities did not want to instigate fundamental reforms before the general election, meaning that
the program was not able to provide assurances that underlying imbalances would be resolved and
growth restored. Yet the arrangement was not sufficiently large to fully finance Argentina, which, given
that a debt operation and CFMs were off the table, made the program vulnerable to rollover needs.
The peso continued to depreciate, raising inflation, increasing the government debt burden, lowering
real incomes and overwhelming the efforts to protect vulnerable households. Ultimately, the program
did not achieve fiscal and external viability, while economic growth and employment faltered. The
program was de facto suspended in August 2019, with only four of the planned twelve reviews
completed.
A. Timeline: Program Approval and Reviews
11. The policy strategy evolved over time, as the program faced ongoing challenges in
delivering the intended results. The program approval in June 2018 was followed by substantial
revisions in strategy already in October. Additional, albeit less far-reaching, adjustments continued
throughout the program:
• Initial program (June 2018): The initial program envisaged a modest acceleration in fiscal
consolidation; strengthening of the existing inflation targeting framework (including an end to
monetary financing and more independence for the central bank); safeguarding of social
protection; and policies to address gender inequality. The policy elements were designed to be
complementary: for example, addressing fiscal dominance would support inflation targeting;
safeguarding social protection would alleviate the impact of fiscal restraint on the poor, while
remaining consistent with consolidation objectives; and increased female labor participation
would provide a boost to the supply side. (See IMF, 2018a.) In contrast to some other large
programs, financing from other IFIs was limited and no official bilateral financing was
forthcoming.
• First Review (October 2018). After the approval of the arrangement in June, financial conditions
continued to deteriorate, the exchange rate depreciated sharply, and monetary targets were
missed. The strategy was thus revamped at the First Review. The Board approved an
augmentation of Fund financing, with frontloaded access and with the proceeds of the
purchases under the arrangement used for budget financing. Also, the revamped program
involved substantially revised macroeconomic targets, further acceleration of fiscal
consolidation, and the adoption of a simpler monetary policy regime. (See IMF, 2018b.)
However, the diagnosis that Argentina was facing a temporary liquidity shock was retained. Yet,
additional financing from other IFIs or bilateral creditors remained elusive. Although debt
sustainability indicators had worsened, the revised program did not include a debt operation.

ARGENTINA
• Second Review (December 2018). By the time of the Second Review, there were signs of
stabilization: short-term interest rates had fallen back, albeit only to the level of September
2018, and the exchange rate had stayed within the non-intervention band. The 2019 budget,
featuring more ambitious fiscal adjustment, had been passed. All quantitative performance
criteria for end-October had been met, and most structural benchmarks had been observed,
albeit with some delay. (See IMF, 2018c.)
• Third Review (April 2019). The end-December 2018 and end-March 2019 performance criteria
were met, and structural reforms relating to the debt strategy and the submission of a new
BCRA charter were moving ahead as envisaged. However, inflation and inflation expectations
were again increasing, following a de facto relaxation in monetary policy and firms’ pass-through
of costs arising from administered prices. Argentine financial assets were under renewed
pressure, with markets viewing the continuing struggle to tame prices and revive the economy
as potentially leading to a change in government following the October general elections.
(See IMF, 2019a.)
• Fourth Review (July 2019). As with previous reviews quantitative and structural program
conditions had been met or were on track to be met, and exchange rate pressures had eased.
However, the IMF noted that the most challenging period for the program was still to come—
especially as gross financing needs remained high. Market sentiment was clearly skittish in
advance of the general elections. (See IMF, 2019b).
Exchange Rate, 2018−19

(AR$/US$, official rate)
60
25-26 September 2018: 13 May 2019:
12 July
CB head resigns opposition wins
2019:
55 regional elections
Fourth
29 August 2018: IMF announces Review
50 renegotiation of program concluded
13 July 2018: SBA 28 October 2019:

45 opposition wins
published
presidential
elections
40 20 June 2018:
Program approved
35
7 June 2018: staff-level 5 April 2019:
agreement reached Third Review 12 August - 1
30 concluded September: opposition
wins primaries;
8 May 2018: talks technical default called;
with IMF disclosed 26 October 2018: FM resigns; currency
25
First Review concluded controls imposed
20 19 December 2018:
14 June 2018: CB Second Review concluded
head resigns
15
Nov-18
Nov-19
Jan-18
Feb-18
Jan-19
Jun-18
Feb-19
Jun-19
Jul-18
Oct-18
Jul-19
Oct-19
May-18
May-19
Dec-18
Dec-19
Aug-18
Aug-19
Apr-18
Apr-19
Mar-18
Sep-18
Mar-19
Sep-19
12. After the Fourth Review, the program continued to struggle, and its implementation
effectively ceased by August 2019. Following the Executive Board’s completion of the Fourth
Review in July 2019, Fund staff started preparations for the Fifth Review, to take place in September,

ARGENTINA
ahead of the October general elections. However, financial turbulence returned following the
August primary elections; 10 ratings agencies downgraded Argentina, the finance minister resigned,
9F
and the administration announced plans to reprofile domestic debt and imposed some capital
controls. In September, ratings agencies called a selective default on Argentine sovereign debt. Fund
staff work on the Fifth Review was aborted following the primary elections and after the
government’s effective suspension of program policies. This in practice marked the end of the
program, with only four out of the twelve planned reviews completed. In effect, the program did not
fulfil the objectives of restoring confidence in fiscal and external viability while fostering economic
growth, one test of success of GRA-supported programs. 11 The new government that took office
10F
after the 2019 elections initiated the process to restructure its foreign-law governed debt in
March 2020, defaulted on this debt in May, and finalized the restructuring of US$80.5 billion of
foreign- and domestic-law FX-denominated debt held by private creditors in September. The new
government cancelled the SBA on July 24, 2020.
B. External Communication
13. Uneven communication of program policies by the administration undermined

confidence. Achieving consistent communication of the program was going to be crucial. Lack of
consistent engagement at a technical level with the IMF in the years leading up to the program and
erosion of institutional knowledge constrained the new government’s understanding of Fund
procedures. IMF staff established close relations and developed common outreach strategies for the
SBA. However, these were only partially followed through on the side of the administration. For
example, the publication of the Staff Report for the SBA request was delayed by the authorities for a
month. (The authorities were concerned about the market reaction to the standard language used
to characterize debt, as “sustainable but without high probability.”) This restricted the Fund’s ability
to explain the program, notably the financing available and its nature, dampening the catalytic effect
at a crucial moment for market confidence. Changes in central bank governors and finance
ministers—along with significant FXI early in the program period that was inconsistent with the
program and could not be explained in simple terms—did not help reassure investors of the
durability of the program. The President’s public address in late August 2018, in which he indicated
that the Fund would support Argentina with full disbursements upfront—which had not been
agreed—was meant to bolster confidence but instead unsettled financial markets, triggering a
14 percent exchange rate depreciation on the day of the address.
14. Communication challenges relating to the precautionary nature of the initial SBA may
have hampered an early boost to confidence. Aware of the political risk of requesting help from
the IMF, the administration was keen to emphasize the liquidity (rather than solvency) nature of the
crisis and preferred a “precautionary" arrangement, which was the basis for the initial program
10
Opposition candidate Alberto Fernández beat President Macri with a surprisingly large margin in the primary
elections, leading investors to believe that a new government, including members from the previous administration,
would come to power after the October general election. The peso depreciated, the Merval stock market index
plummeted in peso terms, and risk premia increased.
11
See Review of Program Design and Conditionality, IMF (2018d), pp. 8–17.

ARGENTINA
(changed after the First Review; ¶11). Precautionary SBAs are common, and generally signal an
underlying strength of the economy when compared with disbursing arrangements. The initial
program was, unusually, a hybrid of a precautionary and a disbursing arrangement. This approach
appears to have created confusion in some circles about whether Argentina would—and under what
conditions it could—draw on the financing, which may have reduced rather than boosted market
confidence. Although the Staff Report for the SBA request (IMF, 2018a) explained that the intent to
treat the SBA as precautionary after the first disbursement was not a binding commitment, and as
such did not prevent Argentina from making purchases, there was lack of clarity, both in the
government and in markets, surrounding the availability of the Fund financing. The delay in
publishing the staff report for the program request hindered the Fund’s ability to help explain the
unusual nature of the financing structure.
C. Macroeconomic Targets, Projections and Outcomes
15. As confidence was not durably restored, balance of payments pressures and a
depreciation of the currency caused significant damage to the program.
• Capital inflows had started to decline in

early 2018, and net flows turned negative in
the third quarter, the approval of the SBA in
June notwithstanding. The revision of the
program in October was initially viewed
positively—net flows turned positive at the
end of 2018 and beginning of 2019—but
confidence then ebbed and net flows were
negative through the remainder of the
program. The largest capital outflows were
not generated by flight from government
debt, but rather by private flows. Capital
controls were announced at the beginning of September 2019, after the volatility following the
August 2019 primary election; the peso initially appreciated, but the controls were relatively
loose and capital flight continued, causing a large reserve loss.
• Driven by capital flows, the depreciation of the peso accelerated after the announcement of the
SBA request in May and continued until the revamp of the program was announced in late
September. The exchange rate was more stable during the fourth quarter of 2018, but
depreciation resumed at the beginning of 2019 and continued until modifications to the
monetary and FXI framework in April-May. The volatility of August 2019 brought with it another
significant decline in the value of the currency, which was by then trading at a third of its value
at the time of the SBA request.

ARGENTINA
• In contrast to this outcome, the baseline underlying the original program framework, predicated
on restored market confidence, had envisaged a stabilization of the nominal exchange rate,
corresponding to a real exchange rate appreciation of 9 percent during the program period. (In
the adverse scenario, the real exchange rate
Real Depreciation after Fund Arrangements of Comparable BOP Crises
was assumed to depreciate slightly.) The real (Percent)
35
exchange rate had already depreciated by

about 20 percent from its 2017 level by 25
REER Depreciation from Pre-porgram Level

2018Q2—hence, the estimated 15
17.5-32.5 percent overvaluation assessed in

the 2018 External Sector Assessment had
5
largely been eliminated by the time the -5
program started. However, compared with

-15
other program episodes, the baseline real

Argentina Program Request Argentina 1st Review
Argentina Realized Median
exchange rate projection was on the

90th Percentile 10th Percentile
-25
M0 M1 M2 M3 M4 M5 M6 M7 M8 M9 M10 M11 M12 M13 M14 M15
optimistic side, being in the 10th percentile of Sources: IMF INS database. Staff calculations.
Note: The figure shows the accumulated rate of REER depreciation starting from the onset of a comparable IMF
experiences under programs with countries

program. IMF programs following sudden stop crises are chosen for this comparison, including Mexico (1995, 2009),
Indonesia (1997), Korea (19970), Thailand (1997), Uruguay (1997, 2002), Philippines (1998), Panama (2000), Brazil
(2002), Turkey (2002), Ukraine (2004, 2008, 2014), Pakistan (2008), Latvia (2008), Hungary (2008), Belarus (2009)
experiencing sudden stops.

and Jordan (2012).
16. Against this background, by most metrics, macroeconomic performance fell short of
the initial program projections (Figure 1).
• Economic growth: The initial program envisaged a relatively mild slowdown in growth, from
2.9 percent in 2017 to 0.4 percent in 2018, followed by a rapid recovery from 2019 onwards.
Although these assumptions were not clearly
consistent with the program’s procyclical Composition of Growth
(Percent)
monetary and fiscal policies applied to an 6
economy with a large share of hand-to-mouth 4
consumers, the Fund deferred to the 2
government’s views on the outlook. 12 At the11F
First Review, projected growth was revised -2

down to -2.8 percent in 2018 and -1.6 percent
-4
in 2019, close to the actual outcome
-6
of -2.6 percent and -2.1 percent,
respectively. 13 Export values recovered in the
-8
2015Q1
2015Q2
2015Q3
2015Q4
2016Q1
2016Q2
2016Q3
2016Q4
2017Q1
2017Q2
2017Q3
2017Q4
2018Q1
2018Q2
2018Q3
2018Q4
2019Q1
2019Q2
2019Q3
2019Q4
12F
second half of 2018, after the drought earlier

in the year. But private demand fell Private Consumption
Net Exports
Public Consumption
Inventories
Investment
GDP
considerably—especially private consumption,
12
The IMF noted that the authorities were confident of a mild recession and quick rebound; see IMF (2018a), ¶37,
p. 23).
13
When the program was approved in June, a recovery in the terms of trade and exchange rate depreciation were
assumed to result in a modest positive goods trade balance in 2018, while domestic demand would fall; in 2019,
private consumption would grow; and in 2020, investment would rebound. The revised projections at the First Review
envisaged a stronger recovery in the trade balance, but more severe and persistent weakness in private demand.

ARGENTINA
driven by a combination of precautionary savings and reduced real incomes as inflation surged
as a result of peso depreciation—and did not recover during the program. Unemployment
remained consistently above 9 percent throughout the program, peaking at 10½ percent in
2019Q2.
• Inflation: Despite a general tightening of monetary policy, inflation was not brought under
control. By the time the program effectively ended, consumer prices were increasing at a rate of
54 percent per annum, three times the inflation rate envisioned under the initial program and
double the revised rate envisioned at the First Review. The cumulative increase in consumer
prices exceeded 80 percent over the course of the program, substantially eroding real incomes.
The unexpectedly large exchange rate depreciation played a pivotal role, reflecting the
passthrough to domestic prices. Wage indexation and regulated utility price increases also
boosted inflation. By contrast, despite policy interest rates of 40–60 percent during the program,
monetary policy is estimated to have had only limited effect on inflation, consistent with high
pass-through of exchange rate movements and inflation expectations that remained elevated
when the program commenced (Box 1. Argentina: Inflation Dynamics).
• Fiscal balances and public debt: The program’s fiscal objectives were formulated as targets for
the primary fiscal balance. These targets were met, despite disappointing growth outcomes
(¶21). Nevertheless, public debt ratios far exceeded projections, mainly because of valuation
effects, as nearly 70 percent of the government’s debt was denominated in or linked to the
U.S. dollar (¶23). 14 In addition, short maturities accentuated debt dynamics—the terms at which
13F
Argentina rolled over its debt became less favorable as time passed, with higher interest rates
and shorter maturities adversely affecting debt ratios and debt sustainability (¶17 and Box 6.
Argentina: Market Access During the 2018 SBA).
• The current account underperformed in 2018, but adjusted rapidly in 2019, exceeding the
adjustment in the original program projections. However, the adjustment was concentrated in
imports (especially of investment goods), which declined by more than a quarter between
2017 and 2019. Despite the substantial real
exchange rate depreciation, export volumes Exports and Imports
(US$ billion)
remained flat. This outcome is partly 27
explained by the drought of 2018, which hit 25
agricultural exports hard. Moreover, 23
nonagricultural export volumes did not 21
respond to the peso depreciation, reflecting 19
pervasive dollar invoicing—more than 95 17

Exports of goods and services
percent (85 percent) of Argentine exports 15 Imports of goods and services
(imports) are denominated in U.S. dollars 13
(Boz et al. 2020), implying limited 2016 2017 2018 2019
14
In addition, public debt exceeded projections because of discovery (during the 3rd Review) of previously
undisclosed debt amounting to 10 percent of GDP.

ARGENTINA
expenditure switching effects of exchange rate movements on exports, but high pass-through to
import prices (Adler et al. 2020). 15 14F
• The underperformance of the current account

Reserve Adequacy
and capital flight undermined the restoration 80 140
of international reserves. Reserves were drawn

down after the program was approved as the 70 120
BCRA intervened heavily (Box 2. Argentina:

60 100
FX Intervention Under the 2018 SBA). The
program’s target was for BCRA’s foreign 50 80
exchange reserves to exceed 100 percent of

the IMF’s ARA metric by the end of the 40 Reserve Assets (US$ billion) 60
Percent of ARA Metric (RHS)

program period, to mitigate risks to the 30 40
balance of payments. This target was reached
by the end of 2018, mostly as a result of
Sources: IMF WEO and IMF Staff Calculations.
official flows, mainly Fund disbursements.
Reserves collapsed after the primary elections in August 2019, reversing the gains that had been
achieved. The true adequacy of the reserve level of Argentina is difficult to evaluate. Reserves
increased to over ten months of imports, a level which would typically indicate some flexibility to
intervene and manage inflation more directly, as in many other emerging economies with
inflation targeting regimes. However, the narrow and volatile export base in Argentina, extensive
dollarization, and the history of capital flight may, all else equal, have called for higher reserves.
Box 1. Argentina: Inflation Dynamics

Inflation increased during the program, driven mostly by persistently high inflation expectations, peso
depreciation, and wage increases. This suggests that the targeted reduction in inflation was optimistic: the
monetary policy regimes under the SBA were not robust to the challenges of dollarization and extensive
indexation, as shown by the rapid pass-through from the nominal exchange rate depreciation that followed the
sudden stop. In short, the preconditions for a successful implementation of a formal inflation targeting
framework may not have been in place.
In Argentina inflation expectations by the general public have been persistently high, remaining above
20 percent since 2010.1/ Over the past decade, they have moved closely with the peso depreciation. (By
contrast, inflation and base money are not highly correlated; during some phases, they have been negatively
correlated.) High inflation expectations, together with a high level of wage indexation, generate significant
inflation inertia. In addition, the U.S. dollar has become de facto the unit of account for much of the
economy and serves as a nominal anchor for inflation expectations. As a result, the pass-through from
depreciation of the peso to an increase in prices is substantial and quick.
A simple empirical model that relates inflation to inflation expectations, the change in the exchange rate,
nominal wage growth, regulated price increases, the real policy rate, and delayed effects of those factors
suggests that the increase in inflation during the program reflected mainly a combination of higher inflation
expectations, the large peso depreciation, and higher nominal wages. Of course, inflation expectations
15
From the second quarter of 2018 to the third quarter of 2019, when the peso fell by over 100 percent in nominal
terms against the US dollar, import prices in local currency increased by almost 100 percent, while export prices in
US dollars only dropped by 7 percent.

ARGENTINA
Box 1. Argentina: Inflation Dynamics (Continued)

themselves reflect underlying factors—including movements in the exchange rate, labor costs, regulated
prices, and policy reactions by the central bank—so the estimates are only indicative. Nonetheless, this
simple empirical analysis suggests that inflation expectations drove on average slightly less than half of
inflation over the 15 months of the program, with peso depreciation and wage growth each accounting for
slightly less than a quarter (as private sector unions obtained revisions to their paritarias that increased the
annual average to 30–40 percent). Increases in regulated prices account for the remainder (nearly a tenth).
Monetary policy had a dampening effect on inflation, but the magnitude was not large enough to curtail
inflationary pressure from expectations and depreciations.
Inflation Expectations and Headline Inflation Inflation and Peso Depreciation

(percent, y/y) (percent, y/y)
60 60 140
Inflation expectations, general public, 1 YR forward, UTDT
Inflation expectations, market participants, 1 YR forward, BCRA Headline inflation 120
Headline inflation Inflation Peso/USD depreciation (y/y, RHS)
50 50
Targeting 100
Regime
80
40 40
60
40
30 30
20
20 0
20
-20
10 10 -40
Jan-10
Jan-11
Jan-12
Jan-13
Jan-14
Jan-15
Jan-16
Jan-17
Jan-18
Jan-19
May-10
May-11
May-12
May-13
May-14
May-15
May-16
May-17
May-18
May-19
Sep-10
Sep-11
Sep-12
Sep-13
Sep-14
Sep-15
Sep-16
Sep-17
Sep-18
Sep-19
Jan-10
Jan-11
Jan-12
Jan-13
Jan-14
Jan-15
Jan-16
Jan-17
Jan-18
Jan-19
Jul-10
Jul-11
Jul-12
Jul-13
Jul-14
Jul-15
Jul-16
Jul-17
Jul-18
Jul-19
Inflation Decomposition Inflation Before and After Adopting Inflation Targetting

(Percent, m/m) (Percent)
60
8
Wage
Argentina, Sept-2016
Inflation Target Adopted
7 Peso depreciation
50 90th Percentile
Inflation expectation
6 10th Percentile
Regulated prices
Median
5 Monetary policy 40
Other
CPI Headline Inflation
4
Inflation
3 30
2
20
1
0
10
-1
-2
0
Jan-17 May-17 Sep-17 Jan-18 May-18 Sep-18 Jan-19 May-19 Sep-19
M-24 M-21 M-18 M-15 M-12 M-9 M-6 M-3 M0 M3 M6 M9 M12 M15 M18 M21 M24 M27 M30 M33 M36
Sources: Banco Central de la República Argentina, Instituto Nacional de Estadística y Censos, INDEC, and IMF
International Financial Statistics and IMF Staff Calculations.
Inflation quickly fell in 2016, which caused many to believe that the introduction of inflation targeting had
been sufficient to anchor expectations. The results presented here suggest that this was more likely the
result of exchange rate appreciation associated with capital inflows. Viewed this way, the target of single-
digit inflation by 2021 was overly ambitious—the inflation rate was lower than previously at the time of the
program request, but nonetheless reached 30 percent in June 2018, with a rapidly depreciating exchange
rate—and as such created a tension between the need to gradually build confidence in the IT framework
and achieving the inflation targets. By contrast, most inflation targeting regimes have been put in place after
inflation had first been lowered to single-digit levels, often taking several years—that is, inflation targeting
regimes have been used to consolidate, rather than achieve, disinflation (Svensson, 2008). In addition,
without first reducing the degree of dollarization, monetary transmission would remain weak. Finally, the

ARGENTINA
Box 1. Argentina: Inflation Dynamics (Concluded)

BCRA adopted a free-floating exchange rate regime—staff analysis, based on definitions in Ilzetzki et al.
(2019), indicates extensive use of crawling bands in other cases. In other Latin American countries, inflation
targeting has been accompanied by widespread foreign exchange interventions and unconventional policies
including CFMs (Cespedes, et al, 2014). Studies also suggest that some degree of exchange rate
management may improve inflation outcomes for inflation targeting emerging market economies, especially
in cases of currency mismatch (Berganza and Broto 2012, Buffie et al 2018; Hofman et al. 2020 and Ostry et
al. 2012).
__________________________________
1/ The measure shown is the survey of the general public conducted by UTDT. The survey of market participants
conducted by the BCRA starts only in early 2016.
17. Financing needs in domestic currency increased over the course of the program. Total
debt due and primary deficits over 2018 and 2019 came to US$66 billion, whereas disbursements
used for budget support totaled US$37 billion. The difference would have to be financed in the
market, with the short average maturities implying a need to refinance this amount about every
six months. The Fund urged the authorities to extend the maturity profile of public debt and
provided technical assistance on debt management, but maturity of debt held by foreign investors
remained short, leaving the program with a crucial vulnerability.
• The initial program projections underestimated the ultimate fiscal financing needs. In June 2018,
cumulative gross financing needs (CGFN) of the federal government for 2018 and 2019 were
projected at about AR$3.5 trillion
(US$134 billion using projected exchange Projected Federal Government Gross Financing Needs over 2018−19
(AR$ billion)
rates at the time). Despite the progress in 6,000 2018 2019 Projected debt reduction vis-à-vis BCRA (at program request)
reducing the fiscal deficit, the fiscal 5,000

CGFN steadily increased during the 4,000
program, and remained at multiples of the
3,000
access under the SBA, 16 exceeding
2,000
15F
AR$5.3 trillion (about US$146 billion) by

1,000
the time of the Fourth Review. The
0
underestimation reflected deviations in
macroeconomic developments relative to
the original assumptions, especially as 1/ Projected financing needs at program request with revised macro assumptions (growth,
regards the exchange rate and

inflation, exchange rate, an dinteresyt rates) from 4th review.
Source: Public Debt Sustainability Analysis.
amortizations.
• Projected cumulative gross external financing needs for 2018 and 2019 stood at US$254 billion
at the time of the 2017 Article IV consultation and remained around this level throughout the
program, as they were mostly unaffected by the depreciation of the exchange rate. Exceptional
16
The rollover of the federal government debt held by other public sector entities and the fact that part of the
2018 financing had already been secured by May 2018 reduced actual financing needs at the time of the program
request.

ARGENTINA
balance of payment pressures emerged soon after the program approval and remained until the
Fourth Review. Although external financing needs remained large and stable throughout the
program, portfolio inflows dropped substantially during 2018 and 2019.
18. All told, most outcomes were worse than laid out in the adverse scenario presented
with the SBA Request (Figure 2). Growth fell well short of and inflation far exceeded the program
objectives. As the SBA was initially treated as precautionary, an adverse scenario was developed for
the SBA request to estimate potential balance of payment needs as a basis for determining the
proposed access (Figure 2). The projected 1.3 percent contraction in GDP in 2018 and return to
growth in 2019 in the adverse scenario turned out to be optimistic compared with actual growth. By
the same token, inflation and exchange rate outcomes were considerably worse than assumed in the
adverse scenario. Debt increased sharply with the exchange rate depreciation. The current account
deficit was far worse in 2018 than what was projected at the program request, but smaller in 2019;
across 2018 and 2019, cumulative external financing needs were broadly constant. However, fiscal
financing needs increased as the currency depreciated. Rollover rates for public debt securities were
close to those assumed under the adverse scenario (and in other precautionary arrangements), but
Argentina did not succeed in raising significant funds externally during the program period—
instead, it relied on issuing debt in domestic markets up until the de facto end of the program. The
debt profile deteriorated significantly, with an increase in yields and concentration at shorter
maturities in the lead-up to the August 2019 primary election (Box 6: Argentina: Market Access
During the 2018 SBA and Figure 4).
D. Fiscal Policy
Fiscal dominance has been central to Argentina’s economic challenges for decades. The 2018 Fund-
supported program aimed to accelerate fiscal adjustment, both to signal a break with gradualism and
to help reduce the government’s financing needs. Fiscal policy had to contend with several constraints.
The pace of adjustment needed to weigh short-term growth impacts against potential confidence
effects. Moreover, as the scope for high-quality fiscal adjustment measures was constrained by political
circumstances, an accelerated pace of adjustment might have entailed poorer quality and more
distortionary measures. Finally, the government’s financing needs were sensitive to movements in the
exchange rate—as the exchange rate depreciated (and without a debt operation) the fiscal adjustment
needed to offset the effects of currency depreciation on debt and debt service became untenable. All
told, the program’s fiscal balance targets were met, but financing needs and debt measured in
domestic currency continued to increase. The fiscal measures were generally of low quality and the
program did not durably address the long-standing weaknesses in Argentina’s public finances.
19. Weak public finances have been at the heart of Argentina’s longer-term economic
problems. Argentina has a history of fiscal dominance and debt defaults. The undoing of the
convertibility regime in 2001 (¶25 and Appendix II, section A) was lack of fiscal control, including at
the provincial level. In the years prior to the 2018 SBA, primary spending had been ramped up, from
23 percent of GDP in 2003 to 39 percent in 2017. As part of its market-oriented reform efforts, the
Macri administration reduced taxes early on but left more comprehensive tax reforms for later,
resulting in primary deficits of nearly 5 percent of GDP in 2016 and just above 4 percent in 2017.

ARGENTINA
Figure 1. Comparison of Actual and Projected Scenarios
Real GDP Growth CPI Inflation

(y/y percent change) (y/y percent change)
10
60 Program Request 1st Review
5 4th Review Actual

50
0
40
-5
30
Program Request
-10 1st Review 20
4th Review
Actual
-15 10
Unemployment Rate Balance on Current Account

(percent) (percent of GDP)
13 0
Program Request
Program Request
12 1st Review
-1 1st Review
4th Review 4th Review
11 Actual Actual
-2
10
9 -3
8 -4
7
-5
6
-6
2016 2017 2018 2019
Nominal Exchange Rate REER

(e.o.p., AR$/US$) (percent, 2017Q4=100)
70 110
Program Request
60 1st Review 100
4th Review
50 Actual 90
40 80
30 70 Program Request
1st Review
20 4th Review
60
Actual
10 50
Primary Fiscal Balance Public Debt

(percent of GDP) (percent of GDP)
0.5
90
0 Program Request
Program Request 85
-0.5 1st Review
1st Review 4th Review
-1 80
4th Review
Actual
-1.5 Actual 75
-2 70
-2.5
65
-3
60
-3.5
-4 55
-4.5 50
2016 2017 2018 2019 2016 2017 2018 2019

ARGENTINA
Figure 2. Actual, Baseline and Adverse Scenarios

Real GDP Growth CPI Inflation
(y/y percent change) (y/y percent change)
6
Program Request−Baseline
60
4 Program Request−Adverse
Actual
2 50
0
40
-2
30
-4
20
-6 Program Request−Adverse
Actual
-8 10
Unemployment Rate Balance on Current Account

(percent) (percent of GDP)
11 0
10.5 Program Request−Baseline Program Request−Baseline
Program Request−Adverse -1
10 Program Request−Adverse
Actual
9.5 Actual
-2
9
8.5 -3
8
-4
7.5
7
-5
6.5
6 -6
2016 2017 2018 2019
Nominal Exchange Rate REER

(e.o.p., AR$/US$) (percent, 2017Q4=100)
70
110
60
Program Request−Adverse 100
50 Actual
90
40
80
30 70 Program Request−Baseline
Program Request−Adverse
20 60
Actual
10 50
Primary Fiscal Balance Public Debt

(percent of GDP) (percent of GDP)
0
90
-0.5 Program Request−Baseline
85
-1 Program Request−Adverse
Program Request−Adverse 80
-1.5 Actual
Actual 75
-2
70
-2.5
65
-3
-3.5 60
-4 55
-4.5 50
2016 2017 2018 2019 2016 2017 2018 2019

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20. The fiscal adjustment under the program aimed to balance the need to strengthen the
public finances against the short-term growth effects. With a debt reprofiling ruled out, the
program aimed for somewhat accelerated fiscal adjustment, combined with proceeds of the Fund
arrangement used for budget financing, and relied on the catalytic effect to maintain market access.
The fiscal policy measures supporting short-term adjustment did not involve fundamental changes.
• At the time of the SBA request, Argentina’s public debt was considered “sustainable but not with
high probability.” While the debt ratio per se did not stand out, the high share of foreign
currency-denominated external debt, combined with a weak export base, shallow domestic
financial system, and past history of defaults, suggested that Argentina’s safe debt level was
lower than the 50 percent benchmark for “high scrutiny” cases in the IMF’s debt sustainability
framework (IMF, 2013), as such pointing to substantial consolidation needs and/or a debt
operation. 17 Further, Argentina’s history of fiscal dominance called for demonstrating a
16F
commitment to budget discipline to help boost the credibility of monetary policy and the
program more broadly.
• In the initial program, the planned primary balance improvement from 2017 to 2020 was
4.4 percentage points of GDP, with primary balance to be achieved in in 2020. At the First
Review, the adjustment was increased to 5.6 percent of GDP and the achievement of primary
balance brought forward to 2019. The adjustment envisaged was front loaded—2.4 percent of
potential GDP in 2018, or about 40 percent of the total adjustment. The overall adjustment was
not severe in comparison to other Fund-supported programs but was on the high side among
exceptional access cases. Experience in other countries justified concerns about the implications
of consolidation during a crisis; for instance, the 2015 Crisis Program Review had argued that
fiscal adjustment above 5 percent of GDP over three years could be self-defeating. 18 17F
• The fiscal multipliers used for the projections were higher than those typically applied. Empirical
evidence had generally found fiscal multipliers for emerging market economies to be lower than
those in advanced economies. 19 However, experiences in other programs had raised concerns
18F
about the effects of ambitious fiscal adjustment (e.g., Baum et al., 2012), and the 2015 Crisis
Program Review had noted that fiscal multipliers during IMF programs had tended to be high,
and often higher than initially assumed. Instead of the common rule of thumb of 0.5, the fiscal
multiplier assumed in the 2018 SBA was set at 0.8 on average for changes to spending and
0.6 for changes to tax revenues. These values were based on comparison with consolidations in
other countries in the region and are broadly consistent with more recent studies of fiscal
multipliers in Latin America—for example, Carrière-Swallow et al. (2018) found that fiscal
consolidations in Latin American and Caribbean economies typically lead to an output
contraction of 0.5 percent on impact and of 0.9 percent after two years, conditional on other
17
Baldacci et al (2011) suggest a threshold of 40 percent of GDP. The IEO report on Argentina (IMF, 2004) similarly
stressed that sustainable debt levels may be easily overestimated (Appendix II).
18 See https://www.imf.org/external/np/pp/eng/2015/110915.pdf
19
See Figure 1 and associated text in Carrière-Swallow et al. (2018).

ARGENTINA
macroeconomic variables such as the exchange rate, output, and external balances. Somewhat
larger multipliers could have been considered given negative output gaps (see Auerbach and
Gorodnichenko, 2012) and the shift in the fiscal adjustment under the 2018 SBA towards
decreases in higher-multiplier public investment and subsidies. However, analysis conducted
early in the program period indicated that higher multipliers would have made little difference
to the assessment of debt sustainability. This suggests that, although the projections may have
moderately underestimated the negative overall output effects of fiscal consolidation, the
adverse growth effects of other factors—namely currency depreciation, capital flight, and
uncertainty—played a larger role.
Primary Fiscal Balance Planned Change in Primary Balance Over Exceptional

(percent of GDP) Access Programs vs. Initial Debt Levels
0.5
Change in Primary Balance throughout the

(Percent of GDP)
0 10
Program Request
-0.5 8
1st Rev.
Argentina
-1 4th Rev. 6 Prog Argentina 1st R
-1.5 Actual
4
Program
-2
2
-2.5
0
-3
-2
-3.5
-4
-4
-6
-4.5
0 50 100 150 200
2016 2017 2018 2019
Initial Debt Level
Sources: Countries’ Authorities, and IMF Staff Calculations and Projections.
21. The primary balance targets were met, mainly by lowering expenditures, although the
measures were generally of low—and decreasing—quality throughout the program.
Notwithstanding early efforts to reduce the wage bill and energy subsidies, most expenditure
measures taken during the program period were temporary and relatively easy to reverse,
undermining the credibility of the consolidation effort; moreover, revenue measures were limited
and of low quality. The quality of measures deteriorated over time as the authorities sought to meet
targets in a worsening macroeconomic environment; policy was later loosened in the run-up to the
election.
• Revenue: Initial staff proposals included structural revenue reforms, such as expanding the scope
of PIT on labor income and strengthening the VAT. These reforms were rejected by the
authorities as politically sensitive. In the end, revenue measures were limited to a temporary tax
on exports and some modest one-off measures. In a nod to the authorities’ preferences, and
recognizing Argentina’s relatively high tax burden, revenue was further reduced through a
lowering of the corporate income tax rate and cuts in other taxes in 2019 (initially decided in
2017). In early 2019, the authorities cancelled scheduled increases in utility tariffs and provided
generous tax incentives to SMEs. In addition, Congress passed a law providing future tax

ARGENTINA
exemptions to a number of economic sectors, with effect from 2020 to 2029. Some actions were
taken to improve tax compliance, but were not sufficient to offset the reduction in revenues.
Revenues fell short of what was projected at program approval by about 1¼ percent of GDP for
2018 and 1¾ percent of GDP for 2019, in part reflecting cyclical factors (with tax buoyancy well
below unity).
• Expenditure: Ultimately, the fiscal adjustment relied on inflation-induced reduction in public

sector wages and pensions, subsidy cuts to bring utility tariffs closer to cost recovery levels, and
a squeeze in current discretionary and capital spending. Although inflation, made more
persistent by indexation, caused real incomes to deteriorate, the adjustment in primary spending
in this period was helped by higher-than-expected inflation, which reduced—albeit
temporarily—the real value of public wages (because of wage restraints) and pensions (because
of backward looking pension indexation).
Changes in Current Primary Spending, 2017−19

(Percent of GDP)
Sources: Argentine Authorities, and IMF Staff Calculations and Projections.

1/ The impact of measures are those estimated at the time of the program approval (for 2017) and at the time of the Second
Review (2018), compared, respectively, to outcome (for 2018), and expected outcome at the time of the Fourth Review (for
2019).
2/ Estimated impact from inflation surprise between the program approval and preliminary estimates at the time of the Fourth
Review (2018), and between the first review of the projections at the time of the Fourth Review (2019). For example, if w is the
wage bill (measures excluded) expected at the time of the program/review with an inflation rate of π and if the realized inflation
rate is π' then unexpected inflation leads to a wage bill lower by w-w[(1+π)/(1+π')]. The impact applies to the wage bill and
transfers, due, respectively, to restraint on real wages and backward indexation of pensions.
3/ Residual; includes other factors such as the difference between the actual and estimated impact of measures, and other
autonomous factors (e.g., higher social protection spending when increasing number of households are covered).

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22. The program called for reforms to strengthen the credibility of budget processes,
which were implemented largely as envisaged. The fiscal-structural reforms included the creation
of a fiscal watchdog and the strengthening of medium-term fiscal planning, which were either met
or implemented with delay. However, reforms to address risks from fiscal federalism were
postponed. 2019F
23. Debt sustainability was undermined by exchange rate depreciation; offsetting this
shock through fiscal consolidation alone would have required a major additional adjustment.
• Improvements in the primary balance contributed to lowering the debt ratio. Higher-than-
expected inflation also helped improve debt dynamics, as the nominal effective interest rates on
debt (about 11 percent in 2018 and 6 percent in 2019) were far below nominal GDP growth rates
(37 and 51 percent, respectively). 21 However, these effects were more than offset by the effects
20F
of exchange rate depreciation.
• Achieving the originally targeted debt level of 53 percent of GDP by 2023 would have required
more than doubling the size of fiscal adjustment planned at the time of the First Review (see text
table). Hence, without a debt reprofiling early on (i.e., at the time of the First Review) to lower
the large refinancing needs of the short maturity debt, the scope for fiscal policy to address debt
vulnerabilities and bolster confidence appears, ex post, very limited, especially given that the
low-quality fiscal measures available were unlikely to have sustained effects. That said,
Argentina’s case is consistent with the general tendency to delay debt operations, even when
ultimately unavoidable, substantially raising their costs (IMF, 2014 and 2020b). However, that
possibility was ruled out by the administration.
2023
Prog. 1st Rev. 4th Rev.
Stock of public debt 53.0 59.3 61.3
Underpinning fiscal adjustment 5.0 5.1 4.8
Additional fiscal adjustment required to achieve:
53% debt-to-GDP ratio 0.0 6.3 8.3
40% debt-to-GDP ratio 13.0 19.3 21.3
Total fiscal adjustment required to achieve:
53% debt-to-GDP ratio 5.0 11.4 13.1
40% debt-to-GDP ratio 18.1 24.4 26.1
Sources: Argentine authorities, and IMF staff estimates.
20
In previous Fund-supported programs, reported fiscal performance was overstated, because of failure to take
proper account of off-budget expenditures and weak controls of provincial finances (IMF, 2006a). For example,
revenue was largely centralized while spending was decentralized, creating a bias in the reported data.
21
The unexpectedly high inflation in 2019 also helped to meet the fiscal target, as pension spending was lower than
expected as a share of GDP.

ARGENTINA
Change in Public Debt, 2017−19: Contributing Factors

(Percent of GDP)
Sources: Argentine Authorities; and IMF staff estimates and projections.

1/ Impact of exchange rate depreciation (mostly stock revaluation). Derived as ae(1+r)/(1+g)*d, where d is the previous debt
ratio, r the nominal interest rate, g the nominal GDP growth rate, a the share of FX-denominated debt, and e the
depreciation factor of the nominal exchange rate (measured by an increase in local currency per U.S. dollar). See IMF DSA
template for more details.
2/ Impact of the primary balance (reduced with fiscal adjustment efforts, but still positive).
3/ Impact of the differential between the nominal interest rate and nominal GDP growth. Derived as (r-g)/(1+g)*d, where d is
the previous debt ratio, r the nominal interest rate, g the nominal GDP growth rate, and e the depreciation factor of the
nominal exchange rate (measured by an increase in local current of the US$).
4/ Includes asset changes, LEBAC operations, and errors and omissions.
24. In sum, the fiscal adjustment and reforms under the program did not achieve fiscal
sustainability. The primary fiscal deficit was reduced from 3.8 percent of GDP in 2017 to 0.4 percent
of GDP in 2019, close to the program target of zero. However, the adjustment was flattered by one-
off revenue measures of 0.7 percent of GDP and cuts in capital spending, and did not lay the
foundations for a durable increase in tax receipts and stabilization of expenditures. The recession hit
income and consumption tax receipts, while decisions in early 2019 to freeze utility tariffs until the
end of 2019 and provide generous tax incentives to SMEs created additional fiscal uncertainties. The
federal government primary deficit therefore remained subject to significant risks. The exchange rate
depreciation overwhelmed the fiscal targets, as the debt ratio escalated to nearly 90 percent of GDP.
The low quality of the fiscal measures likely eroded confidence.
E. Monetary and Exchange Rate Policy
The initial program aimed to retain the inflation targeting (IT) framework and a flexible exchange rate,
and pursued ambitious disinflation objectives. Recognizing the need to bolster confidence in the
nascent IT framework, the program supplemented the standard inflation consultation clause (ICC) with
net domestic asset (NDA) ceilings and an interest rate policy commitment linked to inflation, and also
called for recapitalization of the BCRA to strengthen its balance sheet and legislative changes to
bolster central bank independence. Limitations on foreign exchange intervention (FXI) were designed

ARGENTINA
to promote exchange rate flexibility. The program did not have the catalytic effect intended, and
continued exchange rate pressures in the wake of the SBA approval in June 2018 were met with ad hoc
FXI inconsistent with the program. The program shifted to a simpler base money targeting approach at
the First Review. The targeting of base money was coupled with some scope for FXI and a continuation
of the inflation-linked interest rate policy. The new framework at first helped stabilize market
conditions. However, inflation expectations did not become durably anchored. Changes to the
framework, inconsistent interventions, and a premature reduction in interest rates, compounded by
doubts about the durability of fiscal consolidation, undermined confidence. Ultimately, the program
was not successful in containing exchange rate depreciation and reducing inflation.
25. Argentina’s economic history has encompassed a full range of monetary regimes. Over
time, most permutations of monetary and exchange rate policies have been tried, none proving
durable. Starting in 1991, Argentina operated under a currency board arrangement, the
Convertibility Plan, which ended amidst a debt, currency, and banking crisis in 2001 (Appendix II);
from 2002, monetary aggregates were targeted; and from 2012 the BCRA was assigned “multiple
objectives.” At the time of the SBA request, the authorities were pursuing inflation targeting with a
floating exchange rate, a nascent framework adopted only in 2016. 22 21F
26. Changes to the monetary framework, focused on bringing inflation under control,
were central to the program strategy.
• In the first version of the program, with inflation running at 30 percent annually, the inflation
targeting framework was retained. The BCRA charter was to be altered to formally define
inflation as the goal of monetary policy and to safeguard central bank independence. The
BCRA was set to target single-digit inflation by 2021. Given the historical experience of
chronically high inflation, the lack of credibility of the central bank, and fiscal dominance, this
disinflation path was ambitious. The program therefore included several features designed to
strengthen the monetary policy regime. First, an ICC stipulated that a consultation with Fund
staff on policy responses would be triggered if the 12-month inflation rate were to breach an
inner inflation band, while the authorities would complete a consultation with the
Executive Board in the event inflation outcomes were to exceed an outer band (text table).
Inflation Targets and Consultation Bands

Dec-18 Dec-19 Dec-20 Dec-21
Outer Band - Upper Limit 32 21 16 11
Inner Band - Upper Limit 29 19 15 10
Midpoint 27 17 13 9
Inner Band - Lower Limit 25 15 11 8
Outer Band - Lower Limit 22 13 10 7
22
The IMF’s AREAER classified both the de jure and de facto exchange rate arrangements as floating, with the
qualification that “the BCRA reserves the power to operate in the exchange market to manage its balance sheet and
prevent unjustified fluctuations in the exchange rate.”

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Second, under the program, the BCRA committed not to lower interest rates until there were
clear signs of a decline in both end-2019 inflation expectations and in realized year-on-year
inflation outcomes. Third, the program included a ceiling on net domestic assets of the BCRA,
combined with a clause calling for consultation with the Fund in case of a breach. Finally,
exchange rate flexibility was to be safeguarded by limitations on FXI via floors on net
international reserves and limits on high-frequency FXI (Box 2. Argentina: FX Intervention Under
the 2018 SBA).
• With continued exchange rate pressures and inflation and inflation expectations diverging
sharply from target, the First Review brought a move to base money targeting, replacing the
inflation targeting framework. The BCRA announced a zero base-money growth rate until
June 2019. Base money targeting was seen as a simpler and hence a stronger anchor that would
help to bring down inflation expectations more rapidly. 23 Given the common problems under
22F
money targeting in calibrating the stance of monetary policy in the face of instability in money
demand, the BCRA also committed not to reduce the policy rate below 60 percent until
one-year-ahead inflation expectations had fallen for two consecutive months. The authorities
maintained their commitment to let the exchange rate float; the new arrangement allowed
FX sales if needed to prevent the exchange rate from moving outside a defined band. This
approach would automatically tighten or loosen monetary policy in response to balance of
payments developments that would move the exchange rate outside the band; the reduced
discretion under this mechanism was intended to bolster credibility.
27. To increase monetary policy space, the program called for a strengthening of the
balance sheet of the central bank. To this end, the program included steps to recapitalize the
BCRA and to reduce the vulnerabilities related to its LEBAC liabilities (Box 3. Argentina:
Vulnerabilities Arising from LEBACs).
• The planned recapitalization ultimately did not take place. Estimates of recapitalization needs
were under preparation by the time of the Fourth Review, but the new charter for the central
bank required for recapitalization did not pass Congress before the program de facto ended.
• Under the program, the reduction in outstanding LEBACs was to be financed by government-
issued peso-denominated securities in the local market (LECAPs). Moreover, the BCRA
committed to limit the counterparties for sale of LEBACs, open market operations, and repos to
local banks. In the event, the entire stock of LEBACs was eliminated by December 2018 and
replaced by LELIQs, issuance of which was then calibrated to match the base money targets.
23
The framework was to be temporary—the BCRA would return to inflation targeting once inflation was reduced.

ARGENTINA
Box 2. Argentina: FX Intervention Under the 2018 SBA

The program specified limits to intervention in the FX market by the central bank. Initially, these limits were
relatively strict, but over time they became looser, in effect allowing more weight to be put on the exchange
rate in the central bank’s reaction function.
The BCRA adopted a formal inflation targeting regime in September 2016, having declared a short-term
interest rate as its main tool earlier in the year. From December 2015 until the first trimester of 2018, there
was relatively little FX intervention by the BCRA, although the central bank had built up international
reserves. However, starting in May 2018, the BCRA reacted to capital flight by selling about US$9 billion into
the market, while also raising interest rates aggressively, until the SBA was approved in June.
The initial program committed the central bank to maintaining a flexible exchange rate regime, with foreign
currency sales restricted to periods of clear market dysfunction. Accordingly, the program included a floor
on net international reserves of the central bank and a ceiling on the stock of non-deliverable forwards.
Additionally, the program committed the central bank to initiate a consultation with the IMF if its net foreign
exchange sales in spot and forward markets breached set limits. During August-September 2018, the BCRA
exceeded those limits, carrying out ad hoc interventions. As a result, net international reserves fell below its
end-September program floor and the stock of non-deliverable forwards rose above the ceiling.
The FX intervention strategy was revamped in the context of the First Review, when base money targeting
replaced the inflation targeting framework. Under the new approach, the BCRA had the option to intervene
only when the peso moved outside a defined band. Initially, the band was set at AR$34-44 per U.S. dollar,
with both ends of the band increasing by 3 percent per month through end-2018. The band implied a
relatively wide (30 percent) non-intervention zone, which aimed to signal the authorities’ intention to let the
exchange rate be driven mainly by market forces. The growth rate of the band was an important component
of the monetary policy strategy as it conveyed the broad inflation forecasts of the authorities for the near
future. Whenever the exchange rate moved outside the non-intervention zone, the BCRA could sell or buy
up to US$150 million per day. All foreign exchange purchases were expected to be unsterilized. As such, the
change in NIR would be matched by an expansion or contraction of base money, providing an automatic
adjustment of the monetary policy stance (while still observing the zero base money growth target).
Moreover, the authorities committed to allowing only the BCRA to carry out FXI, not allowing state-owned
banks to engage in official FX sales on behalf of the government.
On the back of a tighter monetary policy stance and higher interest rates following the adoption of the base
money framework, the peso appreciated by 15 percent in October 2018 and hovered close to the higher
edge of the non-intervention zone for most of November 2018. At the Second Review, completed in
December 2018, the broad approach was retained, with a reduction of the monthly change of the non-
intervention zone for 2019Q1 to 2 percent per month. The non-intervention limit was reduced to
US$50 million per day, to avoid an excessive deviation from the zero-base money growth target (the
deviation from the monthly target would be capped at 2 percent).
BCRA FX Intervention AR$/US$
(US$ billion) (Daily exchange rate from SIOPEL)
1.6 16 55
1.4 14
1.2 50
12
1
10 45
0.8
8
0.6 40
6
0.4
4 35
0.2
0 2
30
-0.2 0
25
Nov-18
Jan-19
Jun-18
Feb-19
Jun-19
Jul-18
Oct-18
Jul-19
May-18
May-19
Dec-18
Aug-18
Apr-18
Apr-19
Sep-18
Mar-19
20
Nov-18
Jun-18
Jan-19
Feb-19
Jun-19
Jul-18
Oct-18
Jul-19
May-18
May-19
Dec-18
Aug-18
Apr-18
Apr-19
Mar-18
Sep-18
Mar-19
Daily sales Cumulative value since Apr 2018 (RHS)

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Box 2. Argentina: FX Intervention Under the 2018 SBA (Concluded)

During January and early February 2019, the peso traded below the lower edge of the non-intervention
zone, allowing the BCRA to buy close to US$1 billion from the market. The change in the slope of the
non-intervention zone was reduced further, from 2 percent to 1¾ percent per month, in 2019 Q2.
Higher-than-expected March inflation and increased political uncertainty triggered a sharp sell-off in
Argentine assets in April 2019. The FXI strategy was changed once more, reducing the monthly rate of
change of the non-intervention zone from 1¾ to zero percent and committing not to buy FX in the event of
appreciation. The BCRA would be prepared to sell up to US$250 million if the exchange rate were to
depreciate beyond AR$51.5 per U.S. dollar and would undertake additional interventions to counteract
episodes of excessive volatility, while keeping the option to sell dollars within the non-intervention zone
depending on market dynamics. All FX sales would be unsterilized which would ensure a reduction in the
monetary base, further tightening the monetary stance and supporting the exchange rate. After this
announcement, the peso appreciated and remained broadly stable until August 2019.
Box 3. Argentina: Vulnerabilities Arising from LEBACs

The central bank used its own liabilities—LEBACs—to mop up excess liquidity. High yields attracted private
non-institutional and foreign investors, fueling a carry trade and creating a flash point for a sudden reversal of
flows.
The BCRA had for many years issued its own short-
term peso-denominated liabilities (Letras del Banco
Central, or LEBACs). These instruments were used to
sterilize the effects on the money supply from FX
interventions (Frenkel and Repetti, 2008). Starting in
2016, the issuance of LEBACs increased sharply with
the increase in private capital inflows, particularly
from issuance of foreign currency sovereign debt. By
2018, the total stock of LEBACs had reached
10 percent of GDP, or 120 percent of base money.
This was known to be a risky strategy; in other countries, use of central bank instruments to sterilize capital
inflows had been associated with incentivizing additional capital inflows, inflationary bias (because of the
high interest costs of sterilization), and stresses on central bank balance sheets (as the return on foreign
reserves is typically less than sterilization costs).1/ Generally, a central bank would sell government securities
to withdraw excess liquidity from the banking system. However, the Argentine central bank’s balance sheet
was weak to begin with—the scale of sterilization needs was greater than could be covered by the central
bank’s holdings of marketable government securities, hence the use of central bank instruments.
Unusually, perhaps owing to Argentina’s small domestic investor base, purchase of LEBACs was open to
foreign and noninstitutional investors. Domestic investors perceived the central bank to have lower credit
risk than the government, and invested heavily in LEBACs. Foreign investors were drawn to the relatively
high yields. The recurrent monthly rollover of LEBACs therefore created the potential for significant volatility
in both exchange rates and interest rates, especially around the LEBACs’ maturity dates. The instability of the
interest rates, in turn, threatened the ability of the BCRA to set interest rates in a predictable way consistent
with its inflation objectives. Given the inherent volatility of capital flows, LEBACs therefore became a
potential trigger point for sudden stops.
_________________________
1/ See Mehotra (2012).

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28. Although wage setting and indexation represented obstacles to disinflation, incomes
policies were not part of the program. The high degree of indexation and other rigidities posed a
challenge to the success of inflation targeting, by making the effects of temporary movements to
the exchange rate and one-time increases in regulated prices more persistent. Incomes policies—
that is, tripartite agreements on wage increases, usually with quid-pro-quo agreements on taxes and
administered prices, such as utility tariffs—could in principle have helped inflation expectations to
settle, and were evaluated by IMF staff. However, given mixed experiences in other countries and
difficulties in quickly agreeing on a complex range of issues, incomes policies were ultimately not
considered suitable.
29. The inability to anchor inflation added to the program’s struggles. Inflation outturns
were much higher than envisaged: inflation had been targeted to fall from around 25 percent in
2017 to single-digit levels during the program period, but instead increased steadily to over
50 percent. Rapid exchange rate depreciation starting in mid-2018 made the targeted disinflation
path unrealistic due to the high passthrough. After the First Review, inflation slowed towards
end-2018. But this price stabilization was followed by increases in government transfers and salaries
to support domestic demand, adjustments to utility prices, and loosening of monetary policy; the
resulting higher inflation in early 2019 led to further exchange rate depreciation. The failure to
contain inflation was instrumental to the damage to debt sustainability and real incomes under
the program.
30. Although program actions aimed to bolster monetary policy credibility and strengthen
the policy framework, the actual implementation of monetary policy was inconsistent.
Between approval of the SBA and completion of the First Review, FXI was ad hoc and the program
limits were breached. 24 After the monetary policy framework was revised in October, interest rates
23F
rose substantially and the exchange rate stabilized. However, the authorities abandoned the
60 percent floor on policy interest rates prematurely, in early December. Furthermore, the base
money target for December was relaxed to accommodate a seasonal increase in money demand,
but was not reversed subsequently. Also, the program’s rules on FXI were changed—and
breached—frequently. More consistent, on the other hand, was the steady decline in credit growth.
24
The auctioning of FX provided for budget support also proved contentious; depending on the timing and terms,
such auctions may have the effect of FX interventions.

ARGENTINA
Interest Rates 1/
(percent)
80
75
70
65
60
55
50
45
40
35
30
Jun-18 Aug-18 Oct-18 Dec-18 Feb-19
LELIQ rate Large deposit rate Lending rate
Source: BCRA.
1/ The lending rate corresponds to interest rates on loans granted to the non-financial private sector.
31. Even with consistent and well-calibrated implementation of monetary policy, bringing
inflation down would have been challenging. At a fundamental level, monetary policy credibility
was undermined by deep-seated fears of fiscal dominance. This was especially so for the recently
adopted inflation targeting regime, given the dependence of that approach on anchoring
expectations of future inflation. The inconsistent implementation and communication undermined
the achievement of the inflation goals under both monetary regimes during the SBA. But given the
political situation and underlying doubts about the durability of fiscal consolidation, it is unlikely
that any particular monetary policy framework on its own would have been able to overcome these
fears, which fed capital flight, furthering exchange rate depreciation, increasing inflation, and
worsening debt in a vicious circle.
F. Social Protection and Gender Policies

The program included features to safeguard social protection and increase female labor force
participation. These program elements were aimed both to support vulnerable households and build
political support for the reform agenda. The outcomes did not meet the goals, in part because the
more adverse general economic conditions outweighed the targeted social protection policies and in
part because of a lack of follow through on the legislative agenda.
32. The program aimed to protect economically vulnerable households. To secure political
support, the administration and the Fund were eager to distinguish the 2018 SBA from previous
Fund-supported programs, which had been associated with increases in economic inequality.
Consequently, protecting the vulnerable was one of the program’s overarching goals described in
the Letter of Intent. The program committed the administration to strengthen the social safety net
and maintain the level of social spending, and noted the authorities’ ambition to reduce poverty
rates over the course of the program even if there were to be a slower-than-expected economic
rebound.
33. Social policies were reformed to better target the poor and a floor on government
social spending was applied—and respected—throughout the program. Specifically, the
program aimed for: (i) an improvement in public childcare, not only to protect poor households, but

ARGENTINA
also to raise female labor force participation; (ii) a better targeting—together with an broader reach
to the population—of the universal child allowance; and (iii) a strengthened monitoring of social
conditions of households to help address the needs of the most vulnerable. The SBA included a
floor on social spending as a performance criterion, which was met throughout the program—
indeed, the authorities increased social spending from the Third Review onwards, particularly in the
area of childcare and social assistance, which was financed in part by other IFIs.
34. However, weaker-than-expected growth and higher-than-expected inflation

undermined the efforts to mitigate poverty. Despite the increase in social spending, the share of
the population living in poverty—disproportionately concentrated in children—rose from 27 percent
in 2018H1 to 35 percent in 2019H1. The recession pushed real wages down and unemployment and
informality up, exposing gaps in social protection (such as for younger workers in the informal
sector). Higher inflation led to lower living standards, including for government workers and
pensioners, in part reflecting backward-indexation of public wages and pensions (Box 4. Argentina:
Pension Reform). To compensate, the authorities suspended the planned increase in energy prices.
Overall, the program’s specific social spending commitments were met, but were overwhelmed by
the general impact of the crisis.
35. Features were introduced to reduce gender inequality, but progress fell short.
• Gender issues had been emphasized in the Staff Report for the 2017 Article IV Consultation,
which noted the lower female labor participation rate in Argentina than in other Latin American
countries and a pronounced gender wage gap. Women were also more likely to work in the
informal sector, characterized by low pay, poor working conditions, and limited access to social
protection. 25 Gender inequality was considered important not only for social cohesion and
24F
equity, but also macro critical—increasing participation and eliminating practices that resulted in
wage gaps would increase output and productivity. Against this backdrop, the SBA Request
committed to a range of measures to increase female labor force participation, such as
eliminating the second-earner penalty in the current tax system. The increased support for
households with children was also intended to raise female labor force participation, particularly
for lower-income households.
• By the time of the Fourth Review, congressional approval of legislation to increase paternity
leave and legal changes to eliminate tax disincentives for female labor force participation—
potentially the most effective measure of those envisaged in the SBA Request—had not been
passed. Wage differentials stayed roughly the same, and female labor force participation increased
only marginally during the program.
25
IMF (2017b), pp.78-90.

ARGENTINA
Box 4. Argentina: Pension Reform

The Argentine pension system was actuarially unsustainable. Changes had been made to the pension
indexation formula before the program, intended to reduce costs over the medium term while providing some
protection of benefits. In the event, rising inflation resulted in a reduction in real pension benefits during the
program.
Pension system costs reached 10 percent of GDP in 2018, a large number in light of Argentine demographic
pressures. The main component of the system was a pay-as-you-go scheme covering nearly 40 percent of
workers. The system was actuarially unsustainable. Pension benefits were not fully financed by current
contributions, weighing on public finances—workers’ and employers’ contributions amounted to 5.2 percent
of GDP in 2017, while contributory benefits stood at 7.5 percent of GDP. Non-contributory pensions, which
had risen rapidly in the previous decade, accounted for the remaining share of pension spending. The old-
age dependency ratio was projected to increase from 17 percent in 2017 to about 28 percent by 2050,
adding to the stress on the system.
No changes were made to the parameters of the pension system during the program. However, changes to
the pension indexation formula before the 2018 SBA was approved had important effects during the
program: the formula used to calculate increases in pension benefits was revised at the end of 2017 from an
indexation system based on semi-annual adjustments based on growth in wages and taxes (which had
contributed to an increase in the pension cost-to-GDP ratio in the previous decade) to one of quarterly
adjustments based on wage and price inflation (with weights of 30 and 70 percent, respectively). This change
brought the indexation system more in line with international best practices. However, as inflation
accelerated during the program, the real value of pensions fell (if inflation had decelerated as foreseen, the
new formula would have delivered an increase the real value of pensions). This resulted in an unplanned
reduction in pension spending as a share of GDP, which contributed to the fiscal adjustment under the
program.
G. Structural Policies, Financial Sector Reform, and Governance
Consistent with its focus on short-term stabilization, and also reflecting the administration’s
constrained political space, the program contained relatively limited conditionality on structural
policies. Moreover, the financial sector’s small size and overall sound position motivated less focus on
financial sector reform than in other similar programs. Governance frameworks and related
vulnerabilities came increasingly into focus, in line with the Fund’s renewed emphasis on these issues.
36. Structural reforms and related conditionality were narrowly targeted. The program had
no structural policy prior actions at approval, but featured three such actions during the program,
two under the First Review and one under the Second Review. A comparative analysis of structural
conditionality suggests that the number of conditions in the SBA was lower than typical
(see Box 5. Argentina: Structural Conditionality under the 2018 SBA). 26 The measures were well
25F
targeted in the context of the program’s emphasis on short-term financial stabilization, with the
26
Not all exceptional access SBAs have included prior actions—examples without prior actions include Armenia
(2009), Georgia (2008), Hungary (2008), Jordan (2012), and Romania (2009).

ARGENTINA
structural reform agenda focused on macroeconomic stabilization, fiscal reforms and monetary
policy and with the actions singled out for conditionality focused on fiscal, PFM and central bank
reforms. The design of structural conditionality was also a de facto acknowledgment of the existing
political constraints as the administration’s lack of majority in Congress would likely have hampered
reforms requiring legislative action. The overall strategy was to support stability in the initial part of
the program and move on to deeper reforms later. That said, the structural policy commitments
included in the program went beyond those anchored on benchmarks and included supply side
policy measures aimed at strengthening the anti-corruption regime and AML-CFT legal framework,
develop domestic credit markets, increase competition, and reduce red tape.
Box 5. Argentina: Structural Conditionality Under the 2018 SBA

This box looks at prior actions, structural benchmarks, and structural performance criteria.1/ A comparison of
the Argentina SBA with other exceptional access cases shows that, although the structural benchmarks were
relatively few and of relatively limited depth, they were well aligned with the program’s emphasis on short-
term macroeconomic stabilization.
An assessment of structural reforms under the program points to relatively limited but well focused
structural conditionality when compared with other exceptional access SBAs. Following the 2018 Review of
Conditionality (IMF, 2019c), structural conditionality at the time of program approval is assessed by volume,
depth, and focus. The volume of structural conditionality is defined as the number of conditions per program
year. Depth is defined as the degree and durability of structural conditions, with measures separated into
high-, medium-, and low-depth categories.2/ Focus is assessed by categorizing structural conditions into
core, shared, and non-core areas of Fund responsibility. Based on these three criteria, Argentina’s 2018 SBA
is compared below to other exceptional-access SBAs from 2008 to 2018.3/
The volume of structural conditions in the program was less than one third of other exceptional access SBAs.
Moreover, the Argentina program did not include prior actions at the time of the request, which was the
case in less than one third of comparable programs.
Structural conditions tended to be of lesser depth than in comparable programs. Half the structural
benchmarks set at the time of program approval were assessed to be of low depth, a higher proportion than
in other exceptional access SBAs. On the other hand, the share of high-depth measures was larger, while
medium-depth structural conditions represented a smaller share of all structural conditions. High-depth
measures planned included the recapitalization of the BCRA and the submission of a new central bank
charter to Congress, albeit with relatively late test dates (end-December 2019 and end-March 2019
respectively) and no explicit commitment of fiscal resources, which also contributes to the assessment of
“light” structural conditionality at the time of the program approval.
Depth of Structural Measures Focus of Structural Measures Subject of Structural Measures

100% 100% 100% Fiscal
PFM
80% 80%
Central Bank
60% 60%
Financial
50%
40% 40% Pension/civil
service
20% SOE reform
20%
Social
0% 0%
Argentina Other EA SBAs 0% Other
Argentina Other EA SBAs
Low Medium High Argentina Other EA SBAs
Core Shared Non-core

ARGENTINA
Box 5. Argentina: Structural Conditionality Under the 2018 SBA (Concluded)

All structural conditions were focused on areas of core Fund responsibility.4/ In terms of subject, half the
measures concerned the central bank, and half fiscal and PFM issues combined. There were no structural
conditions on the financial sector, which is atypical for exceptional access programs.
_______________________
1/ Structural performance criteria were eliminated from the Fund’s lending and conditionality framework in 2019.
2/ “High depth” designates reforms that lead to permanent institutional changes, such as involving legislative changes, or
measures with long-lasting impact (e.g., pension reform, privatization). “Medium depth” corresponds to one-off measures that
might bring immediate, but not lasting, effects, such as budget approval or one-time changes to controlled prices. “Low depth”
involves reforms that could serve as intermediate steps but would not by themselves bring significant economic change, such as
preparation and/or announcement of plans.
3/ Other exceptional-access SBAs include Armenia (2009), Belarus (2009), Georgia (2008), Greece (2010), Hungary (2008), Iceland
(2008), Jordan (2012), Latvia (2008), Mongolia (2009), Pakistan (2008), Romania (2009), Sri Lanka (2009), St. Kitts and Nevis (2011),
and Ukraine (2008, 2010, 2014).
4/ Areas of “core” Fund responsibility include fiscal, PFM, central bank, financial sector, and pension and civil service reform
issues. See Appendix II in IMF (2019c).
37. The program featured limited coverage of the financial sector. Capital account crises
have often been accompanied by financial sector crises, and in Argentina funding pressures on the
sovereign could conceivably have spilled over to banks. However, Argentina’s financial sector in
2018 was much smaller than it had been at the time of the previous crisis, and banks’ business
models were very conservative—banks typically held a high proportion of low-credit-risk assets
(such as central bank securities) and had limited lending exposure to the sovereign. Moreover,
financial soundness indicators were reassuring. This and few signs of bank stress motivated the
relatively limited coverage of the financial sector; nevertheless, the work of Fund staff modelling the
effects of capital flow restrictions and debt operations did cover the financial sector.
38. Governance measures became more prominent over time. The IMF’s assessment of
governance vulnerabilities focused on corruption and AML/CFT, and was relatively light on reforms
of public financial management. The June 2018 program request included a general commitment to
strengthen the anti-corruption regime and improve the AML-CFT legal framework. The program’s
emphasis on governance increased with the implementation of the Fund’s new framework for
enhanced engagement on governance approved by the Executive Board in April 2018, 27 which 26F
prompted the inclusion of a full section on tackling corruption in the Staff Report for the Second
Review.
27
See Review of 1997 Guidance Note on Governance—A Proposed Framework for Enhanced Fund Engagement
(3/9/2018) and IMF Press Release No. 18/142.

ARGENTINA
CONSISTENCY WITH FUND POLICIES AND

PROCEDURES
Fund policies and procedures relating to financing, safeguards and program design were adhered to.
The approach to precautionary Fund financing and the associated communication challenges may
have undermined the catalytic effect of the program. The Fund’s Exceptional Access Framework was
followed, but its application was challenging. The experience with the Argentina SBA highlights scope
for taking a broader view of the risks to the Fund associated with exceptional access cases.
A. Financing
As the adverse scenario came to bear already by the time of the First Review, access was increased,
and the program become fully disbursing with all proceeds of IMF resources used by the authorities for
budget financing. The scale of Fund support matched the financing needs projected at that time and as
such was appropriate. That said, rollover rates remained an element of considerable uncertainty when
assessing actual financing needs. Moreover, the shift to a disbursing arrangement signaled an
acknowledgement that the catalytic effect of the program had fallen short of expectations. The
experience points to broader implications of exceptional-access Fund-supported programs for the
global financial safety net and burden sharing amongst creditors.
39. The 2018 SBA was conceived as primarily precautionary, but deteriorating financial
conditions quickly prompted a switch to a fully disbursing arrangement. The initial program
assumed an external financing gap, concentrated between June and December 2018, of
SDR 10.6 billion (approximately US$15 billion). The remainder of the Fund resources
(SDR 24.8 billion, or approximately US$35 billion) were to be treated as precautionary, with access to
be phased evenly based on twelve quarterly reviews over three years (see text chart). With very
limited financing from non-Fund official sources, the projected financing gap relied critically on the
assumed rollover rates of privately held debt. 28 Rollover rates deteriorated after program approval
27F
in June and through September. Treasury issuances in the domestic market were limited, and
increasingly at short maturities as the authorities sought to avoid paying higher interest rates.
Consequently, at the First Review in October, a change in the amortization schedule 29 called for an
28F
augmentation of the arrangement, some frontloading, and actual use of Fund resources to close the
fiscal financing gap (which translated into a corresponding external gap). The revised purchase
schedule involved concentrated access through the third quarter of 2019 (SDR 35.8 billion, or
US$51 billion, slightly above the original arrangement) and envisaged the residual amount
28
The baseline scenario in the initial program, which assumed rollover rates between 75 and 100 percent, projected a
need for Fund resources only in 2018. The adverse scenario presented with the initial program request, which
assumed rollover rates between 75 and 90 percent, justified access to the remaining resources. These rollover rates
were in line with those observed in other countries during stress episodes , but did not account for additional
financing needs not anticipated at the beginning of the program.
29
Rollover rates assumptions were reduced to 50 percent in 2018, gradually increasing to 70 percent in 2019 for
privately held bonds.

ARGENTINA
(SDR 4.9 billion or US$7 billion) being purchased over the remainder of the arrangement in seven
equal installments.
External Financing Needs – SBA Request External Financing Needs – First Review
(US$ million) (US$ million)
(US$ million) ( )
35,000 35,000
Debt 1/
Trade balance
Debt 1/
Reserves 30,000
30,000 Trade balance
Gap (IMF)
Reserves
Other 2/
Gap (IMF)
25,000 Other 2/
25,000
20,000
20,000
15,000
15,000
10,000
10,000
5,000
5,000
0
Needs Sources Needs Sources Needs Sources Needs Sources Needs Sources Needs Sources Needs Sources
0 2018 June 2018 Q3 2018Q4 2019Q1 2019Q2 2019Q3 2019Q4

Needs Sources Needs Sources Needs Sources Needs Sources Needs Sources Needs Sources Needs Sources
2018 Jun 2018Q3 2018Q4 2019Q1 2019Q2 2019Q3 2019Q4
Fiscal Financing Gap External Financing Gap

(US$ million) (US$ million)
20,000
20,000
15,000
15,000
10,000
10,000
5,000
5,000
0
0
-5,000
-5,000
-10,000
-10,000
-15,000 -15,000
2018 2018Q3 2018Q4 2019Q1 2019Q2 2019Q3 2019Q4 2018 2018Q3 2018Q4 2019Q1 2019Q2 2019Q3 2019Q4
June June
IMF budget support (actual) Request
IMF access (actual) Request
1st Review 2nd /3rd Reviews
1st Review 2nd /3rd Reviews
4th Review
4th Review
Original Phasing
(Adverse scenario with full drawing, SDR billion)
12
10 Disbursement
8 Repayment (principal)
-2
-4
-6
2018 Q2
2018 Q3
2018 Q4
2019 Q1
2019 Q2
2019 Q3
2019 Q4
2020 Q1
2020 Q2
2020 Q3
2020 Q4
2021 Q1
2021 Q2
2021 Q3
2021 Q4
2022 Q1
2022 Q2
2022 Q3
2022 Q4
2023 Q1
2023 Q2
2023 Q3
2023 Q4
2024 Q1
2024 Q2
2024 Q3
2024 Q4
2025 Q1
2025 Q2
2025 Q3
2025 Q4
2026 Q1
2026 Q2

ARGENTINA
Revised Phasing at First Review

(SDR billion)
12
10 Disbursement
8 Repayment (principal)
6
4
2
0
-2
-4
-6
2018 Q2
2018 Q3
2018 Q4
2019 Q1
2019 Q2
2019 Q3
2019 Q4
2020 Q1
2020 Q2
2020 Q3
2020 Q4
2021 Q1
2021 Q2
2021 Q3
2021 Q4
2022 Q1
2022 Q2
2022 Q3
2022 Q4
2023 Q1
2023 Q2
2023 Q3
2023 Q4
2024 Q1
2024 Q2
2024 Q3
2024 Q4
2025 Q1
2025 Q2
2025 Q3
2025 Q4
2026 Q1
2026 Q2
40. Burden sharing was limited, with the Fund providing the bulk of official financing. The
IMF’s financing assurances policy 30 requires that a program be "fully financed," with firm
29F
commitments of financing for the first 12 months of the arrangement (or the 12 months following a
review) and “good prospects” thereafter. Under the SBA, Argentina’s financing needs were to be met
primarily through IMF financing and debt issuance in the domestic market (with participation of
foreign creditors). Between end-March 2018 and end-2019, actual net financial support from other
IFIs during the program period was set at about US$2.7 billion, 31 or about 6 percent of all additional 30F
financing from IFIs (including the Fund). 32 Program financing therefore depended on the debt
31F
rollover rates. At the time of the First Review, when rollover rates had fallen below those assumed in
the initial program, program financing relied on the augmentation of the arrangement and the
accelerated move to fiscal balance. Financing assumptions remained stable at both the Second and
Third Reviews. By the time of the Fourth Review, financing needs had increased as a result of a
steeper yield curve and reduced maturities of issuances (up to three months), but with an
assumption of higher rollover rates, the program was deemed fully financed.
30
See Annex I of Sovereign Debt Restructuring—Recent Developments and Implications for the Fund’s Legal and
Policy Framework (SM/13/100, 4/26/2013). The financing assurances policy aims at promoting effective balance of
payments adjustment and ensuring the capacity to repay the Fund. At program approval, there must be (i) "firm
commitments" of financing in place for the first 12 months of the arrangement, and (ii) "good prospects" of adequate
financing for the remaining program period. Program reviews must determine full financing of successive 12-month
periods beyond the initial 12 months (or whatever period is left under the arrangement).
31
The Fourth Review estimated official financing of US$1.6 billion in 2018 and US$3.0 billion in 2019.
32
In contrast, under the 2000 SBA for Argentina, the IMF engaged with other donors to put together a package of
resources to act as shield (“blindaje”). By January 2001, there were pledges of US$40 billion in official support, with
only about one third contributed by the IMF.

ARGENTINA
41. Financing choices at the time of the SBA’s approval were consistent with the initial
diagnosis and strategy, but may nevertheless have worked against instilling confidence. The
initial access and phasing were consistent with the diagnosis of a temporary liquidity shortage and
the strategy of catalyzing market access to provide space for gradual implementation of policy
reforms.
• The limited burden sharing can be seen as a consequence of the urgency to provide financing.
The frontloading, augmentation of access and use of proceeds for budget financing at the time
of the First Review (¶8, 40) signaled that a larger share of the near-term financing needs would
be met by the Fund, in lieu of a catalytic effect on private flows. The lack of additional major
sources of financing (other than a new swap line with the People’s Bank of China) may have put
in question the confidence-shock narrative. The frontloading of access may also have lessened
the Fund’s leverage to secure reforms, working against the catalytic effect.
• The increased access and frontloading incorporated at the First Review compressed the original
Fund financing in the 15 months before the 2019 election, generating substantial financial risks
to the Fund, and may have also played against its catalytic role.
42. The experience with the Argentina SBA poses broader questions on the role of the
Fund in cases of large absolute financing needs. Challenges in the Argentina case were multiple:
large and intertwined fiscal and external financing needs, very little room for adjustment, limited
support from other official sources, a dispersed private creditor base, and pressure for swift action.
Given that such conditions may resurface in other exceptional access cases, the Fund needs to be
clear about the roles it is called to play, and which constraints should be challenged (considering
that accepting constraints would tend to increase the size of arrangements).
• In the 2018 SBA, the Fund accepted being de facto the sole official creditor, in a context of highly
uncertain financing needs. Going forward, the Fund may wish to revisit its stance towards
burden sharing and scrutinize debt rollover assumptions.
• When a deterioration occurs, pulling out from a program is very difficult, 33 and the Fund could
32F
well face a choice between taking a forceful stance on debt reprofiling and accepting the high
financial risk of taking a member country “out of the market.”
• Given the weight of the initial financing decision, the speed of action (including resort to the
Emergency Financing Mechanism) should be carefully weighed against the longer-term risks
associated with a program engagement.
33
As the 2000 Argentina SBA experience illustrates (Appendix I), exit costs to a program can be overwhelming—by
denying access, the Fund may be seen as precipitating a crisis.

ARGENTINA
B. Application of the Exceptional Access Framework
The application of the Exceptional Access Framework (EAF), updated by the Executive Board in 2016,
proved challenging in the economic and political circumstances facing Argentina. The provisions of the
updated EAF are intended to provide scope for flexibility and necessarily leave room for judgment
about technical matters. Applying the updated EAF in the context of the 2018 SBA involved finely
balanced assessments.
43. Because of its size, the SBA was subject to the Exceptional Access Framework. Normal
access to Fund financial resources would have limited Argentina to 145 percent of quota for any
12‑month period, and cumulatively to 435 percent of quota (net of repayments) over the period of
the program. The 2018 SBA was nearly three times this cumulative limit. Under the EAF as updated
by the Executive Board in early 2016, exceptional access arrangements are required to satisfy all four
Exceptional Access Criteria (EAC):
EAC1. The member is experiencing or has the potential to experience exceptional balance of
payments pressures on the current account or capital account resulting in a need for Fund
financing that cannot be met within the normal limits.
EAC2. A rigorous and systematic analysis indicates that there is a high probability that the
member’s public debt is sustainable in the medium term. Where the member’s debt is assessed
to be unsustainable ex ante, exceptional access will only be made available where the financing
being provided from sources other than the Fund restores debt sustainability with a high
probability. Where the debt is considered sustainable but not with a high probability,
exceptional access is justified if financing provided from sources other than the Fund, although it
may not restore sustainability with high probability, improves debt sustainability and sufficiently
enhances the safeguards for Fund resources. 34 33F
EAC3. The member has prospects of gaining or regaining access to private capital markets
within a timeframe and on a scale that would enable the member to meet its obligations falling
due to the Fund.
EAC4. The policy program of the member provides a reasonably strong prospect of success,
including not only the member’s adjustment plans but also its institutional and political capacity
to deliver that adjustment.
Argentina was deemed to meet the EACs at the time of the Board approval of the SBA and in all four
program reviews, although the assessment of three of the four criteria was finely balanced
(Annex III).
34 For purposes of the criterion, financing provided from sources other than the Fund may include, inter alia,
financing obtained through any intended debt restructuring. This criterion applies only to public (domestic and
external) debt. However, the analysis of such public debt sustainability is required to incorporate any relevant
contingent liabilities, including those potentially arising from private external indebtedness.

ARGENTINA
44. The balance of payments needs facing Argentina were evident, satisfying EAC1. At the
time of the SBA request, Argentina faced an actual balance of payments need and had the potential
to experience stronger pressures that warranted exceptional access. Argentina purchased about
US$15 billion at the time of the SBA approval; soon after, exceptional balance of payment pressures
emerged and remained through the program (¶17). The assessment was further underpinned by the
low level of international reserves, which fell short of the Fund’s ARA metric.
45. Despite steadily deteriorating public debt indicators during the program period,
EAC2 was deemed to be met on the grounds that market access was retained and that private
claims falling due during the program period were small. Debt was initially categorized as
“sustainable but not with high probability” (referred to as being in the “gray zone”), and this
assessment was maintained throughout the program. The provision of Fund financing under this
category had been introduced under the EAF policy to provide flexibility and avoid potentially very
costly and unnecessary debt restructurings. 35 The flexibility is not unconstrained—in such cases the
34F
policy calls for safeguards that would improve debt sustainability and reduce risks to the Fund,
laying out a range of options that could meet these requirements, with no presumption that any
particular option should apply. 36 For example, EAC2 could be satisfied if debt was not clearly
35F
sustainable with high probability but the member nonetheless either retained market access or the
volume of private claims falling due during the program period would be small. This was the option
relied upon during the 2018 SBA. Another option, if the member has lost market access and private
claims falling due during the program would constitute a significant drain on available resources,
would be to reprofile existing claims. This option was not acted upon under the 2018 SBA. 37 Based 36F
on the 2016 EAF, the Fund’s final assessment relied on debt sustainability analysis, safeguards
provisions and judgment:
• Application of the IMF’s Debt Sustainability Analysis (DSA). The DSA provides a bottom-line
assessment of sustainability based on an array of indicators and tools, with the overall
assessment ultimately relying on judgment. At the time of program approval in June 2018, the
IMF assessed that debt was “sustainable, but not with a high probability.” By the time of the
First Review, and for the remainder of the program, this judgment had become finely balanced,
and the indications from the DSA worsened throughout the program period (Annex II). During
the first four months, from the approval of the SBA in June to the First Review in October, the
debt-to-GDP ratio jumped from 65 to 81 percent of GDP. As this was above the benchmark
35
Previously, for the purposes of EAC2, the choice was binary: debt was sustainable with high probability or not. A
“systemic exemption” created in 2010 in the context of the Greece SBA had effectively established a third category of
uncertain or “gray zone” cases, but it applied only to cases where there was a high risk of international systemic
spillovers and as such did not extend to all cases in which debt sustainability was uncertain. The Fund’s Exceptional
Access Policy was amended in 2016 to allow for cases in which debt would be assessed as “sustainable, but not with
high probability.” In those cases, exceptional access would be granted only if the financing provided from sources
other than the IMF improved debt sustainability and would sufficiently enhance the safeguards for IMF resources.
36
See Figure 1 and associated text in IMF (2015).
37
In general, “reprofiling” refers to a lighter form of sovereign debt restructuring in which maturities are extended
while coupons and principal are not reduced. In the context of the EAF, it denotes a short extension of maturities
falling due during the program (with normally no reduction in principal or coupons).

ARGENTINA
threshold of 70 percent in the current and the first projected year, the first row of indicators in
the DSA “heat map” turned from green to red. Over the same period, EMBIG spreads increased
from 415 to 630 basis points, above the 600 bp threshold, causing the market perception
indicator to change from yellow to red. Although gross financing needs under the baseline
scenario remained below the 15 percent of GDP rule of thumb until the Third Review, at the time
of the program request other structural characteristics indicated high vulnerability—Argentina’s
small banking system limited the ability to absorb additional borrowing requirements
domestically, and the narrow export sector constrained the ability to carry debt in foreign
currency (Figure 3). Overall, the level of debt, gross financing needs, external financing
requirements, and risk premia increased during the program, raising questions of whether the
liquidity crisis was becoming a solvency crisis. By the time of the Fourth Review in July 2019,
12 out of 15 cells in the DSA heat map were red.
• Safeguards to Fund resources. Against the backdrop of the considerations above, EAC2 was, on
balance, deemed to be met in view of market access and the volume of private claims falling
due during the program. With respect to market access, the Argentine Treasury was seen to be
issuing bonds domestically during the program, although market access weakened over time
(Box 6. Argentina: Market Access During the 2018 SBA). With respect to the volume of private
claims, safeguards to the Fund, measured as the ratio of post-program restructurable debt
relative to peak Fund credit, decreased relative to expectations at program approval, reflecting
the augmentation. However, there is no clear guidance in the policy on when the volume of
private claims falling due during a program is small enough (or when the volume of post-
program restructurable debt can be deemed large enough) to sufficiently safeguard Fund
resources.

ARGENTINA
Figure 3. Debt Indicators1

Gross Public Debt, 2018 Public Gross Financing Needs, 2019
(Percent of GDP) (Percent of GDP)
100 18
90 16
80 14
70 12
60
10
50
8
40
30 6
20 4
10 2
0 0
PR Rev 1 Rev 2 Rev 3 Rev 4 PR Rev 1 Rev 2 Rev 3 Rev 4
External Financing Requirements

EMBIG
(Percent of GDP)3
(basis points)2
1,000 25
900
800 20
700
15
600
500
10
400
300
5
200
100
0
0 PR Rev 1 Rev 2 Rev 3 Rev 4
PR Rev 1 Rev 2 Rev 3 Rev 4
3/ Based on external financing requirements reported in DSA
2/ In each review, an average over the previous 3 months Template Charts. For the Program Request, First Review and
is reported. Second Review, figures correspond to 2017. For the Third and
Fourth Review figures correspond to 2018.
Exports to GDP, 2015−18

Domestic Bank Assets to GDP, 2015−18
(Percent)
(Percent)
50
45
140
40
120
35
100 30
80 25
60 20
15
40
10
20
5
0
0
Mexico
Argentina
Peru
Colombia
Chile
Brazil
Mexico
Argentina
Peru
Colombia
Chile
Brazil
1/ Dashed lines correspond to DSA benchmarks. This includes 70 percent for debt burden and 15 percent for gross financing
needs. Lower and upper risk-assessment benchmarks are: 200 and 600 basis points for bond spreads; 5 and 15 percent of
GDP for external financing requirement.

ARGENTINA
Box 6. Argentina: Market Access During the 2018 SBA

Argentina was not able to raise significant funds externally during the program period. It did, however, issue debt
domestically up until the de facto end of the program, albeit with significantly higher yields and shorter maturities.
Argentina’s market access deteriorated after January 2018, when a total of US$9 billion in external debt was
successfully issued. In the following period, the Treasury no longer placed bonds externally. Nonetheless, in
January 2018-July 2019, the Treasury continued to issue bonds (both in U.S. dollars and pesos) and short-term
paper domestically (mostly LECAP and LETES; Figure 4, second row). Non-residents continued to participate in
the domestic debt market while rebalancing their portfolio from LETES to LECAP. Domestic placements also
came to an end after the primary elections in August 2019, when an attempt to issue short-term paper in pesos
(LECAPs) and U.S. dollars (LETES) failed (Figure 4, first row).
Non-residents started to exit the LETES market, dropping their stock holdings by US$5.2 billion from end-March
2018 to end-March 2019 (Figure 4, third row). By then, LETES were a preferred option for residents that had
savings in U.S. dollars with non-residents holding only 10 percent of the outstanding stock. Meanwhile, non-
residents steadily increased their holdings of LECAP which peaked at US$6.7 billion (67 percent of the total
stock) by end-March 2019. In the following months, non-residents started to exit the LECAP market, offloading
20 percent of their total holdings by end-June 2019 (with a broadly equal increase of the domestic private sector
participation). Overall, LETES rollover rates dropped, with the total outstanding stock falling by US$4.2 billion
from end-March to end-Dec 2018, but on average remaining stable until August 2019. Meanwhile, the
outstanding stock of LECAP increased rapidly in 2018, with the U.S. dollar value fluctuating until August 2019.
Following the run on short-term BCRA paper at the end of April 2018, total issuance in dollars dropped to only
US$1.1 billion in May, before recovering to US$3.4 billion in June after the announcement of a Fund staff-level
agreement on an exceptional access Stand-By Arrangement. Issuance of peso-denominated debt continued
during this period, but interest rates rose significantly from an average of 26 percent in January-April of 2018 to
an average of 42 percent in May-August 2018. In 2019, the debt profile continued to deteriorate. Interest rates
on peso-denominated debt reached 60 percent and the average maturity of LETES fell from 213 days in 2018 to
158 days in 2019. Moreover, maturities were concentrated: about two-thirds of LETES and LECAP 2019 issuances
were due before the October presidential election, creating a significant refinancing need during a period of
high uncertainty (Figure 4, fourth row). Risks were compounded by some government borrowing in the form of
repos collateralized by government dollar-denominated debt securities, whose drop in market value led to
margin calls and further increases in financing needs.

ARGENTINA
Figure 4. Public Debt Issuances

ARGENTINA
Figure 4. Public Debt Issuances (Concluded)

LETES: Issuance Date and Days to LETES and LECAP: Maturity Date and
Maturity (number of days) 2/ Issuances in 2019 (US$ mln) 2/
400 2,500
350
2,000 pre-election
300
250
post-election
1,500
200
150 1,000
100
500
50
0 0
Average Interest rate of US$- Average Interest rate of AR$-

denominated debt issuances (Percent)3/ denominated debt issuances (Percent)
8 70
7 60
6
50
5
40
4
3 30
2 20
1 10
0
0
Jul-17
Jul-18
Jul-19
Jan-17
Jan-18
Jan-19
Nov-17
Nov-18
Mar-17
Mar-18
Mar-19
May-17
May-18
May-19
Sep-17
Sep-18
Feb-16
Feb-17
Feb-18
Feb-19
Jun-16
Jun-17
Jun-18
Jun-19
Oct-15
Oct-16
Oct-17
Average Maturity of US$-denominated Bid-to-cover ratio for US$- Oct-18

debt issuances (number of days) denominated LETES issuances
6,000 7
5,000 6
5
4,000
4
3,000
3
2,000 2
1,000 1
0 0
Jul-17
Jul-18
Jul-19
Jan-17
Jan-18
Jan-19
Nov-17
Nov-18
Mar-17
Mar-18
Mar-19
May-17
May-18
May-19
Sep-17
Sep-18
Jul-17
Jul-18
Jul-19
Oct-17
Oct-18
Jan-17
Jan-18
Jan-19
Apr-17
Apr-18
Apr-19
________________________________________________________
Source: Argentinian authorities and staff calculations.
1/ Planned amortizations for 2018 as of 04/27/2018 (US$1 = AR$20.4) and planned amortizations for 2019 as of
12/30/2018 (US$1 = AR$37.8).
2/ Note that multiple issuances may occur or mature on the same date.
3/ Increases in the interest rate before May 2018 correspond to long-term debt issuances.

ARGENTINA
46. Prospects of regaining market access on an adequate scale—and thereby being able to
service debt to the Fund—were mixed, but on balance EAC3 was judged to be met. The
assessment that the scale of access would be adequate to enable Argentina to meet its future Fund
obligations was finely balanced. As market conditions deteriorated, the likelihood of attaining
adequate access to private capital markets over the relevant time horizon for EAC3 also weakened.
However, rollover rates recovered after the First Review. The assessment was that prospects were
sufficient ; while noting the declining appetite of non-resident investors for Argentine sovereign
debt, the Fund expected that the implementation of the program, with the support of the
international community, would safeguard market access.
47. As regards the institutional and political capacity to implement the program called for
under EAC4, assurances were deemed to be satisfactory, although commitments made were
fairly light.
• As regards political capacity, in applying the EAF to cases in which a request for Fund resources
(or completion of a review) is made in the lead-up to a national election, the Fund has required
that the main opposition parties or candidates for premier express their commitment to the
overall goals and key policies of a Fund-supported program. This is to ensure that the Fund has
confidence that the program will be implemented after the elections, whichever party or
coalition comes into power. 38 In the case of the 2018 SBA, the significance of this requirement
37F
markedly increased in March 2019 as polls began to suggest the possibility of a change in
government after the October 2019 elections. In the run-up to the elections, political assurances
were based on private consultations with two opposition candidates for president. However, the
opposition candidates were publicly critical of the implementation of specific strategies and
indicated that they would seek to renegotiate the program. 39 In principle, stronger assurances—
38F
such as written and published commitments—could have been sought.
• The IMF assessed the administration’s institutional capacity to be sufficient to deliver the core
elements of the program. Like under many Fund-supported programs, the SBA nevertheless
aimed to strengthen the capacity in some important areas. The program reforms to this end
covered budget and tax administration, the anti-corruption regime, and, in particular, the
capacity, transparency and communication relating to debt management. (Two structural
benchmarks focused on the latter, and the Fund provided TA in debt management.) Moreover,
the Fund’s support involved TA to improve official data. 40 A March 2019 structural benchmark
39F
called for a new central bank charter to end the BCRA’s multiple mandates and establish
operational independence. By the end of the program, the charter had not passed. At the same
time, the high turnover of central bank governors, with three governors in office from May 2018
38
While the Fund’s policy on political assurances is separate from EAC4, and is part of the Fund’s broader policies to
safeguard its resources, it is used to inform the judgment of whether this criterion is met.
39
See Staff Report for the Fourth Review.
40
The IMF had previously officially censured Argentina for data quality. By the end of 2016, the publication of
improved and credible data on inflation, trade, the labor market, and output by a rebuilt national statistics agency
allowed the IMF to remove the Declaration of Censure. But during the program period, the reliability of the inflation
data remained problematic and a national inflation series was not yet available.

ARGENTINA
to August 2019, may have raised questions about policy continuity and added doubts over
central bank independence.
48. All told, the application of the flexibility under the revised Exceptional Access
Framework proved challenging—in hindsight, stricter implementation of EAC2 and EAC4 may
have helped. The EAF is intended to provide transparency on how the Fund would handle
exceptional access cases. Under the Argentina 2018 SBA, three of the four criteria required finely-
balanced judgments. The SBA was the first case to test the revised treatment of “gray zone” cases of
debt sustainability under EAC2. The short-term maturity structure of the public debt 41 combined 40F
with the non-trivial dollar amount of public debt falling due during the program, pointed to a debt
reprofiling as envisaged in the 2016 EAF reform. 42 With this option ruled out and debt assessed to
41F
be sustainable but not with high probability, much depended on the assessment of whether
Argentina could be deemed to have market access. In each of the reviews, the issuance of relatively
small amounts of debt, domestically and at relatively short maturities, was considered to provide
adequate safeguards to conclude that EAC2 was observed. However, it was not evident that market
access was improving and that allowing more time would improve debt sustainability and lead to
better macroeconomic outcomes, as intended under the provision for “gray zone” cases in the
revised EAF. This situation points to the need for an unflinching assessment of debt sustainability,
ideally before entering into a program, as—particularly in exceptional access cases—the pressure to
not change course once an arrangement is underway can prove overwhelming. The importance of
this consideration is compounded by the challenges of reaching agreement on contingency plans
from the outset of programs (¶10). Finally, the 2018 SBA provided an illustration of the difficulties in
reaching clear-cut assessments of political capacity under EAC4, and in putting in place commitment
devices that have traction and are convincing.
C. Risks to the Fund
The high level of access under the SBA represented considerable financial, reputational and enterprise
risks for the Fund. The safeguards policies were followed, including the preparation of a regular
Safeguards Assessment and a supplementary review of fiscal safeguards as required when proceeds of
IMF financial support are channeled to the government budget. The experience with the Argentina SBA
points to possibilities for sharpening the risk assessment for Fund finances and taking a broader view
of risks to the Fund associated with exceptional access cases.
49. The SBA represented substantial financial risks to the IMF, risks that increased with the
enlarged and more frontloaded access approved at the First Review. Following the standard
practice for exceptional access cases, staff reports for the program request and augmentation
41
The average maturity of new issuances was about 7 and 5.2 months in 2018 and 2019 respectively; see Box 6.
42
In cases where there is uncertainty as to whether a member’s debt is sustainable or unsustainable, a less definitive
debt restructuring would be acceptable provided that it satisfies two inter-related requirements: (a) it improves debt
sustainability and (b) it sufficiently enhances the safeguards for Fund resources (IMF 2015).

ARGENTINA
(First Review) were accompanied by a Supplement assessing the risks to the Fund and its liquidity
position. 43 42F
• At the time of the program request, capacity to repay was assessed as “good” under the baseline
scenario and “adequate” under the alternative (full drawing) scenario. Some risk indicators were
worrisome: under full drawing, capacity to repay indicators (relative to reserves and exports)
were above or at the higher end of the range of recent exceptional access arrangements, credit
outstanding to Argentina would be around double the Fund’s precautionary balances
(SDR 16 billion at end-FY2020), and yearly charges would be considerably above the absorption
capacity of the burden sharing mechanism. 44 43F
Fund Credit Outstanding / Reserves Debt Service to the Fund / Exports of Goods and
(peak ratio, in percent) Services
120 (peak ratio, in percent)
30
100
25
80
Range of previous recent EA programs 20
60
15
Median
40 Range of previous recent EA programs
10 Median
20 5
0 0
Request 1st Review 2nd Review 3rd Review 4th Review Request 1st Review 2nd Review 3rd Review 4th Review
(adverse) (adverse)
• The augmentation and frontloading of access at the time of the First Review significantly increased
the financial risks to the Fund. At the First Review, the risk assessment was revised to “adequate
although subject to heightened/sizable risks” and remained the same through all subsequent
reviews. As repayments became more concentrated in 2022 and 2023, the capacity-to-repay
indicators pointed to higher risks. Even though the SBA was not fully disbursed, capacity-to-
repay indicators remained at risky levels. Despite these indications, actions to reduce or mitigate
risks to Fund finances did not feature prominently in the program design nor in the discussions.
Greater burden sharing could have reduced financial risks to the Fund, while signaling broader
support from the international community and potentially instilling greater confidence.
43
The analysis covered indicators on Argentina’s external debt, comparison of access with other recent exceptional
access arrangements, an in-depth set of capacity to repay indicators, liquidity impact on the Fund’s Forward
Commitment Capacity (FCC), credit concentration, and a comparison with the Fund’s financial backstops
(precautionary balances and burden sharing mechanism).
44
The burden sharing mechanism can provide temporary financing (by adjusting the rate of charge and the
remuneration rate) to compensate for unpaid charges. The maximum yearly burden sharing capacity is estimated by
a simple formula (see IMF Financial Operations (2018), Box 6.3); by end-FY 2018, it was SDR 138 million. With the
increase in program disbursements and SDR interest rate, the burden sharing capacity reached SDR 309 million at
end-FY 2019.

ARGENTINA
50. The Office of Risk Management (ORM) had limited involvement in assessing the
broader risks related to the SBA. The ORM is responsible for assessing the IMF’s overall risk
profile, highlighting areas where risk mitigation efforts are required (e.g., strategic risks, core
functions, cross-functional assets, and reputation). Risks arising from individual IMF operations,
however, are intended to be addressed by internal controls and country reviews by other
Fund departments. That said, a large arrangement such as the 2018 SBA poses significant broader
risks to the Fund which may not have been considered. However, ORM was not involved in the
formal review process during the program, nor was it consulted in real time.
51. Safeguards policies relating to Fund finances were followed, albeit entailing a lag.
• Since 2000, Fund policies require that the financial procedures of central banks of members
under programs be assessed to ensure the proper use of Fund resources. 45 In addition, since
44F
2015, fiscal safeguards reviews have been required for IMF arrangements in which a member
requests exceptional access and there is significant channeling of the proceeds of Fund financial
support to the government budget. 46 These assessments are conducted independently from
45F
program discussions.
• In the case of the Argentina SBA, a safeguards assessment prior to the emergency request for
financing was not possible, but an assessment was concluded by the time of the First Review, in
line with the policy. As the budget support component of the SBA was increased at the First
Review, a fiscal safeguards review was required, and was completed before the Second Review.
However, application of recommendations from the safeguards review lagged behind the
front-loaded disbursements under the arrangement: the key recommendations to strengthen
central bank independence (amendments to the BCRA charter and recapitalization) had not
been implemented by the end of the program. The amendments were agreed with the
authorities and submitted to Congress in March 2019, but did not progress, and a technical
assistance mission to advise on recapitalizing the central bank (a structural benchmark for
December 2019) did not take place. The central recommendation from the fiscal safeguards
review was to move the treasury single account from a state-owned bank to the central bank to
address vulnerabilities. The program envisaged this action by June 2020, with Fund TA support,
but this was not implemented.
45 The assessment covers external audit, legal structure, financial reporting, internal audit and control mechanisms.
See Summing Up by the Acting Chairman on Strengthening Safeguards on the Use of Fund Resources and
Misreporting of Information to the Fund—Policies, Procedures, and Remedies—Preliminary Considerations,
Executive Board Meeting 00/32, March 23, 2000 (BUFF/00/48, 3/30/2000); and The Acting Chair’s Summing Up—
Safeguards Assessments—Review of Experience and Next Steps, Executive Board Meeting 02/26, March 14, 2002
(BUFF/02/43 Rev. 1, 4/1/2002).
46See the 2015 Review of the Safeguards Assessment Policy: Safeguards Assessments—Review of Experience
(SM/15/250, 9/24/2015); and The Acting Chair’s Summing Up—Safeguards Assessments—Review of Experience,
Executive Board Meeting 15/96, October 23, 2015 (BUFF/15/94, 10/28/2015). The review is required for IMF
arrangements with exceptional access to IMF resources and an expectation that at least 25 percent of the funds will
be used for budget support. The assessment covers the legal framework and budget formulation, government
banking arrangements (treasury account), internal budget execution procedures and controls, fiscal monitoring and
reporting, and audit procedures.

ARGENTINA
D. Lending Into Arrears
The program was consistent with the requirements of the Fund’s Lending Into Arrears (LIA) policy,
which applied to a small amount of remaining arrears.
52. In compliance with the LIA policy, the Fund assessed that the Argentine authorities
were making good-faith efforts during the program period to resolve debt owed to external
private creditors. The debt exchange undertaken by the government in 2016 had resolved the bulk
of arrears to private creditors, 47 but the program started with a residual amount of US$1.2 billion in
46F
principal, or about US$3.2 billion including accrued interest. The program was therefore subject to
the IMF’s LIA policy, which requires financing assurances at each review and assessment of efforts by
the government to solve the arrears. 48 Throughout the program, the IMF judged that the authorities
47F
were making good-faith efforts, allowing the program to move forward. Some payments to holdout
creditors were made during the program—for example, to Japanese intermediary banks. 49 There 48F
was also a smaller arrear to an official bilateral creditor in regard to which the program proceeded
on a non-objection basis. 50 49F
E. Technical Program Design
The technical design of program conditions was consistent with Fund practices, which inter alia
allowed appropriate targeting in support of program policies to accommodate “ownership.” Relatively
few structural benchmarks to support reforms were used, and these generally involved measures of
narrow scope and durability.
47
In March 2016, Congress had passed a Debt Authorization Law repealing laws prohibiting payment or settlement
on untendered debt. The Ministry of Finance designed a debt restructuring and cancellation program. including
outreach to Germany, Japan, and Italy. The terms offered to untendered holders remained the same as those offered
to the creditors who accepted in 2016.
48
Under the LIA policy, the Fund can lend to a member in arrears to private creditors on a case-by-case basis and
only where (i) prompt Fund support is considered essential for the successful implementation of the member’s
adjustment program, and (ii) the member is pursuing appropriate policies that is, making a good faith effort to reach
a collaborative agreement with its private creditors. Where the LIA policy applies, each disbursement under a Fund
arrangement is subject to a financing assurances review in which the Executive Board considers, inter alia, whether
adequate safeguards remain in place for further use of the Fund's resources, and whether the member's adjustment
efforts are undermined by developments in debtor-creditor relations. See Fund Policy on Lending into Arrears to
Private Creditors—Further Consideration of the Good Faith Criterion (SM/02/248, 7/30/2002); The Acting Chair’s
Summing Up—Fund Policy on Lending into Arrears to Private Creditors—Further Consideration of the Good Faith
Criterion, Executive Board Meeting 02/92, September 4, 2002 (BUFF/02/142, 9/9/2002); Sovereign Debt
Restructuring—Recent Developments and Implications for the Fund’s Legal and Policy Framework (SM/13/100,
4/26/2013).
49
The 2019 budget law included a provision for the settlement of claims under Argentine law (US$90 million in
original principal amounts eligible), of which agreements to settle or dismiss US$26 million were reached between
the Second and Third Reviews. Additionally, in February 2019, the majority of holders of Japanese yen bonds
accepted the 2016 standard offer, making way for the payment to the Japanese intermediary banks and clearing all
Japanese claims on Argentina.
50
The French export credit agency claimed arrears of approximately US$30 million (principal) under arbitration,
which required non-objection from the French authorities for the program to proceed. At the Third Review, arrears to
Paraguay of US$120 million were reported to have been resolved.

ARGENTINA
53. To help convey ownership, the program made limited use of prior actions. At the time
of the SBA approval, there were no prior actions. However, two measures—announcement of the
program primary balance target and communication to formally adopt program inflation targets—
would have met the test for prior actions but were not proposed as such because they had already
been taken prior to the start of the SBA negotiations. Later, the program included three prior
actions, two in the context of the First Review and one in the context of the Second Review
(Annex III). In addition, the program included several structural benchmarks (Box 5 and Annex V).
54. The program conditions were generally observed. During the program, all of the three
prior actions were met, while seven out of ten structural benchmarks were met (three with a delay).
After the First Review and revamp of the program, all performance criteria were met, except for the
end-December 2018 NDA ceiling (Annex IV). That said, the initial fiscal balance targets were not met
through a recovery in revenues as envisaged but rather via an inflation-induced reduction in wages
and pensions, subsidy cuts, and a squeeze in current discretionary spending. Also, the design of the
formal monetary policy conditionality did not prevent ad hoc policy implementation that
undermined the achievements of the inflation target.
55. The specification of monetary policy conditionality was unusual, but justified on
safeguards grounds. Conditionality on monetary policy has generally taken the form of
quantitative targets, such as ceilings on net domestic assets and base money. In keeping with other
programs featuring inflation targeting frameworks, the 2018 SBA initially applied an Inflation
Consultation Clause (ICC). However, Fund policies stipulate that an ICC is appropriate only in cases
in which, inter alia, the central bank has a track record of commitment to low inflation, inflation
expectations are well anchored and the transmission mechanism from interest rates to prices is well
understood. The addition of an NDA ceiling in the context of the inflation targeting regime, while
uncommon, was deemed warranted in the case of Argentina as a safeguard given the fragility of the
IT regime. The interest rate commitments in the LOI were intended to further underpin the monetary
policy frameworks.
56. The perimeter of fiscal policy was narrow. The program covered only central government
debt, whereas the finances of the provinces are a long-standing issue in Argentina. Although
provincial debt was low at the start of the program (at about 6 percent of GDP), provincial
FX-denominated debt rose during the program period, posing risks to external debt service capacity
and to contingent central government liabilities. Moreover, sterilization needs increased quasi-fiscal
costs, suggesting that a consolidated approach that included the central bank could have given
more credibility to fiscal and monetary policy.
ASSESSMENT
The assessment set out below benefits from hindsight. The policy options and decisions may have
looked different ex ante, when they had to be considered in the face of great and shifting uncertainties.
The structural characteristics of the Argentine economy and the domestic political constraints on the
program, taken together, severely limited the range of policy options available. And even in hindsight,

ARGENTINA
not all conclusions regarding policy choices are clear cut. Following the Guidance Note on Ex-Post
Evaluations, the discussion focuses on economic policy design and application of internal Fund policies,
rather than on decision-making processes.
57. The crisis and the outcome of the Argentina SBA are familiar. An assessment of the
2001-2002 Argentina crisis and program concluded that the “crisis stemmed from a combination of
fragility in balance sheets and the inability to mount an effective policy response. In Argentina, the
critical fragility was in public sector debt dynamics, which were made explosive by the effects of a
prolonged economic slump and the difficulties in rolling over debt. The inability to mount a policy
response stemmed from a combination of economic constraints and political factors.” 51 Despite this 50F
experience, strengthened analytical toolkits, reforms to access criteria, and reviews of program
conditionality, the 2018 SBA proceeded and foundered. This raises questions: Did the IMF diagnose
the problem correctly? Was the program well designed? Why was the program not successful? What
could have been done to improve the program? And were IMF procedures followed properly?
A. Did the IMF Diagnose the Problem Correctly?
58. The Fund had highlighted Argentina’s vulnerabilities before the program, but took as
given the administration’s decision to open the capital account and pursue inflation targeting.
The Article IV consultation reports in 2016 and 2017 emphasized the underlying problems of
unsustainable public finances and a weak supply side. The pivotal role of the exchange rate in the
highly dollarized economy was noted, as were the challenges of reigning in inflation. In retrospect, it
is clearer that the combination of a swift opening of the capital account, fiscal gradualism, and
limited structural reforms led to a widening current account deficit and debt build-up while failing to
boost investment and capacity, thus leaving the economy vulnerable to a sudden stop. 52 Policies 51F
could have been devised to slow inflows, but the administration was committed to an open capital
account. The 2017 Article IV consultation report took the overall policy strategy as given while
warning that not enough was being done to address macroeconomic imbalances, and presciently
noted the dangers of a repricing of sovereign risk. 53 52F
59. The program’s diagnosis of a temporary liquidity shock was not unreasonable at first,
but became less tenable as the program proceeded. The stop in May 2018 was clearly sudden
and at first appeared to be confined to the LEBACs. Moreover, it was not unreasonable at the time
to conclude that Argentina had been hit by a common global repricing of risk. But the Argentine
economy was burdened by long-standing fiscal weaknesses and riddled with distortions, and it was
well understood that liquidity stresses can rapidly generate solvency problems when such
51
Daseking et al. 2004, p1.
52
The implications of LEBACs as a flashpoint for such shocks did not appear to be fully understood.
53
The prescription in the Staff Report for the 2017 AIV Consultation was for tighter fiscal and looser monetary
policies—this would facilitate “lower interest rates, better-anchored inflation expectations, less upward pressure on
the peso, a more sustainable path for the public debt, and reduced vulnerability to a tightening of external financing
conditions”—and warned that aggressive pursuit of lower inflation targets would have significant growth and
employment costs. IMF, 2017a, p 1.

ARGENTINA
economies experience sudden stops. 54 The diagnosis of a temporary liquidity crisis continued to
53F
frame the analysis and policy choices in each of the four program reviews, perhaps hindering a more
fundamental reassessment of the program after the changes made at the First Review. 55 54F
B. Was the Program Well Designed?
60. The program design followed the initial diagnosis of the problem. The program aimed
to restore market confidence by closing the fiscal deficit, reducing inflation, and increasing reserves.
The goal was to achieve sufficient adjustment to eliminate imbalances while not incurring a sharp
downturn—to this end, the assumption that the underlying problem was a temporary liquidity shock
was felt to justify holding back on more ambitious macroeconomic adjustment and deferring
structural measures. It also reflected a belief that a large financing arrangement would catalyze a
return to market access sufficient to meet rollover needs. This did not happen, and pressures on the
exchange rate continued. Interest rates did not fall as anticipated but instead increased significantly,
as the assumed path of the exchange rate and inflation proved untenable in the face of diminishing
market access. The quality of the fiscal measures was poor, falling short of the fundamental public
sector reforms called for. In part, this reflected policy redlines and poor implementation of agreed
policies, and the challenging structure of debt, but also that the program was intrinsically fragile
owing to the structure of Argentina’s economy and its politics.
61. The program’s attempts to protect the vulnerable proved insufficient as the crisis
unfolded. Focusing on social protection was the right thing to do per se, and mitigating inequality
was also intended to underpin growth and impart political robustness to the program. Although the
program targets on social spending were met, cuts in other spending and subsidies affected the
public perception of the program. Even more important, the recession and the failure to bring down
inflation as targeted sharply reduced living standards and eroded popular support for the program.
62. The size, phasing and precautionary nature of Fund financing generated challenges.
While in line with the projected financing needs, the unprecedented size of the arrangement caused
surprise, signaling to some that the crisis was more severe than previously understood; raised
unusual financial, operational, and reputational risks to the Fund; and possibly suppressed the
catalytic effect by introducing a large share of senior financing that would imply sizeable haircuts on
private creditors in the event of default. The original plan to disburse US$15 billion upfront and keep
the remaining access of US$35 billion as precautionary was intended to show strength; instead,
markets were concerned that the government did not in reality have access to the precautionary
financing, and the authorities’ communications may have added to confusion about the availability
of Fund resources.
54
See IMF (2006a) and Appendix III.
55
The assumption of a liquidity crisis had been at the heart of the failure of the 2000 SBA with Argentina. “The
appropriate response to Argentina’s request for IMF support depended critically on which diagnosis was correct. If
the country were indeed facing a liquidity crisis, and had good prospects for regaining market access on appropriate
terms in the near future, the provision of large IMF financing, combined with some adjustment, was warranted on
catalytic grounds. On the other hand, if there were a large misalignment of the real exchange rate or if the debt were
unsustainable, the IMF should not provide large access without requiring a fundamental change in the policy regime,
possibly involving devaluation, debt restructuring, or most likely both." (IEO, 2004)

ARGENTINA
C. Why Was the Program Not Successful?
63. The program was fragile from the outset, with the structure of the Argentine economy
limiting the policy choices available. The fundamental problem was a lack of confidence in fiscal
and external sustainability. But restoring confidence on a lasting basis would require not merely
bringing public and external finances to balance but also demonstrating that this would be
sustained. This may have been beyond what could have been achieved even under the best of
circumstances, given the country’s deep-seated challenges, but more so with general elections only
16 months ahead when the program was approved. In addition, the underlying structural problems
facing Argentina—notably dollarization, feeble monetary policy transmission, a narrow export base,
and very limited capacity for the state to borrow domestically, especially in pesos—meant that
focusing on one problem risked worsening another. For instance, letting the exchange rate go
would raise the peso value of debt and hit real incomes, while exports would not respond very
much. Alternatively, trying to defend the exchange rate would raise concerns about burning through
reserves (and, ultimately, the exposure of the sovereign to the balance sheet of the central bank).
Finally, domestic and foreign investors were alert to Argentina’s history of crises, making them
notably quick to switch from buying a 100-year bond to withdrawing their funds.
64. The fragility was compounded by political constraints on policy design and by
interaction between politics and market confidence. The administration’s redlines removed
policy options that could have improved the chance of success. The IMF deferred to the authorities’
growth assumptions—more realistic growth projections, although they were to come at the
First Review, may have benefited discussions over program strategy and design. Crucially, the risks
of sharper depreciation—and the consequences for inflation and debt servicing—were not
adequately factored into alternative projections and contingency planning at an early stage. The
nascent inflation targeting framework was initially retained, even though the preconditions for
success were not in place. The program did not envisage broader structural reforms (consistent also
with the view that the immediate problem was primarily a short-term liquidity shock) and
accommodated low-quality fiscal measures. Debt reprofiling and CFMs were off the table. The Fund
wanted to avoid excessive fiscal austerity, but completely eschewing budget cuts would have
required taking Argentina out of the market for an extended period and providing support multiples
higher than the record access provided. Despite the clear understanding of previous experiences,
and in the absence of policy alternatives (debt reprofiling and CFMs), the program ended up with a
procyclical policy stance, arguably worsening capital flight rather than boosting confidence. The
political space became narrower as the program proceeded and the elections came closer,
interacting with market sentiment.
D. What Could Have Been Done to Improve the Program?
65. The revisions to the strategy adopted at the time of the First Review in October 2018
raised the chances of success. In particular, the revised strategy simplified and clarified the
objectives, notably of monetary policy, which should have facilitated communication, and was
combined with a fully disbursing program with augmented access. Indeed, the redesign was
followed by tentative signs of revived confidence, although modest against the losses of the

ARGENTINA
previous 10 months. However, the economy was weaker by the time of the First Review—notably,
the debt sustainability assessment had deteriorated markedly—making the program even more
vulnerable to implementation errors and shifts in market sentiment, both of which happened.
Moreover, financing needs had increased and, in the absence of burden sharing by official creditors
other than the Fund, meeting those needs relied ever more on domestic issuances and shorter
maturities.
66. With limited policy space available through conventional measures, a debt operation
combined with reintroduction of CFMs could have made the strategy more robust. The scope
for effective fiscal and monetary policy measures was curtailed by structural characteristics of the
economy and political economy constraints. Whether a more ambitious fiscal adjustment would
have boosted market confidence is uncertain, given the scale of fiscal adjustment that would have
been needed to offset the effects of exchange rate depreciation on the domestic-currency value of
debt. The program could have pushed harder on structural reforms, but this would have tested the
limits of the administration’s political space, and with payoffs only well after general elections. While
allowing more foreign exchange intervention could in principle have stemmed depreciation and
hence inflation, it is not clear that international reserves were sufficient; any doubts would have
accelerated capital flight. The rapid shifts in market sentiment towards Argentina highlight the
country’s vulnerability to capital flows. Given these constraints, it could have been better to
undertake a debt operation at an early stage—combined with CFMs—to extend maturities and
lower repayments. Although the outcomes are impossible to state with certainty, this step could
have taken pressure off the exchange rate, allowing room for lower interest rates and more growth-
friendly fiscal policy, and delivered a safer and more robust program.
67. Agreeing with the authorities on a contingency plan early on could have reduced risks,
but in practice proved very difficult to achieve. As recommended in reviews of earlier
Fund-supported programs with Argentina and other countries, such a plan should include specific
triggers and defined actions, such as debt operations and CFMs, when developments suggest that
the program is off track. It would also signal upfront that the IMF might face the decision of not
continuing to finance a program. However, in the case of the 2018 SBA such a plan would have run
counter to the administration’s basic economic strategy. Moreover, public disclosure of
contingencies could itself have worsened the crisis. The Fund may have stayed with the original
strategy for too long; alternative plans were being formulated beginning in the immediate aftermath
of the SBA approval in June 2018, but staff agreement with the authorities on the broad outlines of a
contingency plan was reached only at the time of the Fourth Review in July 2019.
68. More consistent communication led by the authorities might have boosted the
catalytic effect of the program. The Fund’s terminology that debt was sustainable “but not with
high probability” might initially have undermined confidence. In the first phase of the program, ad
hoc high-level political statements and lingering uncertainties about exchange rate policy may have
prevented confidence from taking root. Confusion surrounded the precautionary nature of the SBA
and what it meant for the availability of Fund financing, which may have undermined the catalytic
effect of the SBA.

ARGENTINA
69. Closer Fund relations with Argentina in the period before the program could have
improved program design and external communication. There had been a ten-year hiatus in
Article IV consultations, ending only in 2016. Moreover, the resident representative office in Buenos
Aires was opened in 2018, after a gap of five years and after the SBA had been requested. In
principle—and as seen in practice in many member countries—an IMF office could have boosted the
Fund’s understanding of market developments and political realities and the authorities’
understanding of IMF policies and procedures. Also lacking was regular technical assistance, which
may have improved the dialogue. All this would of course have required a two-way commitment.
E. Were Fund Procedures Followed Properly?
70. Program conditionality covered the appropriate areas to support the program
strategy. Prior actions and structural benchmarks were fewer than usual but well focused. The
technical specifications of program conditionality were generally aligned with, and well directed
towards, the intermediate policy targets.
71. The updated Exceptional Access Framework was followed, but its application was not
straightforward. The SBA with Argentina was the first test of the revised EAF adopted in 2016. It
was clear that the balance of payments need criterion was met, but applying the other three
criteria—on debt sustainability, market access, and capacity to implement the program—came down
to finely balanced judgments. The revised EAF provides flexibility in assessing debt sustainability in
“gray zone” cases—albeit limited to cases in which allowing more time would likely improve debt
and macroeconomic outcomes, and with the explicit recognition that debt reprofiling might still be
needed. In practice, the technical tools used to assess debt sustainability proved sensitive to small
variations in assumptions, including those for the exchange rate. 56 Optimistic macroeconomic
55F
projections may also have hindered a robust evaluation of debt sustainability. Once Argentina’s debt
was assessed to be “sustainable but not with high probability” and a debt reprofiling was ruled out,
the assessment of the exceptional access criterion hinged, in significant part, on whether the
government could be deemed to have market access. The general principles for assessing market
access have been established, but are not categorical and acknowledge the need for judgment. 57 In 56F
this case, the assessment of whether market access was retained was skewed towards the ability to
issue some form of debt. In hindsight, the ability to access capital markets was not sustained
consistently, across a range of maturities, suggesting that the application of the criterion could have
been more stringent. 58 Argentina’s institutional and political capacity to implement the program
57F
also proved hard to assess with precision; in hindsight, perhaps given the wish for ownership and
56
Improvements of the DSA underway will help better align it with the IMF’s lending framework. The new
Sovereign Risk and Debt Sustainability Framework for Market Access Countries (MAC SRDSF) was approved by the
Board in January 2021 and is expected to be rolled out by end-Q1 of 2022. The new framework enhances the ability
to identify risk of sovereign stress and support probabilistic debt sustainability assessments. The framework also
includes broader and more consistent debt coverage, a longer projection horizon, new tools at multiple horizons
based on superior analytical methods, and enhanced transparency in the bottom-line assessments, including the
exercise of judgment.
57
See IMF (2015).
58
See the principles laid out in IMF (2015).

ARGENTINA
the decade-long pause in relations with the IMF, the assessment may have been too generous. In
any event, putting in place convincing political assurances during the election period proved
difficult; indicating that such accords, especially in a polarized environment, would be more effective
before or at the start of a program, the political calendar permitting.
72. Standard procedures to assess risks to the IMF were followed, but broader risks could
have featured more prominently in the deliberations. Traditional program risks were spelled out
clearly in the staff reports for the SBA Request and all subsequent reviews. Financial risks were
detailed in the staff supplements for the SBA Request and First Review, although the message in the
main reports may have been diluted by the bottom-line capacity to repay assessment of “adequate
(but subject to risks).” Importantly, the heightened financial risks did not elicit mitigation actions in
terms of program design. Additionally, some other types of risks seem not to have been taken fully
into account. Not supporting Argentina once the program request had been made public carried
risks, but so too did the negotiation of the program under extreme time pressure. Reputational risks
were high: the desire to agree on a program and the emphasis on ownership constrained the
program design options from the outset. Most fundamentally, the experience highlights that the
Fund may trigger a full-blown crisis or contagion by exiting a program, and decisions at each review
may be constrained by these exit costs.
GENERAL LESSONS
73. The experiences under the Fund’s 2018 SBA with Argentina underscore several lessons
from earlier EM programs, and also suggest new ones. The program was designed to deal with a
situation that shared characteristics with the EM crises of the late 1990s and early 2000s. Lessons for
the Fund from those crises have been drawn, broadly and for Argentina itself (including in the
2004 IEO report and the 2006 EPE/EPA on Argentina; Appendices II and III). The 2018 Review of
Conditionality (IMF, 2019c) also highlighted lessons from IMF programs that are germane to
Argentina’s 2018 SBA, such as avoiding overly optimistic macroeconomic assumptions, ensuring the
quality of policy measures, the imperative of confronting debt sustainability issues earlier rather than
later, and the need for contingency planning (a point also made in the 2020 Risk Report; see IMF
2020a). In hindsight, the experience of the 2018 SBA highlights the importance of:
i. Ensuring robustness of the program by using conservative baseline assumptions and testing the
sensitivity to alternative assumptions and explanations of the crisis. Basing programs on
conservative yet plausible macroeconomic assumptions, coupled with scenario analysis,
would help make programs robust to policy slippages and exogenous shocks. Programs need
to be guarded against assumptions of unrealistic returns from reforms. Robustness is
especially important when the political backdrop is uncertain and program success depends
on catalytic effects on market financing. In such cases, upfront agreement on contingency
plans is desirable.
ii. Tailoring programs to country circumstances, even if that means embracing unconventional
measures when the policy space offered by traditional policies is limited. The idiosyncrasies and

ARGENTINA
specific challenges of each country need to feature centrally in program design, which might
imply embracing unconventional policies when circumstances are not “textbook,” as is the
case in many emerging market contexts. For instance, the Argentina program might have
been more solid had it featured CFMs.
iii. Sharpening the application of the Exceptional Access Framework. The 2016 EAF helped focus
attention on the right issues and provided the basis for a flexible approach, as intended.
However, its implementation was not straightforward, particularly as regards EAC2 and EAC4.
Exceptional access cases inevitably involve technical judgments, especially given the
uncertainties and rapidly shifting sentiment characterizing a crisis environment. The
experience of the 2018 SBA highlights the importance of laying out the analysis and risks
underlying key judgments as fully and broadly as possible when applying the EAF. In
particular, the consistency and depth of market access, across a wide range of maturities and
at sustainable yields, may be crucial to the assessment of EAC2. The experience of the 2018
SBA also highlights the need for rigorous analysis of the adequacy of non-Fund debt
obligations in assessing safeguards to Fund resources. To support the implementation of the
EAF in future exceptional access cases, the improvements in the DSA framework could be
helpful, as would a thorough and systematic analysis of market access prospects. The Fund
could also consider how to assess more robustly country authorities’ political and
institutional capacity to implement programs (EAC4). Regardless of the specific formulation
of the EAF criteria, however, the Fund’s assessment will inevitably rely on judgment. When
applying the EAF, the Fund will therefore need to pay due regard to the spirit and objectives
of the exceptional access policy, rather than focusing narrowly on technical and procedural
requirements, both when deciding whether or not to enter into an arrangement and
complete program reviews.
iv. Carefully balancing government ownership against the quality and appropriateness of program
policies and risks to the Fund’s reputation. Ownership of a program by the authorities is crucial
for success. A well-designed program needs to be based on a shared understanding with the
Fund of policy priorities and strategies; Fund surveillance well integrated with its capacity
development assistance and an IMF resident representative based in the country have
important roles to play in this regard. The Fund should question political “redlines” that
would compromise program objectives—enhancing ownership should not be understood as
a willingness to defer to country authorities’ preference for suboptimal policy choices, which
ultimately may not be consistent with the principles of uniformity of treatment. 59 This will, in
58F
cases, require efforts by the Fund to expand the political space to encompass a broader
range of policy options. In particular, ownership should be understood in a broader societal
sense, especially when authorities have fragile political support.
59
The Guidelines on Conditionality (IMF, 2002) require that Fund lending decisions be both tailored and evenhanded.
During the 2018 Review of Program Design and Conditionality (IMF, 2018d), Executive Directors noted concerns
among some stakeholders regarding the perceived lack of evenhandedness in program access, both within and
between the GRA and PRGT.

ARGENTINA
v. Ensuring effective external communication, so that a program is well understood by the

population and in financial markets and has the intended catalytic effect. In the case of the
Argentina SBA, Fund staff redoubled their efforts to ensure consistent external
communication between the Fund and the authorities. However, country authorities need to
play the central role in communicating their program, which calls for a close policy dialogue
also in normal times. That said, communication is no substitute for sound program design;
fundamentals will eventually assert themselves.
vi. Revisiting the Fund’s internal processes for assessment and mitigation of broader risks
associated with exceptional access arrangements. The staff reports for the Argentina SBA were
candid about “traditional” risks to program objectives and Fund finances. But existing
procedures did not provide for a broader assessment of risks to the Fund. More transparency
about the risk tradeoffs made at each stage of the decision-making process within the
institution is important, and would serve to mitigate the risks stemming from the flexibility
provided under the EAF. The risk assessment framework for exceptional access arrangements
could also give financial and liquidity risks a more prominent role in program design, possibly
under a revised and more structured framework. The approach to assessing financial risks
and the capacity to repay could be strengthened, with a comprehensive review of the
aggregate impact on the Fund’s financial risk profile. In general, the goal would be to bring
sufficient information to the Board to facilitate a robust discussion of program assumptions
and alternative policy strategies in response to shocks, before a program is approved. Risk
management could also be improved by use of contingency plans that define triggers and
actions in the event of a shock that could derail the program. That said, as the Argentina
experience highlights, since such a plan in its nature might run counter to the basic strategy
of the program, it could be hard to convince country authorities; such plans are also highly
market sensitive.
vii. Considering the broader implications for the international financial safety net. The experience
underscores the need for the Fund to take a stand on burden sharing when entering into
exceptional access arrangements—being the largest and most senior creditor to a relatively
large country is both exceptionally risky to the IMF and potentially self-defeating to the basic
purpose of catalyzing a return to market access. (See also IMF, 2020a.) This in turn raises
important questions on when the IMF should be prepared to “pull the plug” on programs
whose objectives can no longer realistically be met within the existing financing envelope or
not enter into programs from the outset.

ARGENTINA
Annex I. History of Fund-Supported Programs
Key dates Amount agreed Amount Drawn

Arrangement Original Actual Percent of Percent of Percent of
Approval SDR million SDR million
Expiration Expiration quota quota agreed
SBA (1958) 12/19/58 12/18/59 12/2/59 75 50 43 28 57
SBA (1959) 12/3/59 12/2/60 100 67 100 67 100
SBA (1960) 12/12/60 12/11/61 100 36 60 21 60
SBA (1961) 12/12/61 12/11/62 5/16/62 100 36 - - -
SBA (1962) 6/7/62 6/6/63 10/6/63 100 36 100 36 100
SBA (1967) 5/1/67 4/30/68 4/14/68 125 36 - - -
SBA (1968) 4/15/68 4/14/69 125 36 - - -
SBA (1976) 8/6/76 8/5/77 260 59 160 36 61
SBA (1977) 9/16/77 9/15/78 160 36 - - -
SBA (1983) 1/24/83 4/23/84 1/23/84 1,500 187 601 75 40
SBA (1984) 12/28/84 3/27/86 6/30/86 1,419 127
Reduction 3/10/86 1,183 106 1,183 106 100
SBA (1987) 7/23/87 9/30/88 1,113 100
Reduction 3/18/88 948 85 617 55 65
SBA (1989) 11/10/89 3/31/91 1,104 99
Reduction 5/25/90 920 83
Reduction 11/28/90 736 66 506 45 69
SBA (1991) 7/29/91 6/30/92 3/31/92 780 70 439 39 56
EFF (1992) 3/31/92 3/30/95 3/30/96 2,149 193
Augmentation 12/1/92 2,483 162
Augmentation 4/6/95 4,020 262 4,020 262 100
SBA (1996) 4/12/96 1/11/98 720 47 613 40 85
EFF (1998) 2/4/98 2/3/01 3/10/00 2,080 135 - - -
SBA (2000) 3/10/00 3/9/03 1/23/03 5,399 255
Augmentation (2nd Review) 1/12/01 10,586 500
of which SRF 1/12/01 1/11/02 2,117 100
Augmentation (4th Review) 9/7/01 16,937 800 9,756 461 58
of which SRF 9/7/01 6,087 287 5,875 277 97
SBA (January 2003) 1/24/03 8/31/03 2,175 103 2,175 103 100
SBA (September 2003) 9/20/03 9/19/06 1/5/06 8,981 424 4,171 197 46
SBA (2018) 6/20/18 6/19/21 7/24/20 35,379 1,110
Augmentation (1st Review) 10/26/18 40,714 1,277 31,914 1,001 78

ARGENTINA
Annex II. Debt Sustainability Analysis Heat Maps During the

2018 SBA
Program Request First Review
Debt level 1/ Real GDP Primary Balance Real Interest Exchange Rate Contingent Real GDP Primary Balance Real Interest Exchange Rate Contingent
Growth Shock Shock Rate Shock Shock Liability shock Growth Shock Shock Rate Shock Shock Liability shock
2/ Real GDP Primary Balance Real Interest Exchange Rate Contingent Real GDP Primary Balance Real Interest Exchange Rate Contingent
Gross financing needs
Growth Shock Shock Rate Shock Shock Liability Shock Growth Shock Shock Rate Shock Shock Liability Shock
External Change in the Public Debt Foreign External Change in the Public Debt Foreign
3/ Market Market
Debt profile Financing Share of Short- Held by Non- Currency Financing Share of Short- Held by Non- Currency
Perception Perception
Requirements Term Debt Residents Debt Requirements Term Debt Residents Debt
Second Review Third Review
1/ Real GDP Primary Balance Real Interest Exchange Rate Contingent Real GDP Primary Balance Real Interest Exchange Rate Contingent
Debt level
Growth Shock Shock Rate Shock Shock Liability shock Growth Shock Shock Rate Shock Shock Liability shock
Real GDP Primary Balance Real Interest Exchange Rate Contingent Real GDP Primary Balance Real Interest Exchange Rate Contingent
Gross financing needs 2/
Growth Shock Shock Rate Shock Shock Liability Shock Growth Shock Shock Rate Shock Shock Liability Shock
External Change in the Public Debt Foreign External Change in the Public Debt Foreign
Market Market
Debt profile 3/ Financing Share of Short- Held by Non- Currency Financing Share of Short- Held by Non- Currency
Perception Perception
Requirements Term Debt Residents Debt Requirements Term Debt Residents Debt
Fourth Review
Debt level
1/ Real GDP Primary Balance Real Interest Exchange Rate Contingent
Growth Shock Shock Rate Shock Shock Liability shock
2/ Real GDP Primary Balance Real Interest Exchange Rate Contingent

Gross financing needs
Growth Shock Shock Rate Shock Shock Liability Shock
External Change in the Public Debt Foreign

Market
Debt profile 3/ Financing Share of Short- Held by Non- Currency
Perception
Requirements Term Debt Residents Debt
Source: IMF staff.

1/ The cell is highlighted in green if debt burden benchmark of 70% is not exceeded under the specific shock or baseline, yellow if exceeded under specific shock
but not baseline, red if benchmark is exceeded under baseline, white if stress test is not relevant.
2/ The cell is highlighted in green if gross financing needs benchmark of 15% is not exceeded under the specific shock or baseline, yellow if exceeded under
specific shock but not baseline, red if benchmark is exceeded under baseline, white if stress test is not relevant.
3/ The cell is highlighted in green if country value is less than the lower risk-assessment benchmark, red if country value exceeds the upper risk-assessment
benchmark, yellow if country value is between the lower and upper risk-assessment benchmarks. If data are unavailable or indicator is not relevant, cell is white.
Lower and upper risk-assessment benchmarks are:
200 and 600 basis points for bond spreads; 5 and 15 percent of GDP for external financing requirement; 0.5 and 1 percent for change in the share of short-term
debt; 15 and 45 percent for the public debt held by non-residents; and 20 and 60 percent for the share of foreign-currency denominated debt.

ARGENTINA
Annex III. Application of Exceptional Access Framework under 2018 SBA1/ 2/
Decision No. 15931-(16/4), adopted January 20, 2016.
Considerations (4/9/15). The Fund's Lending Framework and Sovereign Debt - Further Considerations - Supplementary Information (1/6/16), and
1/ The Fund's Exceptional Access Policy was amended, effective January 20, 2016. See the Fund's Lending Framework and Sovereign Debt - Further
70
2/ Source: Exceptional Access Criteria sections of Program Request and First-through-Fourth Review
Overall
Criterion Program Request First Review Second Review Third Review Fourth Review
INTERNATIONAL MONETARY FUND
Assessment
The member is The member is The tightening of global Tighter global financial The return of market The return of market Still fragile market
experiencing or has experiencing or financial conditions and a conditions since the approval of confidence has been confidence has been confidence implies that
the potential to has the shift in portfolio the program in June have broadly as expected somewhat better than Argentina’s sizable
experience potential to preferences away from peso reinforced the shift in portfolio since the conclusion of expected since the external financing needs
exceptional balance experience assets have led to preferences away from peso the First Review, albeit conclusion of the Second (which are largely driven
of payments exceptional exceptional capital account assets and intensified capital with somewhat better- Review. In fact, rollovers by the interest and
pressures on the balance of pressures. It is expected account pressures. The return of than-expected rollovers. of most maturing debt in amortization obligations
current account or payments that, with the credible market confidence has not Nonetheless, under 2019 so far has been of the federal
the capital account, pressures on policy plan presented by materialized as envisaged at the current assumptions, near or over 100 percent. government) over the
resulting in a need the current the Argentine government time of Board approval and has Argentina’s sizable Nonetheless, under course of the
for Fund financing account or and support from the resulted in a weaker-than- external financing need current assumptions, arrangement cannot be
that cannot be met capital account international community, expected exchange rate and a over the course of the Argentina’s large met within the normal
within the normal resulting in a these pressures will lower rollover rate of private arrangement cannot be external financing needs limits of access.
1 limits. need for Fund dissipate. However, there is holdings of public debt. This met within the normal over the course of the
financing that a risk that such a reversal in gives rise to a larger financing limits of access. arrangement cannot be
cannot be met sentiment could occur over need than was envisaged at the met within the normal
within the a more protracted period. time the program was designed limits of access.
normal limits. Given the large size of which cannot be met within the
Argentina’s external normal limits of Fund access.
financing need over the
course of the proposed
arrangement, this would
give rise to a substantial
external financing need that
would not be able to be
met within the normal limits
of access.
A rigorous and A rigorous and In the baseline scenario— Under staff’s new baseline, Projected debt dynamics The starting position for With public debt assessed
systematic analysis systematic which assumes a partial Argentina’s federal government and risks remain in line the debt ratio is weaker as sustainable, but not
indicates that there analysis draw—Argentina’s federal debt is projected to increase with those at the First (due to the large upward with a high probability,
is a high probability indicates that government debt and gross above the high-risk threshold Review. With public debt revision to the end-2018 exceptional access
that the member’s debt is financing needs are (70 percent). Gross financing assessed as sustainable level), and financing requires the existence of
public debt is sustainable but projected to remain below needs (GFN) are high but but not with a high needs are also more non-Fund financing that
Staff Reports.
sustainable in the not with a high the respective risk remain below the 15 percent of probability, exceptional elevated than at the improves debt
medium term. probability; thresholds (70 and 15 GDP high-risk threshold during access requires the Second Review. However, sustainability and ensures
2 Where the exceptional percent, respectively); and the projection period. The end- existence of non-Fund as before, debt is sufficient safeguards for
member’s debt is access is federal debt-GDP, after 2018 federal debt-to-GDP ratio financing that improves projected to remain on a Fund resources. Despite
assessed to be justified as peaking this year, falls forecast for end-2018 is 16 debt sustainability and downward path and fall risks to debt sustainability
unsustainable ex financing from steadily over the medium percentage points higher than ensures sufficient below 60 percent by from the high levels of
ante, exceptional sources other term. There are, however, at program approval (due to safeguards for Fund 2024. With public debt gross (and external)
access will only be than the Fund risks around this baseline: depreciation, and to a lesser resources. Staff judges assessed as sustainable, financing needs and large
made available improves debt the large share of foreign extent, lower growth rate). that the required albeit not with a high share of FX debt, staff
where the financing sustainability currency debt, alongside Notwithstanding this, the debt- safeguards are in place. probability, exceptional judges that the required
being provided and sufficiently significant rollover needs, GDP ratio is projected to fall Notably, prospects for access requires the safeguards are in place.
Overall
Assessment
from sources other enhances the leaves Argentina vulnerable over the medium term as a market access under the existence of non-Fund Argentina maintains
than the Fund safeguards for to changing market result of the fiscal efforts of the program are expected to financing that improves access to domestic
restores debt Fund resources. sentiment; and there are government, a return to growth, continue strengthening debt sustainability and markets and continues to
sustainability with a potential contingent and a reversal of the and the long maturity of ensures sufficient issue new liabilities to
high probability. liabilities from the broader overshooting of the real Argentina’s privately- safeguards for Fund both resident and non-
Where the public sector. In an adverse exchange rate. There are, held foreign currency- resources. Staff judges resident investors. A
member’s debt is scenario where events however, sizable risks around denominated debt[3] that the required significant share of
considered trigger a full draw of the this baseline: the high actual improves the prospects safeguards are in place. liabilities is held by classes
sustainable but not arrangement, debt is likely level of debt to GDP, the large of adequate private Notably, prospects for of investors, including
with a high to stabilize at a later date share of foreign currency debt, creditor exposure being market access under the domestic financial
probability, and at a higher level, with significant rollover needs, and maintained throughout program are expected to institutions, retail
exceptional access continued risks around this implementation risks around the the program. [3] As of continue strengthening investors and other public
would be justified if trajectory. Staff’s proposed fiscal consolidation all end-September 2018, and the long maturity of entities, who are expected
financing provided assessment, therefore, is leave Argentina vulnerable to the stock of the federal Argentina’s privately- to continue investing in
from sources other that debt is sustainable but changing market sentiment and government’s privately held foreign currency- Argentine debt even amid
than the Fund, not with a high probability movements in the real exchange held foreign currency denominated debt stressed conditions. Also,
although it may not under both the baseline and rate. There are also potential denominated debt is improves the prospects the long maturity of
restore adverse scenarios. contingent liabilities from the approximately US$120 of adequate private Argentina’s privately-held
sustainability with Exceptional access in such broader public sector, including billion, of which about creditor exposure being foreign currency-
high probability, situations requires the (as yet undetermined) BCRA one quarter is expected maintained throughout denominated debt
improves debt existence of non-Fund recapitalization needs. On the to mature by end-2020. the program.[14] [14]As of improves the prospects of
sustainability and financing that improves other hand, the large share of Prior staff reports had end-2018, the stock of adequate private creditor
sufficiently debt sustainability and public debt held by other public used a broader the federal government’s exposure being
enhances the enhances sufficient sector entities serves as an definition for this privately-held foreign maintained throughout
safeguards for safeguards for Fund important mitigating factor. All context, i.e. of the currency denominated the program.[4] [4]Of the
Fund resources. For resources. Staff judges the in all, staff’s assessment is that federal government’s debt is approximately outstanding stock of the
purposes of this requisite safeguards to be debt is sustainable but not with foreign currency US$112 billion, of which federal government’s
criterion, financing in place. Notably: (i) The a high probability. Exceptional denominated debt about one quarter is foreign currency debt held
provided from long maturity of Argentina’s access in such situations excluding debt held by expected to mature by by the private sector
sources other than privately-held foreign requires the existence of non- Argentina’s social June 2021 (the expiry of (US$117 billion), only
the Fund may currency-denominated debt Fund financing that improves security sector, the BCRA the SBA). about one quarter is
include, inter alia, improves the prospects of debt sustainability and ensures and multilaterals expected to mature by
financing obtained adequate private creditor sufficient safeguards for Fund (approx. US$147 billion). June 2021 (the expiry of
through any exposure being maintained resources. Staff judges that the the SBA).
intended debt throughout the program. Of required safeguards are in place.
restructuring. This the outstanding stock of the Notably, prospects for market
criterion applies federal government’s access under the program are
only to public foreign currency debt held expected to strengthen, despite
(domestic and outside the public sector the recent strains, and the long
external) debt. (US$156 billion), only about maturity of Argentina’s
However, the one fifth is expected to privately-held foreign currency-
analysis of such mature by end-2020. (ii) denominated debt [15] improves
public debt Argentina has access to the prospects of adequate
sustainability will both domestic and foreign private creditor exposure being
ARGENTINA
incorporate any financial markets. Provided maintained throughout the
relevant contingent such access continues to be program. [15] Of the outstanding
liabilities, including on favorable terms and stock of the federal
those potentially fiscal targets are met, debt government’s foreign currency
71
arising from private sustainability should debt held outside the public
Overall
Assessment
ARGENTINA
72
external improve. The availability of sector (US$147 billion), only

indebtedness. market financing allows for about one quarter is expected
some smoothing of the to mature by end-2020.

adjustment path,
supporting higher growth
and maintaining political
and social consensus for the
program. Argentina is
expected to maintain
substantial market access
under a range of scenarios,
which reduces the risk of
Fund resources being used
to pay out private creditors.
The member has (Program Argentina continues to Despite the recent tightening of Argentina continues to Argentina continues to Argentina continues to
prospects of Approval) Staff maintain access to both financial conditions, Argentina maintain access to maintain access to maintain access to
gaining or judges that the domestic and foreign continues to maintain access to domestic financial domestic financial domestic financial
regaining access to member has financial markets, as domestic financial markets, markets, where resident markets with both markets, where resident
private capital access to evidenced by recent peso- where resident and non-resident and non-resident resident and non- and non-resident
markets within a private capital and U.S. dollar- investors have continued to investors have continued resident (institutional) investors have continued
timeframe and on a markets on a denominated bond participate in recent peso- and to participate in recent investors continuing to to participate in peso- and
scale that would scale that would placements in domestic U.S. dollar-denominated bond peso- and U.S. dollar- participate in recent U.S. dollar- denominated
enable the member enable the markets and the rollover of placements. Global and denominated bond peso- and U.S. dollar- bond placements. Also, in
to meet its member to 100 percent of the central domestic factors have, however, placements. Rollover denominated bond June, the state-owned oil
obligations falling meet its bank’s paper that came due tightened external financing rates have improved in placements.[15] Rollover and gas company
due to the Fund. obligations on May 16. Global and conditions and average yields September to November rates have improved, and successfully issued a
falling due to domestic factors have, on Argentina’s external bonds and non-residents have non-residents have 10-year global bond. After
the Fund. however, tightened external have risen. Nonetheless, staff purchased nearly purchased over averaging over
(First-Fourth financing conditions and expects that the successful US$2.3 billion of peso US$2 billion of peso- 100 percent in Q1, private
Review) Staff average yields on implementation of Argentina’s denominated LECAPs. denominated LECAPs in sector rollover rates fell in
3 judges that the Argentina’s external bonds policy program, combined with Nonetheless, average the past five months. April (reflecting market
member has have risen. Staff expects support from the international yields on Argentina’s Nonetheless, average volatility and the non-
prospects of that with the successful community, will help reestablish external bonds remain yields on Argentina’s rollover of the Global
gaining or implementation of Argentina’s access to high. Sustained external bonds remain 2019 bond) but have since
regaining Argentina’s policy program, international capital markets on implementation of elevated. Sustained rebounded in May/June.
access to combined with support reasonable terms. Argentina’s policy implementation of While average yields on
private capital from the international program, combined with Argentina’s policy Argentina’s external
markets within community, there should be support from the program, combined with bonds remain elevated,
a timeframe a steady restoration of international community, support from the the sustained
and on a scale confidence and a decline in will help reestablish international community, implementation of
that would costs of budgetary Argentina’s access to will help restore Argentina’s policy
enable the financing. international capital Argentina’s full access to program, combined with
member to markets on reasonable international capital support from the
meet its terms. markets on reasonable international community,
obligations terms. [15]Argentina has will help ensure Argentina
falling due to never lost access to has full access to private
the Fund. foreign institutional capital markets, on
investors, not even at the reasonable terms and on
Overall
Assessment
height of last year’s a scale that will allow

financial crisis. Argentina to meet its
obligations to the Fund as
they fall due.
The policy program Staff judges The Macri administration, The initial implementation of The passage of the 2019 The passage of the 2019 The authorities’
of the member that the policy which took office in the program showed a mixed budget by Congress – budget by Congress – implementation of the
provides a program December 2015, has shown picture of the authorities’ both earlier than both earlier than policy plan supported by
reasonably strong provides a its adeptness over the past commitment to their policy expected and with a expected and with a the Stand-By
prospect of reasonably two years in delivering on plans. But despite the difficult wider-than-expected wider-than-expected Arrangement confirms
success, including strong prospect its policy priorities and political situation, weaker margin in the Senate – margin in the Senate – their commitment to
not only the of success, unwinding a significant set economic environment, and demonstrates a strong demonstrated a strong restore fiscal discipline
member’s including not of distortions while unfavorable market conditions commitment to the commitment to the and macroeconomic
adjustment plans only the protecting the most the government has reinforced policies underlying the policies underlying the stability. The central bank
but also its member’s vulnerable from the burden its ownership of the fiscal Stand-By Arrangement Stand-By Arrangement has fully implemented the
institutional and adjustment of adjustment. The adjustment that is needed under and should help ensure and will help ensure monetary policy
political capacity to plans but also administration is committed the program (although there is policy continuity in 2019. policy continuity in 2019. framework announced last
deliver that its institutional to prudent policy making, space for improving the quality Furthermore, this Furthermore, the October which will serve
adjustment. and political transparent government, of the adjustment). In addition, validates the authorities’ congressional approval to lower inflation, restore
capacity to and a strong governance the government has been efforts at building validates the authorities’ macroeconomic stability,
deliver that framework. Staff deems the working within Congress and consensus across party efforts at building and rebuild the central
adjustment. administration’s with regional governors to build lines for the need for consensus across party bank’s credibility.
institutional capacity and political support for its policy reforms. Despite a lines. Despite a Furthermore, the passage
technical competence to be efforts, particularly as regards complicated economic complicated economic of the BCRA charter will
strong and fully able to fiscal policies. Indeed, the situation and a difficult situation and a difficult help in these efforts.
deliver the core elements of majority of provincial Governors history of IMF in history of the IMF in Contacts with key
4 the expected reform have publicly expressed their Argentina, social Argentina, social members of the
program. However, there is willingness to share the burden opposition to the opposition to the opposition revealed clear
a concern linked to the of the fiscal adjustment with the program remains program remains support for the objectives
government’s ability to federal government and, in a subdued. On the subdued. On the of the program including
build support for possible recent addendum to the 2017 monetary side, the monetary side, the reducing the fiscal deficit,
policy measures that need Fiscal Pact, have recognized the central bank’s central bank’s lowering inflation,
to be passed by Congress importance of the federal implementation of the implementation of the returning Argentina to
(given that the governing government reaching primary tighter monetary policy monetary policy robust and sustained
coalition has a minority in balance in 2019. In addition, the framework announced in framework announced in growth, and protecting
both houses of Congress). head of the Justicialista party late September has led late September is the vulnerable.
Building a social consensus block in the Senate has public to an initial large spike supporting a path to Nonetheless, candidates
around the main elements indicated his support for the in short-term interest disinflation. In addition, were critical of the
of the program will be both government’s announced fiscal rates and an the BCRA has adhered to achievements of the Macri
critical and challenging, plan underlying the Stand-By appreciation of the peso. its transparent FX administration and
particularly given the Arrangement, which should help In addition, the BCRA intervention rule, indicated that, if elected,
difficult history of IMF facilitate the passage of the has not intervened in FX purchasing FX in limited the Fund program would
lending to Argentina and 2019 Budget. Despite a markets since amounts once the peso need to continue but that
very divided social and complicated economic situation announcement of the moves outside the they would want to
ARGENTINA
political views on the net and a difficult history of IMF new framework, strong side of the non- renegotiate the details of
benefits of seeking Fund lending to Argentina, social adhering to its intervention zone. During the Stand-By
support. Failing to do so opposition to the program has transparent FX the last two missions, Arrangement to be more
would raise serious been more subdued than might intervention rule. staff held meetings with consistent with their own
questions about the have been expected. On the Although broader members of the policy plans. The
73
Overall
Assessment
ARGENTINA
74
political sustainability of the monetary side, the central bank statements of support opposition. These opposition candidates
authorities’ reform efforts. has raised policy rates by a for the IMF-backed discussions revealed a showed support for
Therefore, strong, sustained cumulative 20 percent since the program have not been broad consensus that the structural reforms to
and consistent policy time of program approval, expressed by all political financial assistance by support stronger and
implementation will be increased reserve requirements factions, there seems to the Fund will remain an more sustainable growth
crucial, and broad societal in an effort to anchor inflation be a widespread essential element for (although there were
ownership of the and inflation expectations, and consensus that the regaining market different views on the
government’s economic (on October 1) rolled out a financial assistance by confidence. Strong, details and appropriate
plan, including in Congress, simpler and tighter monetary the Fund is an essential sustained and consistent sequencing of such
will be essential for policy framework, which element for regaining policy implementation reforms).
program success. immediately led to a rise in market confidence and and broad societal
Discussions with the short-term interest rates, and pave the way for a new ownership of the
authorities already point to committed to a freely floating season of structural government’s economic
strong ownership of their exchange rate regime with a reforms. Strong, plan continue to be
policy framework and a transparent FX intervention rule. sustained and consistent crucial for program
high-level political This demonstrates the policy implementation success.
commitment to partnering authorities’ commitment to and broad societal
with the Fund in their taking action, as needed, to ownership of the
efforts. There are, however, achieve their monetary goals. government’s economic
already significant domestic Although broader statements of plan continue to be
criticisms of the Fund’s support from the IMF-backed crucial for program
involvement in supporting program have not been success.
Argentina and this is likely expressed by all political
to present an ongoing factions, the concrete actions on
challenge throughout the the fiscal and monetary fronts,
course of the arrangement. the statements of support on
the fiscal adjustment, and the
BCRA’s well-executed
communication of the new
monetary policy provide
sufficient assurances at this
stage that the authorities are
committed and able to
implement the program. Finally,
the authorities continue to
demonstrate strong ownership
of their policy framework and a
high-level political commitment
to partnering with the Fund in
their efforts. Strong, sustained
and consistent policy
implementation will be crucial,
and broad societal ownership of
the government’s economic
plan continues to be essential,
for program success.
Annex IV. Performance Criteria under the 2018 SBA 1/ 2/
2018
end-Jun end-Sep end-Oct end-Nov end-Dec
Adjusted Adjusted Adjusted

PC Actual Status PC Actual Status PC Actual Status IT Adjusted Actual PC Rev1 PC Rev2 PC Adjusted Actual Status
PC PC PC
Fiscal targets
Performance Criteria
1. Primary balance of the federal government (floor) 3/ 8/ -148.0 -155.1 -122.6 Met -256.0 -273.0 -181.2 Met -290.0 -299.1 -200.1 Met n.a. n.a. -362.5 -370.0 -378.0 -404.4 -374.3 Met
2. Federal government accumulation of external debt payment arrears (ceiling) 4/ 0.0 0.0 Met 0.0 0.0 Met 0.0 0.0 Met 0.0 0.0 0.0 0.0 0.0 0.0 Met
3. Federal government accumulation of domestic arrears (ceiling) 5/ 8.2 -1.9 Met 14.9 -3.3 Met 17.0 11.6 Met n.a. n.a. 21.6 24.4 24.4 11.9 Met
4. Social assistance spending (floor) 3/ 87.7 87.7 Met 131.1 133.9 Met 144.0 148.8 Met n.a. n.a. 177.5 173.0 173.0 184.9 Met
Indicative targets
5. Primary balance of the general government (floor) 3/ 8/ -163.0 -47.9 -272.0 n.a. n.a. n.a. n.a. n.a. n.a. -382.4 -370.0 -378.0 -404.4 -303.2
Monetary targets
6. Change in non-borrowed net international reserves (floor) 6/ 8/ 9/ 5.5 2.0 2.7 Met 5.5 -2.0 -8.7 Not Met 3.7 4.3 5.3 Met 2.1 1.4 2.2 5.5 7.1 7.1 6.5 7.2 Met
7. Change in stock of non-deliverable FX forwards (ceiling) 6/ 1.0 0.4 Met 0.0 1.3 Not Met 0.0 -2.0 Met 0.0 -2.3 -0.5 0.0 0.0 -3.6 Met
8. Change in central bank credit to government (ceiling) 7/ 0.0 0.0 Met -78.0 -39.4 Not Met 0.0 0.0 Met 0.0 0.0 -156.0 0.0 0.0 -432.3 Met
9. Central bank financing of the government (ceiling) 4/ 0.0 0.0 Met 0.0 0.0 Met 0.0 0.0 Met 0.0 0.0 0.0 0.0 0.0 0.0 Met
10. Change in net domestic assets of the central bank (ceiling) 7/ 8/ ** 15.0 40.0 -98.0 no EB consultation 64.0 251.2 441.7 EB Consultation 97.7 97.7 28.9 Met -55.7 -16.5 -121.6 166.0 -46.2 -46.2 -10.6 24.5 Not Met
11. Change in monthly average monetary base (ceiling) 7/ - -
Inflation Consultation Clause

12. Inflation bands (in percent, y-o-y) 32 32 32
Outer Band (upper) 29 29 29
Inner Band (upper) 27 29.5 Staff Consultation 27 40.5 EB Consultation 27
Center inflation target 25 25 25
Inner Band (lower) 22 22 22
Outer Band (lower)
**The ceiling in the change in NDA of the Central Bank is set as a QPC starting in the First Review. Prior to that, as complement to the Inflation Consultation Clause, if net domestic assets of the central bank were to exceed the thresholds established in the program, the clause would be triggered, requiring a
consultation with the Executive Board on the authorities’ proposed policy response
before being eligible for further purchases under the program.

1/ Targets as defined in the Technical Memorandum of Understanding (TMU).
2/ Based on program exchange rates defined in the TMU.
3/ Cumulative flows from January 1 through December 31.
4/ Continuous performance criterion.

5/ The accumulation is measured against the average during Q4 2017, which stood at 45.6 billion pesos.
6/ In billions of U.S. dollars. See Quantitative Performance Criteria Table (Staff Report Program Request-Fourth Review) for the reference of each review.
7/ See Quantitative Performance Criteria Table (Staff Report Program Request-Fourth Review) for the reference of each review.
8/ Targets subject to adjustors as defined in the TMU.
9/ Increases reflect IMF disbursements, which increase NIR.
ARGENTINA
75
76
ARGENTINA
2019
end-Jan end-Feb end-Mar end-Apr end-May end-Jun end-Jul end-Aug end-Sep end-Oct end-Nov end-Dec
Adjuste Adjuste
IT Rev IT Actual IT Rev IT Actual IT PC Actual Status IT Rev IT Actual IT Rev IT Actual IT PC Rev PC Actual Status IT Rev IT IT Rev IT PC Rev PC IT IT PC
d d
Fiscal targets
1. Primary balance of the federal government (floor) 3/ 8/ n.a. n.a. n.a. n.a. n.a. n.a. -32.0 6.0 6.0 10.5 Met n.a. n.a. n.a. n.a. n.a. n.a. -100.0 40.0 20.0 -17.3 30.2 Met n.a. n.a. n.a. n.a. 60.0 70.0 n.a. n.a. 0.0
2. Federal government accumulation of external debt payment arrears (ceiling) 4/ 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Met 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Met 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
3. Federal government accumulation of domestic arrears (ceiling) 5/ n.a. n.a. n.a. n.a. n.a. n.a. 27.1 30.0 5.6 Met n.a. n.a. n.a. n.a. n.a. n.a. 39.7 40.0 45.0 13.0 Met n.a. n.a. n.a. n.a. 53.2 53.2 n.a. n.a. 58.5
4. Social assistance spending (floor) 3/ n.a. n.a. n.a. n.a. n.a. n.a. 60.0 60.0 72.7 Met n.a. n.a. n.a. n.a. n.a. n.a. 112.6 110.0 132.0 157.6 Met n.a. n.a. n.a. n.a. 205.0 223.5 n.a. n.a. 325.0
Indicative targets
5. Primary balance of the general government (floor) 3/ 8/ n.a. n.a. n.a. n.a. n.a. n.a. -40.0 -14.0 -14.0 78.0 n.a. n.a. n.a. n.a. n.a. n.a. -110.0 30.0 10.0 n.a. n.a. n.a. n.a. n.a. 80.0 95.0 n.a. n.a. 30.0
Monetary targets
6. Change in non-borrowed net international reserves (floor) 6/ 8/ 9/ 5.3 4.1 7.4 3.5 2.9 8.8 5.5 12.5 4.4 5.5 Met 8.0 9.0 10.5 4.2 6.2 3.8 7.5 5.8 9.0 0.7 4.0 Met 8.4 8.4 8.2 8.2 13.1 13.1 11.5 10.5 9.8
7. Change in stock of non-deliverable FX forwards (ceiling) 6/ 0.0 0.0 -3.6 -0.7 -0.7 -3.6 -1.0 -1.0 -3.3 Met -1.2 -1.2 -2.6 -1.5 -1.5 -5.2 -1.5 -1.7 -1.7 -6.6 Met -2.0 0.0 -2.3 0.0 -2.6 0.0 0.0 0.0 0.0
8. Change in central bank credit to government (ceiling) 7/ 0.0 0.0 0.0 0.0 0.0 0.0 -234.0 0.0 0.0 Met 0.0 0.0 0.0 0.0 0.0 0.0 -312.0 0.0 0.0 0.0 Met 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
9. Central bank financing of the government (ceiling) 4/ 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Met 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Met 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
10. Change in net domestic assets of the central bank (ceiling) 7/ 8/ ** -112.1 -112.1 -157.5 -36.0 -36.0 -177.5 173 -185.6 -154.5 -212.6 Met -300.3 - - #### - - 184 -101.5 - - - - - - - - - - - -
11. Change in monthly average monetary base (ceiling) 7/ - - - - - - - 0.0 -18.4 0.0 -0.6 - 0.0 -1.1 Met 0.0 0.0 0.0 -18.0 0.0 -33.0 -45.0 -45.0 38.0
Inflation Consultation Clause

12. Inflation bands (in percent, y-o-y) 28 26
Outer Band (upper) 26 24
Inner Band (upper) 24 22
Center inflation target 22 20
Inner Band (lower) 20 18
Outer Band (lower)
**The ceiling in the change in NDA of the Central Bank is set as a QPC starting in the First Review. Prior to that, as complement to the Inflation Consultation Clause, if net domestic assets of the central bank were to exceed the thresholds established in the program, the clause would be triggered, requiring a consultation with the Executive Board on the authorities’
proposed poli
under the program.

1/ on
2/ Based Targets as defined
program in rates
exchange the Technical
defined inMemorandum
the TMU. of Understanding (TMU).
3/ Cumulative flows from January 1 through December 31.
4/ Continuous performance criterion.
5/ The accumulation is measured against the average during Q4 2017, which stood at 45.6 billion pesos.
6/ In billions of U.S. dollars. See Quantitative Performance Criteria Table (Staff Report Program Request-Fourth Review) for the reference of each review.
7/ See Quantitative Performance Criteria Table (Staff Report Program Request-Fourth Review) for the reference of each review.
8/ Targets subject to adjustors as defined in the TMU.
9/ Increases reflect IMF disbursements, which increase NIR.
ARGENTINA
Annex V. Structural Benchmarks

Under the 2018 SBA

ARGENTINA
Appendix I. Economic Developments Leading Up to the Request

for the 2018 SBA
1. The Cambiemos coalition of Mauricio Macri won the 2015 general elections on a
platform of a more open, less protectionist, and more market-oriented economy. A priority of
the new government was to reset the relationship with international financial markets, after years of
stand-off with foreign creditors. Goodwill from the international financial community towards the
new government was high. But the administration’s domestic position was not commensurately
strong: it had come to power with a narrow margin and without majority in Congress, and would
soon face the test of mid-term elections in late 2017.
2. At the time the administration took power in late 2015, Argentina’s economy was
marked by macroeconomic imbalances, structural distortions, and fragile institutional
frameworks. The economy was undermined by micro-level distortions that included extensive
administrative controls (including trade barriers, foreign exchange restrictions, and price controls),
rigid and dual labor markets, and a weak business environment. Output had been stagnant since
2011; the investment share in GDP had been steadily declining. Large fiscal deficits, financed by
money creation, contributed to high inflation and an overvalued exchange rate. This in turn led to
robust consumption, which, in the context of a small export base and the fiscal deficit, led to
widening current account deficits. The financial sector was underdeveloped and the economy highly
dollarized. Foreign exchange reserves were running low. Finally, the institutional framework for
economic policymaking had been weakened—for instance, the Executive Board found Argentina to
be in breach of its obligations under Article VIII of the Articles of Agreement due to provision of
inaccurate data—and the central bank was not independent.
Gross Domestic Product Labor Productivity and Investment Share

(AR$ billion in 2004 Pesos) 104 18
800
17
750 100
16
700
96
15
650
92
600 14
Output per worker (Index, 2010=100)
Investment/GDP (Percent, RHS)

550 88 13
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018Q2 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018Q2

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Exports/GDP Twin deficits

(Percent) (percent of GDP; quarterly 3qma)
4
25
Fiscal balance public sector
Exports of goods and services
2 Current account balance
20 Agriculture-related exports
15
-2
10
-4
5 -6
0 -8
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018Q2 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018Q2
Sources: INDEC, Haver Analytics and Ministerio de Economía y Producción.

Note: Agriculture-related exports include agricultural exports and manufacturing exports of agricultural origin.
3. The administration moved swiftly to normalize relations with international financial

markets, resulting in substantial capital inflows. By 2015, formal and informal restrictions
affected nearly every foreign exchange transaction, and capital inflows and outflows were small, with
a pronounced difference between official and parallel exchange rates. The administration lifted
capital controls and let the exchange rate float. It substantially eased restrictions on residents’
purchases of currency and foreign assets, effectively unifying the foreign exchange market. A
settlement reached with external creditors on outstanding debt, allowing a return to international
capital markets by both the private and public sectors. The new administration restored relations
with the IMF—the first Article IV consultation since 2006 was conducted in 2016 1—and also chaired 59F
the G20 in 2018.
• The administration aimed to break from Bond Issuances

monetizing the fiscal deficit; with only a small (US$ million)
18,000
domestic investor base—and wanting to avoid International Sovereign Bonds
16,000 Domestic Bonds (Foreign Currency Issuances)
a substantial fiscal tightening to reduce 14,000 Domestic Bonds (Domestic Currency Issuances)
budget deficits—this meant a return to 12,000
external borrowing. Low yields elsewhere 10,000
made Argentina attractive to investors. 8,000
Argentina was able to issue debt relatively 6,000
easily, as exemplified by the issuance of a 4,000
100-year bond in 2017, and bond yields 2,000
declined toward those of other emerging 0

Jul-16
Jul-17
Jan-16
Jan-17
Jan-18
Nov-16
Nov-17
Mar-16
Mar-17
Mar-18
May-16
May-17
May-18
Sep-16
Sep-17
markets in the region.
1
IMF (2016a, 2016b).

ARGENTINA
Figure A1.1. Financial Indicators Before the 2018 SBA
Net Capital Flows Capital Flows

(Percent of GDP, quarterly) (Percent of GDP, quaterly)
15 14
Net debt inflows
Net equity inflows Debt Inflows
12
Net FDI inflows Debt outflows
10
Net Other inflows 10 Net Capital Inflows
Net derivative inflows
8
Net capital inflows
5
6
4
0
2
0
-5
-2
-10 -4
2010 2011 2012 2013 2014 2015 2016 2017 2018Q2 2010 2011 2012 2013 2014 2015 2016 2017 2018Q2
ETFs/Mutual Funds Equity and Bond Flows Latin America: EMBI

(US$ million) (basis points)
1,400
50,000 1,000 Argentina
40,000 800 1,200 Brazil
Chile
30,000 600 1,000 Colombia
20,000 400 Mexico
800
10,000 200 Peru
0 0 Uruguay
600
-10,000 -200
400
-20,000 -400
-30,000 -600 200
-40,000 EMEs Argentina (RHS) -800
0
-50,000 -1,000
Jan-10
Jan-11
Jan-12
Jan-13
Jan-14
Jan-15
Jan-16
Jan-17
Jan-18
Jul-10
Oct-10
Jul-11
Oct-11
Jul-12
Oct-12
Jul-13
Oct-13
Jul-14
Oct-14
Jul-15
Oct-15
Jul-16
Oct-16
Jul-17
Oct-17
Apr-10
Apr-11
Apr-12
Apr-13
Apr-14
Apr-15
Apr-16
Apr-17
Apr-18
Jan-10
Jan-11
Jan-12
Jan-13
Jan-14
Jan-15
Jan-16
Jan-17
Jan-18
Jul-10
Jul-11
Jul-12
Jul-13
Jul-14
Jul-15
Jul-16
Jul-17
Reserve Adequacy External Debt

65 120 (Percent)
Reserve Assets (USD) 80 80
60
Reserve as a Percent of Annual Metric (RHS) 100 70 External debt / GDP
55
Share of public debt in foreign currency (RHS) 75
50 80 60
45 50
70
60
40 40
35 40 65
30
30
20 20
25 60
10
20 0
Jan-10
Jan-11
Jan-12
Jan-13
Jan-14
Jan-15
Jan-16
Jan-17
Jan-18
May-10
May-11
May-12
May-13
May-14
May-15
May-16
May-17
May-18
0 55
Sep-10
Sep-11
Sep-12
Sep-13
Sep-14
Sep-15
Sep-16
Sep-17
2010 2011 2012 2013 2014 2015 2016 2017 2018
Sources: IMF Financial Flows Analytics database, IMF World Economic Outlook database, INDEC, Bloomberg, EPFR, and
IMF Staff Calculations.

ARGENTINA
• The resulting capital inflows were sufficient to restore central bank reserves. However, the flows
came mainly in the form of portfolio debt, while typically-more-stable FDI flows decreased
somewhat. Notably, much of the new debt was denominated in foreign currency, mainly
U.S. dollars. Resident outflows also increased. The capital account liberalization was welcomed
by the IMF as part of a transition away from the unsustainable policies of the past, albeit with
the recommendation that it be accompanied by policies to restore fiscal balances, bring inflation
under control, and boost the supply side. 2 60F
4. The administration adopted a gradual approach to the implementation of structural

reforms and reduction in fiscal and external imbalances. The administration changed the
indexation formula for pensions and social transfers, linking them to past inflation, and put in place
some tax and subsidy reforms. 3 But it chose to avoid fiscal consolidation and broader structural
61F
reforms, judging that it did not have sufficient political support. Argentina’s public finances had
been a persistent stumbling block for previous governments and for monetary policy, with fiscal
dominance frequently leading to inflation bursts and rendering exchange rate regimes
unsustainable. 4 Primary spending had nearly doubled between 2000 and 2015; public debt was
62F
rapidly increasing again, after having been cut back substantially by the restructuring of 2005.
Against this backdrop, the IMF noted that the administrations’ tax cuts were increasing deficits and
warned against the risks of “gradualism,” both in fiscal and structural policies, especially if external
financing were to become more expensive. 5 63F
5. On the monetary policy side, tensions over interest and exchange rate setting
emerged. The reopened capital account posed a fundamental dilemma for monetary policy: should
the central bank fix (or tightly manage) the exchange rate, or should it pursue an independent
monetary policy? To an important extent, transactions were conducted in U.S. dollars, and private
citizens were highly attuned to the exchange rate. Extensive inflation indexation created powerful
cost-push mechanisms. Monetary transmission was weak and high inflation expectations
entrenched, suggesting a large sacrifice ratio. Against this backdrop, the administration introduced
an inflation targeting regime in 2016, aimed at re-anchoring inflation at a lower level. This change
came without many of the steps commonly understood to be required for a successful transition to
inflation targeting, notably a period of sustained disinflation, reduction of fiscal dominance, and
assurance of central bank independence. 6 64F
2
2016 Staff Report for the Article IV Consultation, pp. 5-14.
3
Staff Report for the 2016 Article IV Consultation, especially pp.13 and 17.
4
Buera and Nicolini (2019) documents monetary regimes in Argentina between 1969 and 1991 and notes that “after
several monetary reforms, thirteen zeros had been removed from its currency … all these events are the symptom of
a recurrent problem: Argentina’s unsuccessful attempts to tame the fiscal deficit.”
5
Staff Report for the 2017 Article IV Consultation, especially Key Messages, pp. 4-10, Staff Appraisal (p. 31), and
Risk Assessment Matrix (p. 33).
6
For its part, the IMF did not endorse the inflation targeting framework per se, nor did it advise on the specific
inflation targets, although it welcomed the commitment to lower inflation; Staff Report for the 2016 Article IV
Consultation, pp. 21.

ARGENTINA
• These circumstances created a tension over the priorities for monetary policy. In principle,
focusing on inflation would imply letting the exchange rate adjust flexibly. As the real exchange
rate was estimated to be overvalued, this would likely imply a nominal exchange rate
depreciation. 7 But nominal exchange rate depreciation would pass through into higher prices—
65F
rapidly so, given the extensive dollarization and indexation in the economy 8—and increase the 66F
peso value of dollar-denominated debt.
• In practice, this tension manifested itself in an inconsistent implementation of monetary policy.

The central bank wanted to focus purely on inflation, disregarding the exchange rate; it was
optimistic that inflation could be anchored at historically-low levels without too much cost from
higher interest rates, although arguably the Inflation and Peso Depreciation
fall in inflation observed in 2017 was as a (percent, y/y)
50 80
result of exchange rate appreciation driven 45 Headline inflation 70
by capital inflows. The Treasury feared the 40

Peso/USD depreciation (y/y, RHS)
60
impact of high domestic interest rates on its 35

50
ability to finance the deficit. By December 30

40
2017, it became clear that the inflation target 25 30
20
was likely to be missed; the government 20
10
reacted by raising the inflation target to 15 0
facilitate lower interest rates. Some observers 10 -10
consider this step a policy mistake that

Jan-09
Jan-10
Jan-11
Jan-12
Jan-13
Jan-14
Jan-15
Jan-16
Jan-17
Jan-18
Jul-09
Jul-10
Jul-11
Jul-12
Jul-13
Jul-14
Jul-15
Jul-16
Jul-17
signaled a weak resolve to lowering inflation. Sources: Banco Central de la Republica Argentina, Instituto Nacional de Estadística y Censos.
6. By early 2018, Argentina, like other emerging market economies, was experiencing
more challenging external conditions. The open capital account combined with the gradual
approach towards reducing macroeconomic imbalances had rendered the Argentine economy
vulnerable to external shocks. The U.S. Federal Reserve was expected to tighten monetary policy,
and geopolitical events were causing investors to EM currencies during early 2018
reprice riskier assets. Many emerging market 110
(dollars per domestic currency unit, 1 January 2019 = 100)
currencies came under pressure during 2018, 105
with a sell-off in April, but the Argentine peso 100
was the focus of particular skepticism, reflecting 95
concern over macroeconomic imbalances and 90
weak policy frameworks. In addition, the Argentine peso
85 Turkish lira
Argentine export sector, heavily weighted to Brazilian real

80
agriculture, was hit by a major drought. Mexican peso
Russian ruble
75
Argentina found itself unable to place new debt South African rand
70
at the same terms as previously, with the last

05-Apr-18
12-Apr-18
19-Apr-18
26-Apr-18
03-May-18
10-May-18
17-May-18
24-May-18
01-Mar-18
08-Mar-18
15-Mar-18
22-Mar-18
29-Mar-18
01-Feb-18
08-Feb-18
15-Feb-18
22-Feb-18
04-Jan-18
11-Jan-18
18-Jan-18
25-Jan-18
large external placement in January 2018.
7
In 2017, the IMF assessed the real exchange rate to be 10 to 25 percent overvalued; Staff Report for the
2017 Article IV Consultation, External Sector Assessment, pp. 41-49.
8
For this reason, Baliño et al. (1999) argue that in dollarized economies “the prevalence of currency substitution (the
use of foreign-currency-denominated assets for transactions) tends to strengthen the case for a fixed-rate system.”

ARGENTINA
7. Facing rapidly worsening access to budgetary and balance of payments financing,

Argentina announced in May of 2018 that it would seek an IMF arrangement. With foreign
investors already concerned about sovereign debt sustainability, the tipping point was the
implementation of a withholding tax on interest earned by nonresidents on financial assets on
April 24, 2018. Although the tax had been approved the previous year, investors—many of them
foreign—rapidly sold off Argentine assets upon its application, especially central bank bills
(Box 3: Vulnerabilities Arising from LEBACs), sending yields on those instruments sharply higher. The
central bank responded by intervening
heavily in the foreign exchange market and LEBAC Yields
55%
increasing interest rates to 40 percent. 50%
However, this did not contain what became 45%
8 May 2018: talks
a more general run on peso assets, and the 40% with IMF announced
exchange rate depreciated markedly. The 35%

30%
government approached the IMF with a 25%
request for financing on May 8, 2018. A 20%
program, to be supported by a standby 15%

LEBAC 1-mth yields Banks' term deposit rate
10%
arrangement, was negotiated quickly and
08-May-18
22-May-18
10-Apr-18
24-Apr-18
13-Mar-18
27-Mar-18
02-Jan-18
16-Jan-18
30-Jan-18
13-Feb-18
27-Feb-18
approved by the IMF Executive Board on
June 20, 2018.

ARGENTINA
Appendix II. The IMF and Argentina, 1991–2001—Summary of

IEO Evaluation Report 1 67F
A. Economic Developments
1. Argentina had gone through a period of economic stagnation and high inflation
between 1975 and 1990. Under successive interactions of fiscal and currency crises, real GDP
declined 6 percent over the period and inflation remained often above 100 percent. Gradualist
approaches, shock therapies, and price controls all failed to tame inflation. In July 1989, a new
attempt based on devaluation and structural reforms had early good results, but implementation
slippages made way to wage increases, speculative attacks and hyperinflation at the end of the year.
The government reacted with a debt conversion to U.S. dollars, measures to strengthen public
finances and privatizations, but depreciation and inflation remained.
2. The adoption of a peg to the U.S. dollar under the Convertibility Law (April 1991) was
followed by a relatively long period of growth and stability. The peg was accompanied by
structural reforms on deregulation, trade openness, and privatization. Through 1998 growth was
high (about 6 percent per year) and fiscal deficits were contained (about 1 percent). Inflation
declined to single digits by 1994 and remained low for the rest of the decade. Under the peg,
Argentina performed well in the aftermath of the 1994 Mexican crisis, supported by an adjustment
program and favorable external developments (weak U.S. dollar and Mercosur tariff reductions).
Capital inflows (portfolio and FDI) were strong, even shortly after the 1997 Asian crisis.
3. However, the supporting polices for the peg were not put in place, and vulnerabilities
built up. The peg was a risky move, as initial conditions were not ideal: Argentina had a small and
homogeneous export base; trade and economic cycle links to the U.S. were limited; and prevailing
product and labor market rigidities indicated that any adjustment would be through output
contraction. Although the peg required a strong fiscal position to endure potential liquidity crises,
Argentina maintained fiscal deficits throughout the 1990s (except for 1993). The actual fiscal stance
was even more relaxed due to the impact of off-budget liabilities (notably the pension reform), but
political pressures and structural deficiencies stood in the way of fiscal discipline. Finally, the limited
domestic market made Argentina reliant on external and foreign-currency denominated borrowing,
and the country was vulnerable to sudden stops despite the careful maturity management.
4. Between 1998 and 2000, a combination of external shocks and policy slippages raised
sustainability concerns and Argentina lost market access. Financing conditions tightened with
the capital reversal after the August 1998 Russian crisis and the increase in the Fed funds rate.
Argentina’s competitiveness took a toll from lower commodity prices, the 1999 devaluation in Brazil,
and the U.S. dollar appreciation relative to the euro. The response to the growth slowdown in
1999 was election-driven fiscal spending, which resulted in a sharp increase in debt levels. Under the
1
IMF (2004).

ARGENTINA
combination of solvency concerns, further tightening in external conditions, and inability to adjust
under the peg, Argentina lost market access in late 2000 and shifted toward augmented
IMF financing.
5. The response to the crisis was erratic, culminating in a full-blown currency and debt
crisis and the disorderly abandonment of the peg. The authorities took a series of steps in
2001 without coordination with the Fund. The banks’ position was weakened by allowing
government securities to meet reserves requirements. The peg anchor was changed to a dollar/euro
basket. Heterodox tax exemptions attempted to restore competitiveness. A market-based bond
exchange (“mega-swap”) improved maturities but at high financing costs. Late in the year, the fiscal
strategy hinged on an inefficient and unsustainable “zero-deficit” plan. Market access could not be
restored and in December 2001 the Fund withheld further support. Under political turmoil,
Argentina imposed capital controls and a partial deposit freeze, and partially defaulted on external
debt. After a short period under a dual exchange rate, the regime was reunified with an asymmetric
asset/liability rate conversion which damaged heavily the banking sector. In March, debt under
Argentine law was converted into pesos and a devaluation unfolded as the exchange rate reached
AR$4 per dollar.
B. Fund Involvement
6. There were only a few months in the decade between 1991 and 2001 when Argentina
was not under a Fund-supported program. In July 1991, Argentina entered a 12-month SBA to
support the move to the peg (SDR 780 million, 56 percent drawn). The program was cut short in
March 1992, to give place to a 3-year EFF arrangement (SDR 2.1 billion), which was augmented (to
SDR 4.0 billion, fully drawn) and extended by one year to weather the 1994 Mexican crisis. This was
followed by a 21-month SBA in April 1996 (SDR 720 million, 85 percent drawn) and a precautionary
3-year EFF arrangement in February 1998 (SDR 2.1 billion, undrawn). In March 2000 a 3-year
precautionary SBA (SDR 5.4 billion) replaced the off-track EFF arrangement. With the intensification
of the crisis, the arrangement was augmented in January 2001 (to SDR 10.6 billion) and September
2001 (to SDR 16.9 billion, 58 percent drawn). The program effectively ended with the decision not to
complete a program review in December 2001.
7. Several chances to exit the peg were missed, and by the second half of the 1990s the
Fund became supportive of the peg. The Fund initially regarded the peg as a stabilization device
and did not analyze its medium-term sustainability, although there were concerns about
appreciation, overheating and inadequate fiscal adjustment. In 1994, low inflation and a
depreciating U.S. dollar led to a real depreciation and provided the first window of opportunity to
exit the peg, but at the time staff had stopped voicing concerns about the exchange rate regime.
Following the good performance after the Mexican crisis, staff reports and public statements
became clearly favorable towards the peg. Despite some limited internal discussions, there were no
substantive discussions with the authorities. In hindsight, the 1996-97 period was the last chance for
a low-cost exit, as peso-dollar spreads were low and the required depreciation would have been
small. Not even the financial tightening in late 1998, followed by the Brazilian depreciation in early

ARGENTINA
1999, triggered a discussion on the regime. Conversely, staff reiterated support for the peg, did not
question the authorities’ proposal for “full dollarization,” and temporarily embraced the argument of
“automatic adjustment” (external shock leads to money base contraction). Analytical work on
possible exit strategies only started with the deepening recession in the second half of 1999. Even at
that point, the conclusion was to boost confidence and competitiveness with fiscal adjustment,
structural reforms and official support. The cost of an exit was deemed too high, and alternatives
were not explored.
8. The Fund did not convey the extent and urgency of the fiscal consolidation required
by the peg. Fiscal targets were regularly missed and accommodated for a combination of factors.
An excessive focus on flow variables prevented the Fund from requiring an earlier course correction
and underestimated the impact of off-budget expenditures on debt. Although provinces had a
combined spending comparable to the federal government, fiscal targets until 1998 were based only
on the federal side, and structural reforms to address weak provincial fiscal controls were limited.
Finally, Argentina’s initial low debt levels and good ability to borrow masked deficiencies in the debt
structure (high share of foreign currency and external debt, elevated spreads, and vulnerability to
market sentiment). Given these blind spots and optimistic growth projections, staff did not explore
in detail risks for fiscal solvency.
9. While the Fund properly identified areas for structural reform, the light-touch
approach resulted in little progress. On the structural-fiscal front, despite some successful
distortion-reducing tax reform measures in the EFF arrangements (1992 and 1998), reform of the
federal-provincial revenue-sharing system was extensively discussed but never concluded, and
consistent technical assistance work on tax compliance could not overcome political and cultural
constraints. Labor market reform, critical to remove nominal rigidities, did not garner sufficient
political support until May 2000. The 1994 social security reform, which introduced a (voluntary)
fully-funded system, was in effect debt-financed as the authorities and the IMF failed to grasp the
transition costs. The financial system, which was a model in banking supervision and prudential
policy, had an authority-led agenda. The main vulnerability was the exposure to a devaluation, but
staff did not press on this issue until late 1999, when there was no more room for remedial action.
10. When entering into crisis mode under the 2000 SBA, the Fund’s initial response did
not properly address relevant risks. Upon the loss of market access and Argentina’s request for
additional financial support in late 2000, the Fund had two possible diagnoses: a liquidity crisis from
a temporary confidence shock, or a fundamental overvaluation with large debt implications.
Following the first option, the Fund announced in December 2000 a package with growth,
competitiveness, and medium-term fiscal discipline measures; augmented and frontloaded access;
and financing from other official and private sources (a US$40 billion shielding or blindaje package).
The strategy was risky and in practice involved a “market test,” as official financing did not cover all
needs. However, the program did not address thoroughly the impact of potential external shocks
and policy slippages, did not speak to the large current account deficit, and did not elaborate an exit
strategy in case the catalytic approach failed.

ARGENTINA
11. As the confidence effect did not materialize, the Fund doubled down on the same
approach and did not seriously consider alternatives until it was too late. The recovery of
market conditions was short-lived, as fiscal performance slipped and structural reforms were
challenged in courts. Reshufflings in the Ministry of Economy made way to more heterodox
approaches and meeting fiscal targets was increasingly unlikely. Although chances of success
continuously deteriorated and markets became skeptical of the strategy, the Fund proceeded with
and further augmented the program. Giving the benefit of doubt, avoiding blame for triggering a
crisis, and preventing contagion were important factors in the decisions. Financial risks to the Fund
were overlooked in the process (e.g., the second augmentation was completed without a capacity to
repay assessment). Alternative strategies were discussed in an internal task force (set up in
mid-1999), but often dismissed as too costly without deeper analysis and not developed into a
workable contingency plan until late 2001. As a “stop-loss” trigger, the authorities agreed to
consider alternatives if reserves went below Fund credit, but this was not conveyed to the Executive
Board. Although it was clear to staff by October 2001 that the December review requirements would
not be met, discussions with the authorities on debt restructuring or the exchange rate regime did
not happen until the decision not to complete the review. The sudden program exit left no space for
dialogue to influence critical policies at the end of the peg.
C. Lessons and Recommendations
12. The shortcomings in the Fund’s involvement with Argentina encompassed the broader
decision-making process (Table A2.1). From a conceptual standpoint, the Fund fell short in two
core aspects: it was reluctant to discuss the exchange rate regime and the fiscal advice missed key
elements of debt dynamics. By overemphasizing ownership, the Fund did not use its leverage at
critical points and acted in excessive deference to the authorities. Programs approved without a
clear balance of payments need had reduced traction and weakened market discipline. When the
crisis abated, the Fund did not evaluate properly the costs and implementation of alternatives to the
confidence-based strategy and did not involve the Board in a timely and effective manner.
13. Some lessons from the IEO evaluation may be applicable to the 2018 SBA:
• Exchange rate/debt sustainability nexus: Although the Fund’s external sector and debt
sustainability tools have improved markedly, the 2018 SBA once again saw the materialization of
exchange rate risk moving debt into unsustainable territory.
• Catalytic approach: Like in earlier programs, the confidence effect did not materialize under the
2018 SBA. Strong fundamentals and sustainable debt and exchange rates remain of paramount
importance for market confidence.
• Ownership, precautionary access, and program standards: Also like in earlier programs, the
2018 SBA was marked by a degree of Fund deference to the Argentinian authorities’ policies and
reluctance to question assumptions and policy choices.

ARGENTINA
• Fallback strategy and timely action: While internal discussions took place at an early stage of the
2018 SBA, concrete alternative policies were agreed only towards the effective end of the
program. Engagement by the Executive Board on a “Plan B” was limited.
Table A2.1. Argentina: Lessons and Recommendations from the 2004 IEO Evaluation
Lessons Recommendations
1. The IMF must exercise firm, candid and routine 1. Medium-term exchange rate and debt
surveillance over the exchange rate regime to sustainability should form the core focus of IMF
ensure it is consistent with other policies and surveillance.
constraints.
2. The IMF should refrain from program relationship
Surveillance and Program
2. The level of sustainable debt for emerging market with a member country without immediate balance of
economies may be lower than had been thought.
Design/Relationship
payments need and with serious political obstacles

to policy adjustment or structural reform.
3. The authorities’ decision to treat an arrangement
as precautionary may involve a risk of weakened 3. Exceptional access should entail a presumption of
standards for IMF support. close cooperation between the authorities and the
IMF, possibly with:
4. Ownership is not sufficient if it is based on
misguided or excessively weak policies. - mandatory disclosure to the Executive Board of
any critical issue or information that the authorities
5. Favorable macroeconomic performance can mask
refuse to discuss with (or disclose to) staff or
underlying institutional weaknesses that may
management, and
become insuperable obstacles to any quick
restoration of confidence. - presumption that the IMF would not endorse
publicly measures not subject to prior consultation.
6. Decisions to support a policy framework involve a
probabilistic judgment, but it is important to make
this judgment as rigorously as possible, and to have
a fallback strategy in place from the outset.
4. The IMF should have a contingency strategy from
Crisis management
7. The catalytic approach to the resolution of a the outset of a crisis, including in particular “stop-loss
capital account crisis works only under quite rules”.
stringent conditions.
5. Where the sustainability of debt or the exchange rate
8. Financial engineering in the form of voluntary, is in question, the IMF should indicate that its support
market-based debt restructuring is costly and is conditional upon a meaningful shift in the
unlikely to improve debt sustainability if it is country’s policy.
undertaken under crisis conditions and without a
credible, comprehensive economic strategy.
9. Delaying the action required to resolve a crisis

can significantly raise its eventual cost.
6. To strengthen the role of the Executive Board,
procedures should be adopted to encourage:
(i) effective Board oversight of decisions under
Decision-making process
management’s purview;
(ii) provision of candid and full information to the
10. Risk analysis, accountability, and Board on all issues relevant to decision making; and
predictability must be improved. (iii) open exchanges of views between
management and the Board on all topics, including
the most sensitive ones.
IMF shareholders—especially the largest ones—should
collectively uphold the role of the Executive Board as
the prime locus of decision making in the IMF.

ARGENTINA
Appendix III. 2003 Stand-By Arrangements—Summary of Ex-Post

Assessment and Ex-Post Evaluation 1 68F
A. Economic Developments
1. Following the disorderly end of the peg, the Argentine economy contracted sharply in
the first half of 2002, but a rebound started in the second half of the year. Real GDP fell by
14 percent in the first half of 2002 and depreciation triggered a spike in inflation (the April monthly
rate was 10½ percent). The banking system fell into crisis and, despite the freeze, continued large
deposit outflows required central bank liquidity support. Signaling stabilization, inflation started to
decelerate in May, while net outflows from the banking system ceased and then reversed in the
second half of 2002 although gross outflows remained large. Interest rates were gradually lowered,
and economic activity began to pick up. Nevertheless, at end -2002 the impact of the crisis was still
substantial: the unemployment rate was above 20 percent (from less than 13 percent in 1998), half
of the population was below the poverty line (one quarter in extreme poverty), and the inflation rate
exceeded 40 percent.
2. Policies in the aftermath of the crisis sent worrying signals, but the worst outcomes
were avoided. On the external front, a dual exchange rate was in place until February 2002,
authorities sold dollars against staff advice, and comprehensive export surrender requirements and
exchange controls were imposed. In the banking sector, the asymmetric conversion of banks’
balance sheets into pesos eroded bank capital, but avoided a widespread corporate and household
debt crisis. Confidence in legal institutions deteriorated with a freeze in privatized utilities prices and
the weakening of creditor rights under the corporate insolvency law. In the fiscal area, despite the
extensive financial bailout to subnational governments, bilateral agreements between the federal
and provincial authorities on fiscal adjustment took long to be effective. On the positive side,
growth in quasi-monies issued by provincial governments was controlled by the bilateral
agreements, liquidity support to banks was contained, credit to the government was curtailed, the
exchange rate was eventually allowed to float, and the feared hyperinflation did not materialize.
3. In line with other post-crisis episodes, the recovery remained strong from 2003 to
2005. Growth was rapid through end-2005 (8.8 percent on average), supported by strong private
consumption and investment, a steady improvement in the trade balance (driven by exchange rate
depreciation and booming commodity prices), and firm macroeconomic policy implementation.
Unemployment and inflation rates declined from their peaks, although inflation picked starting in
early 2005. International reserves increased and restrictions on international transactions and
external payments were gradually lifted. Poverty rates also dropped, but remained high. The
recovery in Argentina was in line with other post-crisis countries, except for the persistence of the
1
IMF (2006a).

ARGENTINA
real effective exchange rate depreciation (due to failure to adjust regulated prices, export taxes,
moral suasion, and exchange rate intervention).
4. The period was marked by a contentious debt restructuring. After three years in default,
in January 2005 the authorities launched a debt exchange offer to swap US$82 billion in eligible
claims for new bonds, with an estimated haircut of 75 percent. This was set as a final offer,
supported by legislation forbidding the executive branch from reopening the offer or reaching
private settlements with nonparticipating creditors. The authorities reported a 76 percent
participation rate at the time.
B. Fund Involvement
5. Negotiations of the 2003 SBAs were difficult due to policy disagreements and rising
external obligations. The Fund’s core advice following the crisis included: (i) floating exchange rate
and phasing out of payments restrictions; (ii) fiscal adjustment; (iii) retirement of quasi-monies
issued by provincial governments; (iv) normalization of relations with private creditors; (v) restoring
legal certainty; and (vi) fiscal and banking structural reforms. However, some of the government
policies (involving congressional and judiciary decisions) were contrary to staff advice and
constituted major obstacles to arriving at a new program, both for their direct economic effects and
for their message on ownership and implementation. The large repurchases in 2003 confronted the
Fund with a difficult choice: agree to a program with modest policy objectives but refinancing these
repurchases; or run the risk of a default on obligations to the Fund, undermining the preferred
creditor status and impacting other emerging markets.
6. The reengagement with Argentina after the crisis took a two-step approach—a short
bridge program before the presidential elections, followed by a 3-year program, which
however went off-track in less than one year. The initial stand-by arrangement, from late January
to August 2003, was intended as a bridge to a longer-term arrangement to be agreed after the April
2003 presidential elections. The program mirrored the repayment schedule and had limited
structural measures. Staff had concerns about ownership and implementation capacity, but major
shareholders supported the program. A more ambitious three-year SBA was approved in September
2003. The latter aimed to restore macroeconomic stability, comprised structural reforms in the fiscal,
banking and utility areas, and sought a resolution of external arrears. Just two reviews were
completed, with waivers. Absent a policy agreement with authorities, the third review was not
completed, and negotiations were suspended in mid-2004. The authorities repaid their outstanding
Fund obligations on January 4, 2006 and cancelled the arrangement the following day.
7. Overall, macroeconomic performance under the programs exceeded expectations, but

progress on structural reforms was limited. Supported by strong macroeconomic policy
implementation, quantitative targets were met, and growth and inflation outcomes were
consistently better than projected. A conservatism in forecasts (after the emerging markets crises),
the supportive external sector, and “frozen” utility prices helped the overperformance. In contrast,
implementation of structural reforms was poor, reflecting lack of ownership and weak

ARGENTINA
implementation capacity, as well as a reduced sense of urgency stemming from the strong
economic rebound and the frontloaded access to Fund financial support.
8. Fiscal outcomes were positive, but the composition of adjustment was a concern.
Performance was helped by rapid revenue growth—led by export and financial transactions taxes—
and a temporary compression of spending on wages and federal pensions. The additional space
allowed a sharp increase in primary spending, particularly on capital goods. The outcome
represented a tightening relative to the September SBA assumptions, but short of the compression
of primary spending envisaged in the January SBA. This relative loosening of the fiscal stance could
be justified by the severe social needs that Argentina confronted. Worryingly, the compression of
real wages and pensions began to be unwound in 2004-05, increased expenditures turned the fiscal
stance significantly expansionary in 2005, and alternative revenue sources to the distortive export
and financial transactions taxes remained elusive.
9. Monetary policy achieved price stability, but there were tensions surrounding
exchange rate policy. Strong money demand and reserve accumulation required target
adjustments, but facilitated liberalization of exchange controls, lifting of restrictions on bank
deposits, and redemption of quasi-monies issued by local governments, while still allowing a
reduction in inflation to low single digits in 2003 and 2004. Staff and the authorities disagreed over
nominal exchange rate flexibility and the proper objective of monetary policy - exchange rate
stability or price stability. The authorities argued that rapid accumulation of reserves would
strengthen the external position, stabilize government finances, and aid the recovery of the
industrial sector. Staff viewed that resisting the pressure for currency appreciation (as a correction of
the crisis overshooting) could lead to real appreciation through higher inflation, eroding central
bank credibility—price pressures indeed rose steadily during 2005. While staff pushed for exchange
rate flexibility, monetary tightening and productivity-enhancing structural reforms, focused on
growth, the authorities emphasized price controls, export restrictions, reduction in severance
packages, and moral suasion.
10. Progress on structural reforms was limited and uneven. Although structural
conditionality was in line with comparator programs, most targets were not met. Differences of
opinion between staff and authorities led to protracted negotiations. Politically complex reforms
requiring coordination with provinces and a broader social support fell behind, and the mismatch
between frontloaded access and backloaded reforms reduced incentives. The key areas of Fund
advice were:
• Fiscal: Advice focused on improving relations between the central and provincial governments
and tax reform. The revenue sharing arrangements undermined fiscal discipline and created
incentives for distortive non-shared federal taxation. Bilateral agreements hardening provincial
finances were signed but on an ad hoc and voluntary basis. A fiscal responsibility law was
approved but it did not guarantee consistency between provincial budgets and fiscal policy. A
comprehensive tax reform was not implemented, partly due to the gradualist approach and the
entrenchment of high-yield export and financial transaction taxes.

ARGENTINA
• Banking: There was broad agreement between the authorities and staff on weaknesses and
scope of reforms. The strategy comprised comprehensive reform – covering bank diagnosis and
resolution, central bank autonomy, prudential regulation, lender of last resort, public bank
reform - and short-term forbearance to address the post-crisis weaknesses of the system. There
was limited progress during the program period, but afterwards the authorities reached
agreements with banks on business plans and compensation for the asymmetric “pesoization”.
Institutional and public bank reforms continued lagging.
• Public services: Despite this not being a core are of Fund expertise, staff deemed reform of the
utilities sectors to be crucial, and the September SBA aimed to grant the executive fast track
power for contract negotiation and to establish a general framework law for public services. Fast
track powers were given, but the renegotiation of concessions was slow and controversial. A
general framework was submitted to congress but not approved by the time of the evaluations.
11. Access to Fund financing mirrored the repayment schedule and was inconsistent with
ex ante projections of financing needs. The program assumed no resumption of market access
and large capital outflows (the latter assumption turned out to be pessimistic). Under those
assumptions, access was too low: reserves would increase by just US$5 billion, and indicators of
adequacy (relative to imports and debt obligations) would deteriorate. The need to safeguard Fund
resources played a role in containing access, as there were risks to the capacity to repay, credit
concentration, and insufficient financial buffers (precautionary balances and burden sharing). The
access granted kept credit outstanding to the Fund broadly constant at around SDR 10-11 billion,
requiring frontloading and lumped repayments in 2007–08. Despite the low access to Fund support,
Argentina was able to accumulate reserves faster than projected; end-2005 reserves were US$16
billion above target.
12. The Exceptional Access Framework was observed in procedure but not in spirit.
Although the balance of payment needs was clear (EAC1), the level of access did not address
underlying issues. Two criteria were not clearly met from the outset—that on debt sustainability
without restructuring (EAC2) and that on resumption of market access (EAC3)—but the policy
allowed flexibility when a restructuring is needed and the member was unable to make large
repurchases to the Fund. Finally, while there were several risks to implementation (EAC4), Argentina
was given the benefit of doubt due to the “considerable ownership” and personal involvement of
President Kirchner. The decision to move forward with exceptional access under these conditions —
i.e., perception of defensive lending, lack of definition of economic program policies due to policy
disagreement, and not clearly met criteria—undermined the confidence buildup, did not provide
medium-term assurances, created moral hazard, and disincentivized preemptive action by other
members. The perception was that non-economic factors may play an important role in exceptional
access decisions.
13. The application of the lending into arrears (LIA) policy was hampered by the lack of a
full-fledged macroeconomic framework and Argentina’s contentious engagement with
creditors. Among others, the LIA policy required that Fund lending occurred within a Fund-defined
medium-term adjustment, and that authorities engaged in “good faith” with creditors. However,

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neither of the two programs contained a fully quantified medium-term fiscal framework (the
September SBA had primary surpluses only for 2004). There were differences between authorities
and staff on the medium-term surplus, as the authorities believed that a pre-defined path would
compromise their negotiation position. Additionally, major shareholders pushed for a “market-
oriented” approach to debt restructuring with private creditors. On the good faith criterion, creditors
perceived that Argentina was not prepared to negotiate with them and claimed that the authorities’
final offer was not a result of a collaborative dialogue. The authorities, however, argued that they
introduced important refinements to their exchange offers in response to suggestions from
creditors. In this context, assessing good faith proved difficult as objective indicators were hard to
identify (e.g., minimum participation measures could also reflect a “take it or leave it” approach), and
the absence of an Executive Board-endorsed primary surplus path made evaluations of
“reasonableness” impractical.
C. Lessons and Reactions
14. While the basis for proceeding with the programs was considered adequate, the
September SBA suffered from inconsistent design and, more importantly, lack of ownership.
The complicated circumstances of the January SBA made the short-term, transitional program a
reasonable approach to retain engagement, keep appropriate macro policies, a contain financial
risks to the Fund. The September SBA did not succeed in reconciling competing concerns, resulting
in delayed structural reforms, phasing out of line with balance of payments needs and the timing of
key measures, and a diminished role for the Fund in debt restructuring negotiations. Beyond these
issues, lack of ownership by all branches of government was fatal for the program.
15. Although the 2003 SBA’s lessons are difficult to map into the 2018 SBA due to their
different contexts, some lessons remain relevant.
• Implementation of difficult reforms can be improved by accelerating their pace. Gradually phasing
in reforms can entrench distortions and hinder progress. A similar backloading of reforms took
place in the 2018 SBA.
• Phasing should be consistent with reform commitments. Frontloaded access can reduce incentives
for backloaded reforms. The purchase schedule of the 2018 SBA reflected the profile of
projected financing needs, rather than considerations relating to the Fund’s policy leverage.
• Fund engagement in debt restructuring cases requires a primary surplus path and a medium-term
balance of payments need. These elements are key for meeting the LIA policy’s objectives.
• Meeting the procedures but not the essence of the Exceptional Access Policy can undermine its
objectives. The 2018 SBA highlighted the technical challenges in applying the flexibility of the
EAF introduced as part of its 2016 revision.

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Brookings Papers on Economic Activity Conference Drafts.

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Appendix IV. The Authorities’ Views on the

Ex-Post Evaluation of Exceptional Access Under the
2018 Stand-by Arrangement
A. Introduction
1. The Argentine authorities would like to begin by thanking the authors of the
Ex-Post Evaluation Report of Exceptional Access Under the 2018 Stand-By Arrangement (EPE),
namely Odd Per Brekk, Juliana Araujo, Olivier Basdevant, Henrique Chociay, Gunes Kamber,
Frederic Lambert, Nan Li and Alasdair Scott. We appreciate the extensive efforts made in preparing
this detailed report. We consider this evaluation of key importance to build understandings that
contribute to avoid falling into economic and social destabilizing situations from failed programs in
the future. While the EPE makes important efforts and progress in analyzing the fundamentals and
implications of the 2018 Stand-By Arrangement (2018 SBA or “the Program”), the authorities
consider that it falls short in the assessment of its flaws and biases, as well as in recognizing the
significant damage that the 2018 SBA itself inflicted to the country.
2. The original SBA granted to Argentina was approved in June 2018 for an outstanding
amount of US$50 billion (SDRs 35.379 billion), which is equivalent to about 1,110 percent of
Argentina’s quota at the IMF and represented the largest loan granted by the Fund to a single
country in its history. The SBA was supposed to have a three-year duration and its disbursement was
conditional on the fulfillment of a number of targets related to the evolution of fiscal accounts and
monetary policy.
3. The Program had five disbursements and only four reviews (of twelve expected). The initial
disbursement amounted US$15 billion. Half was earmarked for budget support, and the remaining
half to strengthen the Central Bank’s foreign exchange reserve position, with the expectation that
this would reduce pressures on the capital account. Instead, the Program failed to restore
“confidence” and it was revised. After the first review of the program in October 2018, the
authorities were allowed to draw the equivalent of about US$5.7 billion. The IMF also approved an
augmentation of the SBA to increase access to US$56.3 billion (about 1,277 percent of
Argentina’s quota).
4. In December 2018, the second review was completed and allowed the authorities to draw
the equivalent of an additional US$7.6 billion, bringing total purchases since June to about
US$28.09 billion. In April 2019, the Fund completed the third review, and Argentina’s government
was able to draw the equivalent of US$10.8 billion, bringing total disbursements since June 2018 to
about US$38.9 billion.
5. The fourth and final review was completed in July 2019, prior to Argentina’s primary
presidential elections. At that time, and even in a context in which the economic crisis was clearly
worsening in Argentina, the country passed the review. A new disbursement of US$5.4 billion was
approved, bringing total and final disbursements from June 2018 to July 2019 to US$44.1 billion.

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6. The numbers are striking. To visualize the orders of magnitude of the loan, it is worth noting
that during COVID-19 pandemic the Fund assisted 87 countries and provided debt relief for
29 including the poorest, for a total of circa US$160 billion. Of that, the IMF net disbursements for
the entire 2020 (which includes mostly pandemic support) totaled US$46 billion, an amount
equivalent to what was given to a single country, Argentina, during the course of a year.
7. The Program was intended to help Argentina overcome its crisis on the basis of arguably
four main pillars: restoring market confidence; protecting society’s most vulnerable; strengthening
the credibility of the Central Bank’s inflation targeting framework; and progressively lessening the
strains on the balance of payments. None of the objectives of the four-pillar Program were achieved.
8. The view of the Argentine authorities is that the 2018 SBA was built on a paradigm that
fundamentally stood in the way of achieving its main objectives. Thus, the Program was based on a
set of flawed premises and assumptions for the Argentine case, which include the neglect of
external vulnerabilities, narrow views on the inflationary process and its own drivers, the effects of
contractionary monetary and fiscal policies in the macroeconomic context that prevailed, as well as
an inappropriate definition of ownership of a program by a sovereign nation.
9. The economic philosophy that underlied the SBA followed a “one size fits all” logic, meaning
(i) a set of hypotheses about how economies in general function, that has increasingly been called
into question, partly as a result of a series of crises and responses to those crises that were short of
the mark; and (ii) a failure to construct an economic framework that pays due regard to the
specificities and idiosyncrasies of the economic, social, and political system in which economic
interactions occur.
10. The authorities consider that the assessment and diagnosis of Argentina’s problems at the
moment of the design of the 2018 SBA were either incorrect—if the Program was to achieve the
goals it laid out—or functional for favoring vested interests—as those that benefitted from a
delayed restructuring of the public debt denominated in foreign currency or from the massive
formation of foreign assets with the financing provided by the 2018 SBA. We learnt from the
EPE that the IMF staff disagreed with the views of the then Argentine authorities on the need for a
debt operation that restored public debt sustainability and on the need for capital flow
management measures—the EPE makes clear that the Fund’s decision, despite the differing views,
was to support the then Argentine authorities’ position that resulted in the lack of debt restructuring
or capital flow management measures, and still continue the disbursements that financed a capital
flight of a historic size. The discrepancy between the technical views of the staff and the decisions
made by the IMF reinforce the view that the program constituted a “political loan”—a loan that
meant to support the electoral chances of the incumbent Administration, neglecting the medium
and long-term consequences for the people of Argentina. The ultimate consequences for the
country were disastrous and will be long-lasting.
11. As a member of the IMF, the Argentine authorities also consider the EPE evaluation of
importance for improving the workings of the international financial institution as well. In today’s
world, the international community needs a strong, effective, and well-equipped IMF to face the

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many economic and financial challenges that lie ahead. Thus, strengthening the IMF requires a
revision of the institutional culture that hinders alternative views, thoughtful and diverse opinions,
that stood in the way of achieving the objectives of Argentina’s SBA. A failure to do so will leave the
international community ill equipped to tackle the challenges it is facing.
12. Looking ahead, for Argentina, the basis for moving towards sustainable long-term growth
needs to include a gradual fiscal consolidation, based on the genuine growth of economic activity,
which will be more robust if it is supported by the international community. Tackling inflation will
also be necessary, understanding it as a multi-causal problem that cannot be addressed by
monetary policy alone. Above all, carrying out policies that improve Argentina’s tradable sector
performance and strengthening local currency capital markets will be crucial.
13. In the spirit of contributing to consistent communication between the IMF and Argentine
authorities and maintaining closer collaboration, the starting point for a new program should be the
revision of the premises on which IMF recommendations were based. The view of the Argentine
authorities expressed in the following sections is grounded on the foundational assumption that any
set of policies adopted going forward should respect budgetary and external constraints to be able
to guarantee a long-term sustainable recovery, which would lay the basis for the country’s long-
term development.
14. The rest of the Authorities Views chapter is organized as follows. Section 2 briefly
summarizes the 2018 SBA and its consequences in the view of the authorities. Section 3 offers an
analysis of the premises on which the program rested. The authorities argue that the 2018 SBA
neglected Argentina’s external fragility, was based on a set of narrow views on inflation and
monetary policy and placed unwarranted emphasis on fiscal consolidation during a deep downturn,
ignoring the key role of external sustainability and the need to resort to macro prudential measures
and a timely debt restructuring. The Program also failed to recognize the limits of the “catalytic
approach” to resolve a capital account crisis and the endogenous effect of the SBA on investor
confidence, while insisting on structural reforms that did not respond to Argentina’s needs. Other
shortcomings of the Program were the neglect of governance and gender objectives that were
formally included but were not implemented. Finally, the conclusion highlights the political use to
which the 2018 SBA was put and identifies important lessons to be drawn from Argentina’s
experience for future crises.
15. Argentina’s experience suggests that to effectively respond to the challenges the
international community faces in a post-Covid world, the IMF will have to revise the premises on
which its programs are based. This entails being aware of the political use to which their programs
can be put, revising programs’ definition of success, and reconsidering the meaning of real
ownership.
B. Summary of the 2018 SBA Program and its Consequences
16. The SBA between Argentina and the IMF was signed in June 2018 as a response to a sudden
stop in capital flows. The Program arguably contained four main pillars: restoring market confidence;

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protecting society’s most vulnerable; strengthening the credibility of the Central Bank’s inflation
targeting framework; and progressively lessening the strains on the balance of payments.
17. The Program was supposed to play a “catalytic role” and help Argentina restore confidence
and regain market access to overcome its balance of payment crisis. An underlying assumption was
that Argentina was only undergoing a liquidity crisis and did not have a solvency problem 1. 69F
However, the US$50 billion provided by the IMF, initially for foreign exchange reserves support, did
not stop the run on the peso. The SBA was then reinforced in September 2018 with an additional
US$7 billion, and Argentina’s previous Administration was allowed to draw the funds to meet its
scheduled debt payments. Nevertheless, the crisis continued to worsen. In March 2019, amid fears of
another run on the peso, the IMF authorized the Central Bank of Argentina to sell up to
US$9.6 billion of its foreign-exchange reserves to help support the exchange rate.
18. Additional nominal anchors and measures to support economic activity (or at least prevent a
further fall) were added with little success. Between March and May 2019, the authorities introduced
a series of exceptional measures that intended to avoid a deeper collapse of the economy, including
a freeze of utility tariffs for the remainder of 2019 and measures to contain price increases for mass
consumption goods (expanded to cover 60 basic food items).
19. The primary elections of August 2019 manifested a strong popular discontent with the
implementation of the Program and its preliminary results. For many, the motivation of the
agreement had been political, and the economic results did not imply a breakthrough in the external
crisis. As it became clear that the Administration in power would lose the general elections (which
took place in October), and although Argentina was meeting the numerical criteria established in
the Program and continued to receive a positive assessment in the performance reviews, an
additional tranche that was stipulated for September 2019 (about US$5.4 billion), was never
disbursed.
20. After the primary elections, foreign exchange purchases by the private sector gained
momentum, and there was a large drop in dollar denominated deposits from the commercial banks.
The authorities only then reintroduced a set of Capital Flows Management measures (CFMs),
including capital controls. These required producers to surrender export proceeds on short notice
and monthly purchases of foreign exchange for non-commercial purposes were restricted to
US$10,000 per person (which were later reduced to US$200 per capita after the general elections).
21. In sum, none of the objectives of the four-pillar Program were achieved. The Program was a
failure. The most clear proof of its failure is that Argentina passed all the four reviews (October 2018,
December 2018, April 2019, and July 2019) under the Stand-By Arrangement and met all the fiscal
targets. The shortcomings of the program did not originate in the unwillingness or incapacity of the
1
In practice, illiquidity and insolvency are not independent. The standard distinction between solvency and liquidity
(e.g. as a criterion for bailouts) is somewhat confused: if it were unambiguous that a debtor was solvent, it would
generally not face a problem of illiquidity. Illiquidity arises out of a concern for insolvency and perceptions of
solvency depend in turn on the price of liquidity.

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authorities then in power to satisfy the agreed conditionalities. Rather, it was the outcomes of those
policies that failed to achieve its stated objectives. Confidence and market access were never
restored. Output contracted sharply and inflation increased. As the currency depreciated sharply,
despite the massive official injections of foreign currencies into to the market, public debt rose
substantially as a fraction of GDP.
22. More specifically, regarding pillar one, rather than restoring market confidence, Argentina’s
EMBI+ index grew by 264 points between the establishment of the agreement and the 4th review
(from 507 to 771 basis points). The 2018 SBA also failed to protect the most vulnerable, with an
increase of the population below the poverty line by 8.1 percentage points (from 27.3% of the
population in the first semester of 2018 to 35.4% in the same period of 2019). The credibility of the
Central Bank’s inflation targeting framework was further eroded, with year-on-year inflation
increasing by 24 percentage points between the signing of the agreement, in June 2018 (29.9%) and
the fourth review of the Program in July 2019 (53.9%). Finally, regarding pillar four, while the balance
of payments improved significantly (falling from US$-8.4 billion in the second quarter of 2018 to -1.8
billion in the second quarter of 2019), this was mainly due to the exchange rate adjustment and the
contraction of domestic demand, which significantly reduced the demand for imports. This can
hardly be qualified as success in rebuilding Argentina’s international accounts, international reserves
and reducing the country´s vulnerability to pressures on the capital account.
23. While the Program’s intention was to revert expectations, conversely, its policies resulted in
an IMF-financed bailout to private creditors and to investors that had been speculating over carry
trade opportunities during the two years that preceded the Program, increasing Argentina’s debt
burden—as well as changing the composition of the debt in foreign currency—without having any
positive consequences on the real economy. Between the end of 2015 and the implementation
CFMs in 2019, residents’ Foreign Asset Formation (FAF) reached over US$86 billion, a remarkable
concentration of wealth in the hands of a few economic actors. A small group of 100 agents made
net purchases for US$24.679 billion. In turn, the FAF of the 10 main buyers accounted for
US$7,945 million. 270F
24. The contraction of GDP during 2018 and 2019 was -2.6% and -2%, respectively. The
recession impacted commercial sectors (down 4% in 2018 and 7.8% in 2019), industry (down 4.8% in
2018 and 6.2% in 2019), construction (down 4.3% in 2019) and was only offset by the agricultural
sector in 2019 (+23.2%) in the real year-on-year comparison. 3 The progressive reduction of the
71F
fiscal deficit met the targets established in the Arrangement, but brought increases in the levels of
poverty and unemployment, the latter reaching double digits in the first half of 2019.
2
According to a report made by Central Bank of Argentina (“Mercado de cambios, deuda y formación de activos
externos, 2015-2019”)
3
The agricultural sector had suffered a severe drought during 2018 that strongly impacted the production of the
country's main crops (causing a 15.6% drop that year) and implied a very low comparison base that generated the
increase in 2019.

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C. The Flawed Premises of the 2018 SBA Program
25. As stated previously, the shortcomings of the Program did not originate in the unwillingness
or incapacity of the previous Administration to satisfy the agreed conditionality. All the four reviews
(October 2018, December 2018, May 2019, and July 2019) were passed and the then authorities
were praised for the progress, specifically on the fiscal policy front. Throughout, the IMF and
Argentina’s authorities maintained the view that fiscal and monetary contractions would restore
financial markets’ confidence. Instead, the policies adopted made the crisis worse.
26. The Argentine authorities’ view is that the failure of the Program stems from the fact that it
was conceived under premises that were ill founded—and that rather than pursuing the objectives
that had been laid out, by financing a massive formation of foreign assets and bailing out private
creditors the Program favored other interests in detriment of the medium-term and long-term
welfare of the people of Argentina. The narrow premises on which it was based, notably the
overoptimistic assumptions regarding the effects of the policy recommendations of the Program on
output and inflation and the overreliance on catalytic effects, combined with a lack of a proper
understanding of the balance of payments problems and of inflation in Argentina, led to an
incorrect diagnosis and an inadequate policy setting.
Neglected External Fragility
27. The 2018 SBA ignored the risks of building up external fragility. It was assumed that
restoring confidence would reestablish market access, as if the poor performance of the tradable
sector with increasing debt ratios would be of no consequence for capital flows, or as if fiscal
adjustment would produce the preconditions for the private sector to expand tradable supply.
28. The idea that capital account liberalization is a desirable policy rests on foundations that are
not supported by the empirical evidence and does not take into consideration the specific
conditions of a country such as Argentina. The conditions under which capital account liberalization
would allow consumers to smooth consumption plans and companies to access to a broader source
of stable financing to diversify risks are hardly ever present. A rich literature suggests that the
benefits of unregulated capital flows are limited, while the risks of currency crashes and financial
crises are large. Capital account liberalization exposes emerging market economies to the volatility
in international financial markets, which are significantly pro-cyclical, thereby increasing
macroeconomic instability. The IMF Research Department has produced important work on the
potential problems of capital account liberalization (Kose et. al., 2009), on the possible roles of
capital controls (Ostry et. al., 2010; Habermeier et. al., 2011) and on the effects of capital account
liberalization on income distribution (Furceri and Loungani, 2015, 2018).
29. In Argentina’s recent economic experience, capital account liberalization favored the massive
inflow of short-term speculative portfolio capital in 2016-2017 and left the economy extremely
vulnerable to the event of a sudden stop, which effectively materialized in 2018. It also left the
economy vulnerable to further volatility in the exchange rate, which fueled the inflationary process.
The design of the SBA downplayed and dismissed the risks of capital account liberalization and the

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rationale for placing regulations on international financial transactions. The yardstick to measure
program success was its ability to restore “confidence”. But this is problematic, as it is often
synonymous with the presence of short-term and highly volatile portfolio flows. Not only those
flows are reversible; they are typically associated with conditions that discourage foreign direct
investment, in particular when short-term flows were triggered by high domestic interest rates.
30. This is in line with what the IEO stressed a few years earlier, “in many crisis programs,
internal devaluation itself proved hard to achieve and the desired recovery in growth and exports
did not materialize (IEO, 2021; p.69). Moreover, as noted by IEO’s recent report on IMF Advice on
Capital flows, “in Argentina in 2015, the staff could have been more forceful in warning about risks
involved in the rapid removal of capital account restrictions and the need to strengthen the
macroeconomic framework to be consistent with an open capital account” (IEO, 2020: p.34).
31. The Program achieved nothing for Argentina other than massively aggravating a balance of
payment problem. Due to its front-loaded nature, the US$44 billion effectively disbursed helped the
Administration to sustain an open capital account during 2018 and most of 2019. By missusing IMF
resources, The SBA allowed capital flight at convenient rates and the payment of unsustainable
public debt, effectively postponing the adoption of capital controls and the debt restructuring
process.
Narrow Views on Inflation and Monetary Policy
32. The 2018 SBA was based on the conception that inflation is a purely monetary phenomenon
that should therefore be curbed solely with monetary instruments. Shortly after the SBA was
approved, the inflation targeting framework was abandoned. However, the exclusive reliance on
monetary policy to curb inflation continued. The arrangement established a policy of zero growth of
the monetary base which was endorsed by the first review of the Program in October 2018.
Expectations were to achieve a quick reduction in inflation under these policies, but the policy failed
to do so. In fact, what happened was exactly the opposite: inflation escalated quickly in the context
of a large depreciation of the currency. Besides, the contractionary monetary policy led to sharp
increases in the interest rates that in turn signalled that higher seignorage would be needed to meet
the consolidated public sector’s budget constraints.
33. The premise that zero growth of the monetary base would underpin private sector
expectations left aside the specific analysis of the devaluation impact on Argentina's price dynamics
and the strong inertia component that this process entails. It presumed that freezing the monetary
base would translate quickly into changes in prices and that money demand would remain steady
(an unreliable assumption given the uncertain environment).
34. The EPE clearly recognizes those flaws and sets an appropriate basis for the discussions that
underpin the negotiations for a successor program: “Inflation increased during the Program, driven
mostly by persistently high inflation expectations, peso depreciation, and wage increases. This
suggests that the targeted reduction in inflation was not feasible: the monetary policy regimes
under the SBA were not robust to the challenges of dollarization and extensive indexation, as shown

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by the rapid pass-through from the nominal exchange rate depreciation that followed the sudden
stop.” (EPE, Box 1, p.24)
35. The EPE also acknowledges that relevant features of the inflationary process were
disregarded in favor of an oversimplified picture in which stability was expected to emanate
automatically from signs of fiscal and monetary discipline that would also induce a rebound of
economic activity. Nevertheless, and given the sluggish nature of inflation, price increases continued
despite a zero-growth rate of the monetary base, implying a positive inflation tax without
seigniorage. Real money balances fell, and the cost of credit went up, creating a further
contractionary impulse that aggravated the recession.
36. The attempt to achieve a considerable disinflation resorting only to monetary restraint
ignored the country’s recent economic history and was unlikely to succeed. Inflation in
contemporary Argentina has a marked inertial component that monetary restraint by itself cannot
curb quickly and at low real costs. Pressures emanating from exchange rate or tariffs adjustments
have significant effects on the consumer price index that can be long-lived and can be compounded
by expectation effects.
37. During times of macroeconomic inconsistencies and coordination failures, there is a clear
role for coordination policies that can help to anchor expectations around a lower rate of inflation,
as it is also recognized by the EPE: “The high degree of indexation and other rigidities posed a
challenge to the success of inflation targeting, by making the effects of temporary movements to
the exchange rate and one-time increases in regulated prices more persistent. Income’s policies—
that is, tripartite agreements on wage increases, usually with quid-pro-quo agreements on taxes and
administered prices, such as utility tariffs—could in principle have helped inflation expectations to
settle and were evaluated by IMF staff. However, given mixed experiences in other countries and
difficulties in quickly agreeing on a complex range of issues, income policies were ultimately not
considered suitable” (EPE, ¶28, p.41).
38. Achieving stabilization is a very complex task due to the “multifaceted nature of inflation”
and its reduction “requires both consistent macroeconomic policies and coordination efforts to help
anchor inflation expectations” (IMF, 2021). More precisely, it needs a combination of fiscal and
monetary tools with actions that facilitate the coordination of behaviors in goods and labor markets,
leading to a widespread slowdown in price increases. Income policies or exchange rate pegs cannot
achieve a long-lasting stabilization in the absence of a consistent fiscal and monetary program, but
fiscal and monetary restraints without other anchors could be a highly ineffective choice. The
attempt to achieve a considerable disinflation resorting only to monetary restraint and seemingly
expecting a smooth transition has already proven to be ineffective.

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Neglected Pro-cyclical Effects of Fiscal Consolidation
39. Fiscal and monetary contraction were supposed to restore confidence, but instead reduced
aggregate demand and forced many indebted firms into bankruptcy. This, in turn, led to a severe
economic contraction, worsening debt sustainability prospects, undermining social conditions, and
increasing uncertainty. The SBA effectively worsened market expectations and increased risk
premiums.
40. The contractionary effects of fiscal policy were compounded by contractionary effects of
depreciation and inflation. The Program established a floating exchange rate system that was
supposed to act as a shock absorber. However, the depreciation of the currency increased the
burden of the debt measured in foreign currency, and fueled inflation. In a nutshell, the 2018 SBA
assumptions placed unwarranted emphasis on fiscal contraction in the midst of a deep downturn,
ignoring the key role of external sustainability and the macroeconomic nature of inflation for the
Argentine case, and refusing to introduce CFMs and conduct a debt restructuring.
41. According to the EPE, “Achieving the originally targeted debt level of 53 percent of GDP by
2023 would have required more than doubling the size of fiscal adjustment planned at the time of
the First Review” (EPE, ¶23, p.35). It is worrisome that the thought remains that fiscal tightening
could have been implemented even more strongly without creating a counterproductive contraction
and negative socioeconomic consequences. Besides, in the Argentine economy, with widespread
poverty and low access to credit, fiscal multipliers are likely to be higher, entailing larger
contractionary effects of fiscal austerity.
42. The 2018 Program assumed that there is such a thing as “expansionary fiscal contraction” in
a recession, ignoring that this is highly unlikely (see for instance Guajardo et. al., 2011) and
practically impossible with high capital mobility and unsustainable debt burdens. The contractionary
stance of fiscal policy continued even as the crisis unfolded, without any acknowledgement of its
negative effects. This suggests a rigid attachment to the flawed premises of the Program and echoes
the misguided policy prescriptions of the IMF in Argentina during the late ´90s, which led to a
protracted recession and the worst economic and social crisis of the country’s history in 2001. When
attachment to this paradigm is inflexible, no evidence is enough to show that fiscal contractions are
contractionary; a spiraling recession is interpreted as an indication that fiscal adjustment was not
large enough.
43. Ultimately, a successor program for refinancing the IMF loan should account for the premise
that the stabilization of the economy requires that the economy continues along a path of
recovery—which in turn requires both a countercylical fiscal policy and a recovery of real wages. The
reduction of the fiscal deficit as a proportion of GDP will need to be done in a way that does not
jeopardize economic recovery—or else it will not be sustainable.
44. Looking ahead, the unwinding of some aspects of the current CFMs, which if properly done
would improve investment and growth prospects, must be consistent with the pace at which the
stock of foreign exchange reserves is rebuilt. Not all regulations should be avoided: macroprudential

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policies should be a permanent feature of a macroeconomic framework that aims to minimize the
destabilizing effects of short-term portfolio capital flows and, in the current set-up, prevents the
dilapidations of foreign exchange.
45. As stated by the EPE, fiscal consolidation was doomed to fail due to the lack of public debt
sustainability: “without a debt reprofiling early on (i.e., at the time of the First Review) to lower the
large refinancing needs of the short maturity debt, the scope for fiscal policy to address debt
vulnerabilities and bolster confidence appears, ex post, very limited, especially given that the low-
quality fiscal measures available were unlikely to have sustained effects. That said, Argentina’s case is
consistent with the general tendency to delay debt operations, even when ultimately unavoidable”
(EPE, ¶23, p.35).
46. In line with the EPE, a debt restructuring operation and the introduction of capital controls
came in very late. These observations are important stepping stones that can help to build a correct
diagnosis on the nature of the failure of the Program. Moreover, a solid understanding of inflation,
the role of CFMs and macroprudential policies and the need for a debt operation, probably could
have prevented Argentina from resorting to the Fund in the first place.
Regressive tax reform
47. The 2018 SBA was approved a few months after the National Congress passed a tax reform
(December 2017) which, together with other tax measures implemented since 2016, significantly
reduced the progressivity of the tax system and undermined its collection capacity.
48. In 2016, a gradual reduction of personal property tax rates was established, the scheme of
increasing marginal rates was eliminated and the application of the tax was suspended for three
years for people who did not enter the 2016 Tax Amnesty Law. It is worth to consider that in
Argentina approximately 750,000 taxpayers are subject to Personal Property Tax, which represents
the 2.5% more wealthy of the Economically Active Population.
49. Another initiative in the same direction was the reduction in the corporate income tax rates,
which fell from 35% in 2017 to 30% in 2019 (it would have continued to fall to 25% in 2020 but this
reduction was suspended by the introduction of Social Solidarity Law in December 2019).
50. As a result, the share of progressive taxes on total tax revenues was significantly reduced.
Taxes where revenues fell the most between 2015 and 2019 were those that tax income, profits and
capital gains (from 6.46% to 5.14% of GPD) and property (from 0.32 to 0.15% of GDP).
51. The tax reform implemented by the then Administration was intended to improve the
primary balance through lower tax rates, under the assumption that they would promote greater
investment and production, and therefore greater tax revenues. This did not happen and instead
caused greater underfinancing, which impacted on the need to reduce public expenses even more
to achieve the fiscal primary balance targets. This need was partly covered by the application of
export taxes to all goods and services, a highly distorting measure. In fact, the generalized

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reductions in tax rates plus the economic crisis produced a fall in the resources of the Treasury as a
share of GDP from 20.36% in 2015 to 17.02% and 18.17% in 2018 and 2019 respectively.
Over-optimism and the Limits of the “Catalytic View”
52. With the 2018 SBA, financial markets’ confidence was never restored. The strong conviction
that the “catalytic approach” was reliable to deal with Argentina’s capital account crisis, regardless of
the circumstances proved to be misconceived. The IMF Independent Evaluation Office (IEO) report
on “The IMF and Argentina, 1991–2001” had already recognized limitations to the underlying view
of the SBA: “The catalytic approach to the resolution of a capital account crisis works only under
quite stringent conditions. When there are well founded concerns over debt and exchange rate
sustainability, it is unreasonable to expect a voluntary reversal of capital flows” (IEO, 2018; p. 6).
53. A second misconception had to do with the view of the endogenous effect of the agreement
itself on investor confidence. Since debt with the IMF is generally perceived to be preferred debt,
private creditors may perceive the IMF support as increasing their risk rather than reducing it. This is
especially problematic when a program lacks political consensus. The Argentine 2018 SBA was
negotiated without any efforts to involve the society in a broad social discussion that would create
knowledge about the consequences that such a program would entail. The largest loan in the
history of the IMF was decided in a rush and without any discussion in the National Congress:
77 representatives rejected the agreement and even sent a letter criticizing the Program.
54. IMF staff were unable to fully consider certain measures or policies, and ended up
determining a set of measures to be implemented that did not fit the Program’s purpose. This, in
turn, closed off valuable policy space and did not allow resources to be invested in achieving the
four pillars of the SBA.
Structural Reforms
55. The SBA between Argentina and the IMF also failed to restore financial markets’ confidence,
and the sharp contraction in economic activity undermined public debt sustainability. However, the
IMF maintains that if the previous Administration would have adopted additional “market-friendly”
structural policies and a stronger fiscal consolidation, the Program would not have failed. These so-
called “structural reforms” include a whole set of policies that seek to boost the supply side, by
removing obstacles to the functioning of goods and factor markets. According to this stance, to
minimize the negative impacts on those segments of the population that cannot participate from
the benefits of the reformed economy, a social safety net should be provided.
56. This suggestion reflects an underlying ideological view under which market economies
should “aspire” to a structure that gets as close as possible to the paradigm of perfect markets—and
leaves a role for the state to correct the so-called “market failures”, often just of static nature under
this view—one that ignores that markets do not work in a vacuum but rather in environment that
are shaped by power.

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57. The experience drawn from the long relationship between Argentina and the IMF suggests
that there is no direct link between the implementation of IMF recommendations and the exit of
crises. While certain structural reforms may have some positive effects, the overall benefits of
structural reforms that our country undertook in the past were overstated and their risks
minimized—at the end, what actually happened in previous programs, as in the 2001 crisis and the
2018 SBA, was a massive transfer of risk to the most vulnerable.
58. A healthy economy is not necessarily a “reformed” economy under what has been the
conventional IMF criterion in the last decades. The accumulation of human capital (associated for
instance with spending in health and education), the expansion of trade, improved infrastructure,
and financial deepening, which can clearly have a more direct and positive effect on growth and
social conditions, can be achieved in a myriad of ways, with very different degrees of public-sector
involvement, but hardly under the preconceptions stipulated in the Agreement and leaving aside the
specific needs associated with Argentina's economic and social structure.
59. In our view, the ultimate answer to social problems is not transfer schemes, but job creation
through inclusive and sustainable economic growth. To achieve that goal, Argentina needs to
implement tailor made initiatives and policies that address the particularities of our social and
economic structure.
60. First, Argentina needs to expand its supply of tradable goods. In an economy that lacks an
adequate growth in the supply of tradable goods, its overall macroeconomic performance cannot be
satisfactory. To accelerate economic growth while improving social conditions, Argentina needs to
diversify its productive system. This requires a higher rate of investment in critical activities to once
and for all overcome the external constraint that periodically suffocates economic growth. Only with
an economic structure that leaves behind the external constraint, generates enough foreign
exchange and has market access, a steady growth dynamic with creation of formal employment for
the vast majority can materialize.
61. In order to develop those sectors, additional investment should be stimulated via the
combination of correct incentives, including those created by productive policies since the correct
incentives may not be fully provided by free markets, and macroeconomic stability. Profit rates
between sectors do not adequately reflect the social benefits of the different economic activities,
and not all the sectors that Argentina needs can progress without support.
62. Economic development involves producing new goods with new technologies, as well as
transferring resources across sectors. This process does not take place automatically and as a result
of market forces alone. The productive policies that help critical activities emerge and grow are of
utmost importance. The question is not whether governments should engage in productive policy,
but how to do it right.
63. A deep and stable domestic currency capital market is also critical for development.
Overcoming the limited existence of profitable investment options in domestic currency contributes
to avoid channeling excess liquidity to exert pressure on the exchange rate. The development of a

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domestic currency capital market is hence necessary to reduce the demand for foreign currency;
moreover, a well-functioning, deep domestic capital market will also contribute to increase domestic
savings, which are critical to promote economic growth while minimizing volatility.
64. Both the reestablishment of the local currency debt market and the widening of the range of
options in pesos offered to domestic investors are essential for addressing the problem of currency
mismatches and foster domestic investment and sustainable growth.
Lip Service to Governance and Gender Equity Policies
65. At the time of presenting the agreement to the Argentine society and the world, a series of
conditions aimed at improving institutions and protecting the most vulnerable were boasted.
Particularly, the issues of governance and gender equity were given particular importance. However,
the view of the Argentine authorities’ today is that these banners were raised with the political
objective of generating consensus while in practice no concrete progress was made.
Absence of Governance Improvements
66. Improvements in governance were one of the crucial elements posited when making the
case for exceptional access criteria. In this regard, the staff considered that "The administration is
committed to prudent policy making, transparent government, and a strong governance framework.
Staff deems the administration's institutional capacity and technical competence to be strong and
fully able to deliver the core elements of the expected reform program." (IMF, 2018; p. 32). However,
little progress in terms of governance during the 2018 SBA was made: the work carried out in those
years by the Financial Intelligence Unit (FIU) and the General Justice Inspection (GJI), two institutions
dedicated to improving governance in legal and financial terms, did not generate any substantial
change in governance.
67. The role of the FIU was expected to be strengthened and to be endowed with more capacity
to foster parliamentary initiatives oriented to rearrange the funds’ administrative freeze and other
assets identified, in a context of suspicious money laundering cases as well as to adapt the Unit’s
functions to the best practices mandated by FATF. However, no legislation was introduced in that
regard to the National Congress.
68. The FIU lacked initiative in critical areas. It abandoned the pursuit of advancing on several
judicial cases initiated prior to 2016 and had a scarce exercise of its power to file complaints (the
paralysis in money laundering cases of an important internationally sanctioned financial institution is
worth mentioning). The intensity of supervision on registered regulated entities was reduced,
particularly with respect to the financial sector.
69. As for the IGJ, during the implementation of the agreement, all guidelines aimed at
exercising control and oversight functions over companies, trusts and legal entities under the
agency's jurisdiction were deregulated. The main general Resolutions issued by the agency during
this period had a common denominator: they eliminated or restricted all the control mechanisms

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that the IGJ had implemented over local companies, foreign companies and trusts. This prevented
the agency from having an effective policy to know the companies or trusts operating in the City of
Buenos Aires. Compliance with AML regulations was only formal and was not consistent with the
best practices in the field.
70. Related to anticorruption policies, no actions were carried out to disseminate, implement or
control actions. There was no registry or validation of compliance programs, no training, permanent
communication or empowerment policies, and no serious investigation of conflicts of interest
related to public officials. A participatory process of preparation of a new law on Ethics in the Public
Service was carried out, but it did not receive any impulse or political support to reach parliamentary
treatment. The professed objectives of the Anticorruption Office were denied by its political
superiors.
71. These facts highlight the lack of action and policies aimed at improving governance
conditions during the period under analysis. On the contrary, lack of action and deregulation were
the common denominator at this policy level.
Absence of Gender Equity Improvements
72. Another relevant condition of the 2018 SBA laid in protecting the most vulnerable and
supporting gender equity. Unfortunately, neither of these two aspects were seriously taken into
account in the implementation of public policies during the years of the Program.
73. In a nutshell, gender equality policies were considered under the same umbrella as the social
protection network and poverty, and not as a crosscutting axis of all public policies implemented. In
this sense, social protection and gender equity were used as political flagships, but the Program and
its results did not reflect an effective study, analysis and implementation of the necessary measures
to improve these aspects. During the implementation period of the 2018 SBA, there were no studies
on the diagnosis of the situation faced by women, the differential impact the crisis had on gendered
lines, nor was there a strategy for implementing policies to improve women’s situation or monitor
actions.
74. Even under this narrow understanding of what gender equity entails, the 2018 Program did
not achieve any of the gender equity and social security objectives that it announced and promised.
The quantitative criteria, goals, and consultation clauses did not consider a gender perspective:
there were no specific indicators within the dimension of “spending on social assistance”,
contemplated in the axis of evaluation criteria of fiscal objectives. There was also no data or
diagnosis that served as an initial reference point. Likewise, there were no compliance indicators for
gender goals, nor were there any monitoring indicators. Although the Memorandum contemplated
some commitments regarding gender equity, they lacked targets and monitoring indicators for this
vital issue.
75. These aspects reveal a political use of fundamental considerations for Argentine society
without them being translated into concrete public policies. While lip service was paid to

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governance reform and gender equity, no real effort was made to turn these ideals into reality.
During the period of implementation of the 2018 SBA, no progress was made in terms of
governance improvements, no policies with a cross-cutting gender perspective were implemented,
and no real gender equity pursued.
D. Conclusion
76. Learning from Argentina’s experience with its 2018 SBA is crucial to strengthen the
international community’s readiness to effectively tackle the challenges the Covid-19 pandemic
brought about. Argentina’s authorities are convinced that the IMF would be most effective in
managing the current international crisis if it were to revise the broad principles upon which its
programs are often based and address the mismatch between program recommendations and
developing countries’ diverse realities. With the aim of further strengthening the close collaboration
between Argentina and the Fund and the hope to avoid history repeating itself, Argentina’s
authorities conclude by highlighting central lessons to be considered in the revision of the 2018
SBA.
77. A proper revision of the frameworks of IMF-supported programs requires an instrospective

analysis of the definition of success. Success is often qualified as the recovery of market access, as if
“markets knew it all”—if that was the case, we should not observe waves of disappointments in
market expectations as often as it happens. Market access is certainly one dimension of Program
success, as the IMF is not supposed to be an institution that provides eternal financing, but one that
should be dealt with care when the demands from financial markets are in contradiction with what
would lead to success from a more comprehensive social and economic viewpoint.
78. In the 2018 SBA, compliance with the “market access” requirement was understood to be
met if significant holdings of local paper were in the hands of international investors. This is
tantamount to a travesty, in that a feature of Argentina’s debt structure that was (and still is) a clear
source of instability, namely, the domestic currency debt in the hands of portfolio investors that had
been exploiting carry trade opportunities, was reputed to be a tranquilizing source of stability (an
indicator of “access”)—and, as stated previously, a significant portion of the 2018 SBA financing
went to finance the partial flight of these holders.
79. In this regard, and while it is not the subject of this evaluation, compliance with Article VI of
the IMF Articles of Agreement should be investigated. In the view of the authorities, a thorough
assessment of whether the SBA policy recommendations were not in clash with the mandates of the
Institution is in necessary to ensure a correct functioning of the institution.
80. Given that Argentina had lost market access by May 2018, and has not regained it since,
even under the premises of the Program, the results of the policies and of each of the four reviews,
should have diagnosed a clear failure that should have warranted a change in strategy and policies.
Yet, this did not occur. Each of the reviews repeated the assessment that the (failed) policies would
turn into “successful” ones.

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81. The failure to admit the Program’s ineffectiveness in tackling Argentina’s real problems, in
turn, served the purpose of tacitly justifying the unwarranted monetary contraction that gave rise to
unconscionable interest rates and maintain the position of holders in Argentina’s domestic
instruments. Even if contractionary monetary policy was proven ineffective to contain inflation and
harmful for output dynamics, the decision of avoiding a debt operation meant that policy design
within the Program would remain attached to high interest rates as a way to sustain the perception
of “market access.”
82. The political use given to the Program, recognizable in its definition of success, is a second
important lesson the IMF should consider. Both defenders and detractors of the Argentine 2018 SBA
have suggested that it ultimately pursued political motives. In reviewing the Exceptional Access
initial assessment, the Program and its four initial reviews, it becomes clear that a focus of the SBA
was on how to continue to finance the policy priorities of the previous Administration. The analysis
of the nature of the balance of payment crisis that Argentina was facing, together with the diagnosis
and policies were thus “result oriented”: the main objective was to avoid a very much needed debt
restructuring operation, and the reintroduction of CFMs at all costs, while the central issue of
tackling a mounting crisis was neglected. The structure of the Program was hence upside down. It
was not that the most efficient way of tackling the balance of payments crisis was assessed with a
view to overcoming such crisis. Rather, the real objective was to maintain the chosen policies—i.e.
the “economic and political model” adopted by the incumbent Administration—at all costs, with IMF
financing.
83. The final result was that IMF resources ended up servicing unsustainable debt and financing
a massive capital flight. Between May 2018 and until strict exchange controls were established in
October 2019, close to US$44.5 billion were disbursed. Together with the international reserves,
these funds sustained a capital flight from the private sector, which reached US$45.1 billion from
May 2018 to October 2019. What is more, in the context of the current international finance
architecture, it is not unfounded to presume that a portion of the formation of foreign assets may
have been located in tax havens, which would make matters even worse.
84. The objective of maintaining a chosen set of policies can be recognized in the underlying
assumptions of the Program. That the financial markets exuberance of 2016/2018 should have been
viewed as the new normal of the Argentine economy was ill-conceived in the view of the current
authorities. This assumption is contrary to the structure, history and functioning of the Argentine
economy. It also shows a total disregard for the lessons of the 2001 crisis. In effect, to consider that
the feverish international indebtedness process is an indication of the virtuosity of a set of policies
or reforms, making the “restauration of confidence” a main element of the 2018 SBA, was
tantamount to doubling a bet on a model that had already proved ineffective to address the
fundamental problems of the Argentine economy—and this bet neglected that portfolio investment
in Argentina is not (and particularly was not in the period 2016/2019) catalytic of investment in the
real economy or FDI. It is noteworthy that the policies of the SBA compounded the problem of
Argentina’s external position, rather than contributing to a solution. In fact, only four months after
the first disbursement of US$15 billion, international reserves had returned to the previous level.

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85. The final lesson that the authorities draw from the 2018 SBA is the importance of defining
the concept of Program ownership appropriately. The only relevant feature to state that the 2018
SBA had “ownership” is that it was custom tailored by the prior Administration. Yet, it did not entail
a wider sense of ownership that encompassed Congress, civil society, unions, political parties, and
society at large. In fact, it is clear that greater societal engagement was purposefully avoided. In the
light of the relevance the IMF staff itself has given to this issue, “ownership” should not be narrowly
defined. Programs have long-term implications for societies.
86. As such, the debate is not and should not be on whether a program has “too much” or “too
little ownership”. Rather, the focus should be on defending a more demanding notion of ownership
which includes program support from Congress, civil society, unions, political parties and society at
large. The current authorities have contributed to strengthen ownership in the future by submitting
to the National Congress the so-called “Ley de Fortalecimiento de la Sostenibilidad de la Deuda
Pública”—law that was approved by the House of Representatives on February 11th 2021, and that
implied that the approval of Congress of any future agreement between the Republic of Argentina
and the IMF for a program supported by the multilateral institution will be mandatory. This is a
major achievement for the Argentine society, as it will prevent that in the future any government
moves forward at its discretion with the signing of deals that have the potential to create dramatic
consequences for generations—as the 2018 SBA did, and sets conditions that will strengthen the
notion of ownership of the sovereign nation of its deals with the multilateral institution. On the
other hand, it will ensure that the support that the international community provides through the
IMF is not a political support to an incumbent government, but to a member nation as a whole, thus
contributing to a more respected and reliable multilateralism.

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Giannini, C., Cottarelli, C. (2002). Bedfellows, Hostages, or Perfect Strangers? Global Capital Markets
and the Catalytic Effect of IMF Crisis Lending. IMF Working Paper WP/02/193.
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Statement by Sergio Chodos, Executive Director for Argentina
and Bernardo Lischinsky, Senior Advisor to Executive Director
December 22, 2021
We thank staff for the Ex-Post Evaluation Report of Exceptional Access Under the 2018 Stand-By
Arrangement (EPE) report and for the efforts in preparing it. We are grateful for this opportunity to
discuss the derailed 2018 SBA program. This exercise is a required building blocks to move ahead and
finalize the much-needed successor Program of the derailed SBA 2018. The SBA2018 left devastating
consequences for Argentina, including a more than sizeable contribution to the current balance of
payments problem that Argentina faces. We are also thankful for the opportunity to engage with our
colleagues in a constructive dialogue that will surely enrich us all. This discussion is of critical importance
for our country for three main reasons:
i. The devastating impact of the program on the Argentinean economy and social fabric.
ii. The relevant lessons it leaves to the IMF.
iii. It gives the basis to avoid past mistakes and to build-up a successful EFF successor of the failed
2018SBA.
As part of the devastating impact of the 2018 SBA program, the GPA was negative during the years of
the program. The GDP contracted in 2018 and 2019 by -2.6 percent and -2.0 percent, respectively. In
both years, commercial activity decreased by -11.8 percent and industrial activity decreased by -11
percent and agriculture grew by 7.6 percent, but the latter has no incidence on employment. Resources
of the Treasury were reduced from 20.36 percent in 2015 to 17.02 percent in 2018 and 18.17 percent in
2019. Unemployment in 2015 was 7.61 percent (female unemployment 8.68 percent) and raised in 2019
to 9.84 percent (female 10.7 percent).
The derailed 2018 SBA also failed to protect the most vulnerable, one of its goals. The population below
the poverty line increased by 8.1 percentage points (from 27.3 percent of the population in the first
semester of 2018 to 35.4 percent in the same period of 2019). Gini coefficient was 41.6 in 2014 and 42.9
in 2019, while the per capita income decreased from US$ 13,789.1 in 2015 to US$ 9,912.3 in 2019.
The Program was intended to help Argentina overcome its crisis on the basis of arguably four main
pillars: restoring market confidence; protecting society’s most vulnerable; strengthening the credibility
of the Central Bank’s inflation targeting framework; and progressively lessening the strains on the
balance of payments. None of the objectives of the four-pillar Program were achieved.
More specifically, regarding pillar one, rather than restoring market confidence, Argentina’s EMBI+ index
grew by 264 points between the establishment of the SBA agreement and the 4th review (from 507 to
771 basis points). The credibility of the Central Bank’s inflation targeting framework was further eroded,
with year-on-year inflation increasing by 24 percentage points between the signing of the agreement, in
June 2018 (29.9 percent) and the fourth review of the Program in July 2019 (53.9 percent). Finally,
regarding pillar four, while the balance of payments improved significantly (falling from US$ -8.4 billion
1
in the second quarter of 2018 to -1.8 billion in the second quarter of 2019), this was mainly due to the
exchange rate adjustment and the contraction of domestic demand, which significantly reduced the
demand for imports. This can hardly be qualified as success in rebuilding Argentina’s international
accounts, international reserves, and reducing the country´s vulnerability to pressures on the capital
account.
The Argentine authorities’ view is that the failure of the Program stems from the fact that it was
conceived under premises that were ill founded—and that rather than pursuing the objectives that had
been laid out, by financing a massive formation of foreign assets, and bailing out private creditors, the
Program did not favor the welfare of the people of Argentina.
Our chair and our authorities have discussed and reviewed in depth this EPE and we have a
comprehensive and holistic view on it. That it is why we believe that to fully understand what occurred
with the 2018SBA, it is best to analyze the Authorities´ Views in its entirety. Therefore, we put forward
below the Authorities´ Views, as part of this Buff
Authorities’ Views
1. Introduction
The Argentine authorities would like to begin by thanking the authors of the Ex-Post Evaluation Report of
Exceptional Access Under the 2018 Stand-By Arrangement (EPE), namely Odd Per Brekk, Juliana Araujo,
Olivier Basevant, Henrique Chociay, Gunes Kamber, Frederic Lambert, Nan Li and Alasdair Scott. We
appreciate the extensive efforts made in preparing this detailed report. We consider this evaluation of
key importance to build understandings that contribute to avoid falling into economic and social
destabilizing situations from failed programs in the future. While the EPE makes important efforts and
progress in analyzing the fundamentals and implications of the 2018 Stand-By Arrangement (2018 SBA or
“the Program”), the authorities consider that it falls short in the assessment of its flaws and biases, as well
as in recognizing the significant damage that the 2018 SBA itself inflicted to the country.
The original SBA granted to Argentina was approved in June 2018 for an outstanding amount of US$50
billion (SDRs 35.379 billion), which is equivalent to about 1,110 percent of Argentina’s quota at the IMF
and represented the largest loan granted by the Fund to a single country in its history. The SBA was
supposed to have a three-year duration and its disbursement was conditional on the fulfillment of a
number of targets related to the evolution of fiscal accounts and monetary policy.
The Program had five disbursements and only four reviews (of twelve expected). The initial disbursement
amounted US$15 billion. Half was earmarked for budget support, and the remaining half to strengthen
the Central Bank’s foreign exchange reserve position, with the expectation that this would reduce
pressures on the capital account. Instead, the Program failed to restore “confidence” and it was revised.
After the first review of the program in October 2018, the authorities were allowed to draw the equivalent
of about US$5.7 billion. The IMF also approved an augmentation of the SBA to increase access to US$56.3
billion (about 1,277 percent of Argentina’s quota).
2
In December 2018, the second review was completed and allowed the authorities to draw the equivalent
of an additional US$7.6 billion, bringing total purchases since June to about US$28.09 billion. In April 2019,
the Fund completed the third review, and Argentina’s government was able to draw the equivalent of
US$10.8 billion, bringing total disbursements since June 2018 to about US$38.9 billion.
The fourth and final review was completed in July 2019, prior to Argentina’s primary presidential elections.
At that time, and even in a context in which the economic crisis was clearly worsening in Argentina, the
country passed the review. A new disbursement of US$5.4 billion was approved, bringing total and final
disbursements from June 2018 to July 2019 to US$44.1 billion.
The numbers are striking. To visualize the orders of magnitude of the loan, it is worth noting that during
COVID-19 pandemic the Fund assisted 87 countries and provided debt relief for 29 including the poorest,
for a total of circa US$ 160 billion. Of that, the IMF net disbursements for the entire 2020 (which includes
mostly pandemic support) totaled US$ 46 billions, an amount equivalent to what was given to a single
country, Argentina, during the course of a year.
The Program was intended to help Argentina overcome its crisis on the basis of arguably four main pillars:
restoring market confidence; protecting society’s most vulnerable; strengthening the credibility of the
Central Bank’s inflation targeting framework; and progressively lessening the strains on the balance of
payments. None of the objectives of the four-pillar Program were achieved.
The view of the Argentine authorities is that the 2018 SBA was built on a paradigm that fundamentally
stood in the way of achieving its main objectives. Thus, the Program was based on a set of flawed premises
and assumptions for the Argentine case, which include the neglect of external vulnerabilities, narrow
views on the inflationary process and its own drivers, the effects of contractionary monetary and fiscal
policies in the macroeconomic context that prevailed, as well as an inappropriate definition of ownership
of a program by a sovereign nation.
The economic philosophy that underlied the SBA followed a “one size fits all” logic, meaning (i) a set of
hypotheses about how economies in general function, that has increasingly been called into question,
partly as a result of a series of crises and responses to those crises that were short of the mark; and (ii) a
failure to construct an economic framework that pays due regard to the specificities and idiosyncrasies of
the economic, social, and political system in which economic interactions occur.
The authorities consider that the assessment and diagnosis of Argentina’s problems at the moment of the
design of the 2018 SBA were either incorrect—if the Program was to achieve the goals it laid out—or
functional for favoring vested interests—as those that benefitted from a delayed restructuring of the
public debt denominated in foreign currency or from the massive formation of foreign assets with the
financing provided by the 2018 SBA. We learnt from the EPE that the IMF staff disagreed with the views
of the then Argentine authorities on the need for a debt operation that restored public debt sustainability
and on the need for capital flow management measures—the EPE makes clear that the Fund’s decision,
despite the differing views, was to support the then Argentine authorities’ position that resulted in the
lack of debt restructuring or capital flow management measures, and still continue the disbursements
that financed a capital flight of a historic size. The discrepancy between the technical views of the staff
and the decisions made by the IMF reinforce the view that the program constituted a “political loan”—a
loan that meant to support the electoral chances of the incumbent Administration, neglecting the medium
and long-term consequences for the people of Argentina. The ultimate consequences for the country were
disastrous and will be long-lasting.
3
As a member of the IMF, the Argentine authorities also consider the EPE evaluation of importance for
improving the workings of the international financial institution as well. In today’s world, the international
community needs a strong, effective, and well-equipped IMF to face the many economic and financial
challenges that lie ahead. Thus, strengthening the IMF requires a revision of the institutional culture that
hinders alternative views, thoughtful and diverse opinions, that stood in the way of achieving the
objectives of Argentina’s SBA. A failure to do so will leave the international community ill equipped to
tackle the challenges it is facing.
Looking ahead, for Argentina, the basis for moving towards sustainable long-term growth needs to include
a gradual fiscal consolidation, based on the genuine growth of economic activity, which will be more
robust if it is supported by the international community. Tackling inflation will also be necessary,
understanding it as a multi-causal problem that cannot be addressed by monetary policy alone. Above all,
carrying out policies that improve Argentina’s tradable sector performance and strengthening local
currency capital markets will be crucial.
In the spirit of contributing to consistent communication between the IMF and Argentine authorities and
maintaining closer collaboration, the starting point for a new program should be the revision of the
premises on which IMF recommendations were based. The view of the Argentine authorities expressed
in the following sections is grounded on the foundational assumption that any set of policies adopted
going forward should respect budgetary and external constraints to be able to guarantee a long-term
sustainable recovery, which would lay the basis for the country’s long-term development.
The rest of the Authorities Views chapter is organized as follows. Section 2 briefly summarizes the 2018
SBA and its consequences in the view of the authorities. Section 3 offers an analysis of the premises on
which the program rested. The authorities argue that the 2018 SBA neglected Argentina’s external
fragility, was based on a set of narrow views on inflation and monetary policy and placed unwarranted
emphasis on fiscal consolidation during a deep downturn, ignoring the key role of external sustainability
and the need to resort to macro prudential measures and a timely debt restructuring. The Program also
failed to recognize the limits of the “catalytic approach” to resolve a capital account crisis and the
endogenous effect of the SBA on investor confidence, while insisting on structural reforms that did not
respond to Argentina’s needs. Other shortcomings of the Program were the neglect of governance and
gender objectives that were formally included but were not implemented. Finally, the conclusion
highlights the political use to which the 2018 SBA was put and identifies important lessons to be drawn
from Argentina’s experience for future crises.
Argentina’s experience suggests that to effectively respond to the challenges the international community
faces in a post-Covid world, the IMF will have to revise the premises on which its programs are based. This
entails being aware of the political use to which their programs can be put, revising programs’ definition
of success, and reconsidering the meaning of real ownership.
2. Summary of the 2018 SBA program and its consequences
The SBA between Argentina and the IMF was signed in June 2018 as a response to a sudden stop in capital
flows. The Program arguably contained four main pillars: restoring market confidence; protecting society’s
most vulnerable; strengthening the credibility of the Central Bank’s inflation targeting framework; and
progressively lessening the strains on the balance of payments.
4
The Program was supposed to play a “catalytic role” and help Argentina restore confidence and regain
market access to overcome its balance of payment crisis. An underlying assumption was that Argentina
was only undergoing a liquidity crisis and did not have a solvency problem 1. However, the US$50 billion
0F
provided by the IMF, initially for foreign exchange reserves support, did not stop the run on the peso. The
SBA was then reinforced in September 2018 with an additional US$7 billion, and Argentina’s previous
Administration was allowed to draw the funds to meet its scheduled debt payments. Nevertheless, the
crisis continued to worsen. In March 2019, amid fears of another run on the peso, the IMF authorized the
Central Bank of Argentina to sell up to US$ 9.6 billion of its foreign-exchange reserves to help support the
exchange rate.
Additional nominal anchors and measures to support economic activity (or at least prevent a further fall)
were added with little success. Between March and May 2019, the authorities introduced a series of
exceptional measures that intended to avoid a deeper collapse of the economy, including a freeze of utility
tariffs for the remainder of 2019 and measures to contain price increases for mass consumption goods
(expanded to cover 60 basic food items).
The primary elections of August 2019 manifested a strong popular discontent with the implementation of
the Program and its preliminary results. For many, the motivation of the agreement had been political,
and the economic results did not imply a breakthrough in the external crisis. As it became clear that the
Administration in power would lose the general elections (which took place in October), and although
Argentina was meeting the numerical criteria established in the Program and continued to receive a
positive assessment in the performance reviews, an additional tranche that was stipulated for September
2019 (about US$5.4 billion), was never disbursed.
After the primary elections, foreign exchange purchases by the private sector gained momentum, and
there was a large drop in dollar denominated deposits from the commercial banks. The authorities only
then reintroduced a set of Capital Flows Management measures (CFMs), including capital controls. These
required producers to surrender export proceeds on short notice and monthly purchases of foreign
exchange for non-commercial purposes were restricted to US$10,000 per person (which were later
reduced to US$200 per capita after the general elections).
In sum, none of the objectives of the four-pillar Program were achieved. The Program was a failure. The
most clear proof of its failure is that Argentina passed all the four reviews (October 2018, December 2018,
April 2019, and July 2019) under the Stand-By Arrangement and met all the fiscal targets. The
shortcomings of the program did not originate in the unwillingness or incapacity of the authorities then
in power to satisfy the agreed conditionalities. Rather, it was the outcomes of those policies that failed to
achieve its stated objectives. Confidence and market access were never restored. Output contracted
sharply and inflation increased. As the currency depreciated sharply, despite the massive official injections
of foreign currencies into to the market, public debt rose substantially as a fraction of GDP.
More specifically, regarding pillar one, rather than restoring market confidence, Argentina’s EMBI+ index
grew by 264 points between the establishment of the agreement and the 4th review (from 507 to 771
basis points). The 2018 SBA also failed to protect the most vulnerable, with an increase of the population
1
In practice, illiquidity and insolvency are not independent. The standard distinction between solvency and liquidity
(e.g. as a criterion for bailouts) is somewhat confused: if it were unambiguous that a debtor was solvent, it would
generally not face a problem of illiquidity. Illiquidity arises out of a concern for insolvency and perceptions of
solvency depend in turn on the price of liquidity.
5
below the poverty line by 8.1 percentage points (from 27.3% of the population in the first semester of
2018 to 35.4% in the same period of 2019). The credibility of the Central Bank’s inflation targeting
framework was further eroded, with year-on-year inflation increasing by 24 percentage points between
the signing of the agreement, in June 2018 (29.9%) and the fourth review of the Program in July 2019
(53.9%). Finally, regarding pillar four, while the balance of payments improved significantly (falling from
US$ -8.4 billion in the second quarter of 2018 to -1.8 billion in the second quarter of 2019), this was mainly
due to the exchange rate adjustment and the contraction of domestic demand, which significantly
reduced the demand for imports. This can hardly be qualified as success in rebuilding Argentina’s
international accounts, international reserves and reducing the country´s vulnerability to pressures on the
capital account.
While the Program’s intention was to revert expectations, conversely, its policies resulted in an IMF-
financed bailout to private creditors and to investors that had been speculating over carry trade
opportunities during the two years that preceded the Program, increasing Argentina’s debt burden—as
well as changing the composition of the debt in foreign currency—without having any positive
consequences on the real economy. Between the end of 2015 and the implementation CFMs in 2019,
residents’ Foreign Asset Formation (FAF) reached over US$ 86 billion, a remarkable concentration of
wealth in the hands of a few economic actors. A small group of 100 agents made net purchases for US$
24.679 billion. In turn, the FAF of the 10 main buyers accounted for US$ 7,945 million. 2 1F
The contraction of GDP during 2018 and 2019 was -2.6% and -2%, respectively. The recession impacted
commercial sectors (down 4% in 2018 and 7.8% in 2019), industry (down 4.8% in 2018 and 6.2% in 2019),
construction (down 4.3% in 2019) and was only offset by the agricultural sector in 2019 (+23.2%) in the
real year-on-year comparison. 3 The progressive reduction of the fiscal deficit met the targets established
2F
in the Arrangement, but brought increases in the levels of poverty and unemployment, the latter reaching
double digits in the first half of 2019.
3. The Flawed Premises of the 2018 SBA Program
As stated previously, the shortcomings of the Program did not originate in the unwillingness or incapacity
of the previous Administration to satisfy the agreed conditionality. All the four reviews (October 2018,
December 2018, May 2019, and July 2019) were passed and the then authorities were praised for the
progress, specifically on the fiscal policy front. Throughout, the IMF and Argentina’s authorities
maintained the view that fiscal and monetary contractions would restore financial markets’ confidence.
Instead, the policies adopted made the crisis worse.
The Argentine authorities’ view is that the failure of the Program stems from the fact that it was conceived
under premises that were ill founded—and that rather than pursuing the objectives that had been laid
out, by financing a massive formation of foreign assets and bailing out private creditors the Program
favored other interests in detriment of the medium-term and long-term welfare of the people of
Argentina. The narrow premises on which it was based, notably the overoptimistic assumptions regarding
the effects of the policy recommendations of the Program on output and inflation and the overreliance
2
According to a report made by Central Bank of Argentina (“Mercado de cambios, deuda y formación de activos
externos, 2015-2019”)
3
The agricultural sector had suffered a severe drought during 2018 that strongly impacted the production of the
country's main crops (causing a 15.6% drop that year) and implied a very low comparison base that generated the
increase in 2019.
6
on catalytic effects, combined with a lack of a proper understanding of the balance of payments problems
and of inflation in Argentina, led to an incorrect diagnosis and an inadequate policy setting.
3.1 Neglected external fragility
The 2018 SBA ignored the risks of building up external fragility. It was assumed that restoring confidence
would reestablish market access, as if the poor performance of the tradable sector with increasing debt
ratios would be of no consequence for capital flows, or as if fiscal adjustment would produce the
preconditions for the private sector to expand tradable supply.
The idea that capital account liberalization is a desirable policy rests on foundations that are not supported
by the empirical evidence and does not take into consideration the specific conditions of a country such
as Argentina. The conditions under which capital account liberalization would allow consumers to smooth
consumption plans and companies to access to a broader source of stable financing to diversify risks are
hardly ever present. A rich literature suggests that the benefits of unregulated capital flows are limited,
while the risks of currency crashes and financial crises are large. Capital account liberalization exposes
emerging market economies to the volatility in international financial markets, which are significantly pro-
cyclical, thereby increasing macroeconomic instability. The IMF Research Department has produced
important work on the potential problems of capital account liberalization (Kose et. al., 2009), on the
possible roles of capital controls (Ostry et. al., 2010; Habermeier et. al., 2011) and on the effects of capital
account liberalization on income distribution (Furceri and Loungani, 2015, 2018).
In Argentina’s recent economic experience, capital account liberalization favored the massive inflow of
short-term speculative portfolio capital in 2016-2017 and left the economy extremely vulnerable to the
event of a sudden stop, which effectively materialized in 2018. It also left the economy vulnerable to
further volatility in the exchange rate, which fueled the inflationary process. The design of the SBA
downplayed and dismissed the risks of capital account liberalization and the rationale for placing
regulations on international financial transactions. The yardstick to measure program success was its
ability to restore “confidence”. But this is problematic, as it is often synonymous with the presence of
short-term and highly volatile portfolio flows. Not only those flows are reversible; they are typically
associated with conditions that discourage foreign direct investment, in particular when short-term flows
were triggered by high domestic interest rates.
This is in line with what the IEO stressed a few years earlier, “in many crisis programs, internal devaluation
itself proved hard to achieve and the desired recovery in growth and exports did not materialize (IEO,
2021; p.69). Moreover, as noted by IEO’s recent report on IMF Advice on Capital flows, “in Argentina in
2015, the staff could have been more forceful in warning about risks involved in the rapid removal of
capital account restrictions and the need to strengthen the macroeconomic framework to be consistent
with an open capital account” (IEO, 2020: p.34).
The Program achieved nothing for Argentina other than massively aggravating a balance of payment
problem. Due to its front-loaded nature, the US$ 44 billion effectively disbursed helped the Administration
to sustain an open capital account during 2018 and most of 2019. By misusing IMF resources, The SBA
allowed capital flight at convenient rates and the payment of unsustainable public debt, effectively
postponing the adoption of capital controls and the debt restructuring process.
7
3.2 Narrow views on inflation and monetary policy
The 2018 SBA was based on the conception that inflation is a purely monetary phenomenon that should
therefore be curbed solely with monetary instruments. Shortly after the SBA was approved, the inflation
targeting framework was abandoned. However, the exclusive reliance on monetary policy to curb inflation
continued. The arrangement established a policy of zero growth of the monetary base which was
endorsed by the first review of the Program in October 2019. Expectations were to achieve a quick
reduction in inflation under these policies, but the policy failed to do so. In fact, what happened was
exactly the opposite: inflation escalated quickly in the context of a large depreciation of the currency.
Besides, the contractionary monetary policy led to sharp increases in the interest rates that in turn
signalled that higher seignorage would be needed to meet the consolidated public sector’s budget
constraints.
The premise that zero growth of the monetary base would underpin private sector expectations left aside
the specific analysis of the devaluation impact on Argentina's price dynamics and the strong inertia
component that this process entails. It presumed that freezing the monetary base would translate quickly
into changes in prices and that money demand would remain steady (an unreliable assumption given the
uncertain environment).
The EPE clearly recognizes those flaws and sets an appropriate basis for the discussions that underpin the
negotiations for a successor program: “Inflation increased during the Program, driven mostly by
persistently high inflation expectations, peso depreciation, and wage increases. This suggests that the
targeted reduction in inflation was not feasible: the monetary policy regimes under the SBA were not
robust to the challenges of dollarization and extensive indexation, as shown by the rapid pass-through
from the nominal exchange rate depreciation that followed the sudden stop.” (IMF, 2021b; p.23)
The EPE also acknowledges that relevant features of the inflationary process were disregarded in favor of
an oversimplified picture in which stability was expected to emanate automatically from signs of fiscal
and monetary discipline that would also induce a rebound of economic activity. Nevertheless, and given
the sluggish nature of inflation, price increases continued despite a zero-growth rate of the monetary
base, implying a positive inflation tax without seigniorage. Real money balances fell, and the cost of credit
went up, creating a further contractionary impulse that aggravated the recession.
The attempt to achieve a considerable disinflation resorting only to monetary restraint ignored the
country’s recent economic history and was unlikely to succeed. Inflation in contemporary Argentina has
a marked inertial component that monetary restraint by itself cannot curb quickly and at low real costs.
Pressures emanating from exchange rate or tariffs adjustments have significant effects on the consumer
price index that can be long-lived and can be compounded by expectation effects.
During times of macroeconomic inconsistencies and coordination failures, there is a clear role for
coordination policies that can help to anchor expectations around a lower rate of inflation, as it is also
recognized by the EPE: “The high degree of indexation and other rigidities posed a challenge to the success
of inflation targeting, by making the effects of temporary movements to the exchange rate and one-time
increases in regulated prices more persistent. Income’s policies—that is, tripartite agreements on wage
increases, usually with quid-pro-quo agreements on taxes and administered prices, such as utility tariffs—
could in principle have helped inflation expectations to settle and were evaluated by IMF staff. However,
given mixed experiences in other countries and difficulties in quickly agreeing on a complex range of
issues, income policies were ultimately not considered suitable” (IMF, 2021b; 39).
8
Achieving stabilization is a very complex task due to the “multifaceted nature of inflation” and its
reduction “requires both consistent macroeconomic policies and coordination efforts to help anchor
inflation expectations” (IMF, 2021a). More precisely, it needs a combination of fiscal and monetary tools
with actions that facilitate the coordination of behaviors in goods and labor markets, leading to a
widespread slowdown in price increases. Income policies or exchange rate pegs cannot achieve a long-
lasting stabilization in the absence of a consistent fiscal and monetary program, but fiscal and monetary
restraints without other anchors could be a highly ineffective choice. The attempt to achieve a
considerable disinflation resorting only to monetary restraint and seemingly expecting a smooth
transition has already proven to be ineffective.
3.3 Neglected pro-cyclical effects of fiscal consolidation
Fiscal and monetary contraction were supposed to restore confidence, but instead reduced aggregate
demand and forced many indebted firms into bankruptcy. This, in turn, led to a severe economic
contraction, worsening debt sustainability prospects, undermining social conditions, and increasing
uncertainty. The SBA effectively worsened market expectations and increased risk premiums.
The contractionary effects of fiscal policy were compounded by contractionary effects of depreciation and
inflation. The Program established a floating exchange rate system that was supposed to act as a shock
absorber. However, the depreciation of the currency increased the burden of the debt measured in
foreign currency, and fueled inflation. In a nutshell, the 2018 SBA assumptions placed unwarranted
emphasis on fiscal contraction in the midst of a deep downturn, ignoring the key role of external
sustainability and the macroeconomic nature of inflation for the Argentine case, and refusing to introduce
CFMs and conduct a debt restructuring.
According to the EPE, “Achieving the originally targeted debt level of 53 percent of GDP by 2023 would
have required more than doubling the size of fiscal adjustment planned at the time of the First Review”
(IMF, 2021b; p. 33). It is worrisome that the thought remains that fiscal tightening could have been
implemented even more strongly without creating a counterproductive contraction and negative
socioeconomic consequences. Besides, in the Argentine economy, with widespread poverty and low
access to credit, fiscal multipliers are likely to be higher, entailing larger contractionary effects of fiscal
austerity.
The 2018 Program assumed that there is such a thing as “expansionary fiscal contraction” in a recession,
ignoring that this is highly unlikely (see for instance Guajardo et. al., 2011) and practically impossible with
high capital mobility and unsustainable debt burdens. The contractionary stance of fiscal policy continued
even as the crisis unfolded, without any acknowledgement of its negative effects. This suggests a rigid
attachment to the flawed premises of the Program and echoes the misguided policy prescriptions of the
IMF in Argentina during the late ´90s, which led to a protracted recession and the worst economic and
social crisis of the country’s history in 2001. When attachment to this paradigm is inflexible, no evidence
is enough to show that fiscal contractions are contractionary; a spiraling recession is interpreted as an
indication that fiscal adjustment was not large enough.
Ultimately, a successor program for refinancing the IMF loan should account for the premise that the
stabilization of the economy requires that the economy continues along a path of recovery—which in turn
requires both a countercyclical fiscal policy and a recovery of real wages. The reduction of the fiscal deficit
9
as a proportion of GDP will need to be done in a way that does not jeopardize economic recovery—or else
it will not be sustainable.
Looking ahead, the unwinding of some aspects of the current CFMs, which if properly done would improve
investment and growth prospects, must be consistent with the pace at which the stock of foreign
exchange reserves is rebuilt. Not all regulations should be avoided: macroprudential policies should be a
permanent feature of a macroeconomic framework that aims to minimize the destabilizing effects of
short-term portfolio capital flows and, in the current set-up, prevents the dilapidations of foreign
exchange.
As stated by the EPE, fiscal consolidation was doomed to fail due to the lack of public debt sustainability:
“without a debt reprofiling early on (i.e., at the time of the First Review) to lower the large refinancing
needs of the short maturity debt, the scope for fiscal policy to address debt vulnerabilities and bolster
confidence appears, ex post, very limited, especially given that the low-quality fiscal measures available
were unlikely to have sustained effects. That said, Argentina’s case is consistent with the general tendency
to delay debt operations, even when ultimately unavoidable” (IMF, 2021b; p. 33).
In line with the EPE, a debt restructuring operation and the introduction of capital controls came in very
late. These observations are important stepping stones that can help to build a correct diagnosis on the
nature of the failure of the Program. Moreover, a solid understanding of inflation, the role of CFMs and
macroprudential policies and the need for a debt operation, probably could have prevented Argentina
from resorting to the Fund in the first place.
3.3.1 Regressive tax reform
The 2018 SBA was approved a few months after the National Congress passed a tax reform (December
2017) which, together with other tax measures implemented since 2016, significantly reduced the
progressivity of the tax system and undermined its collection capacity.
In 2016, a gradual reduction of personal property tax rates was established, the scheme of increasing
marginal rates was eliminated and the application of the tax was suspended for three years for people
who did not enter the 2016 Tax Amnesty Law. It is worth to consider that in Argentina approximately
750,000 taxpayers are subject to Personal Property Tax, which represents the 2.5% more wealthy of the
Economically Active Population.
Another initiative in the same direction was the reduction in the corporate income tax rates, which fell
from 35% in 2017 to 30% in 2019 (it would have continued to fall to 25% in 2020 but this reduction was
suspended by the introduction of Social Solidarity Law in December 2019).
As a result, the share of progressive taxes on total tax revenues was significantly reduced. Taxes where
revenues fell the most between 2015 and 2019 were those that tax income, profits and capital gains (from
6.46% to 5.14% of GPD) and property (from 0.32 to 0.15% of GDP).
The tax reform implemented by the then Administration was intended to improve the primary balance
through lower tax rates, under the assumption that they would promote greater investment and
production, and therefore greater tax revenues. This did not happen and instead caused greater
underfinancing, which impacted on the need to reduce public expenses even more to achieve the fiscal
primary balance targets. This need was partly covered by the application of export taxes to all goods and
10
services, a highly distorting measure. In fact, the generalized reductions in tax rates plus the economic
crisis produced a fall in the resources of the Treasury from 20.36% in 2015 to 17.02% and 18.17% in 2018
and 2019 respectively.
3.4 Over-optimism and the limits of the “catalytic view”
With the 2018 SBA, financial markets’ confidence was never restored. The strong conviction that the
“catalytic approach” was reliable to deal with Argentina’s capital account crisis, regardless of the
circumstances proved to be misconceived. The IMF Independent Evaluation Office (IEO) report on “The
IMF and Argentina, 1991–2001” had already recognized limitations to the underlying view of the SBA:
“The catalytic approach to the resolution of a capital account crisis works only under quite stringent
conditions. When there are well founded concerns over debt and exchange rate sustainability, it is
unreasonable to expect a voluntary reversal of capital flows” (IEO, 2018; p. 6).
A second misconception had to do with the view of the endogenous effect of the agreement itself on
investor confidence. Since debt with the IMF is generally perceived to be preferred debt, private creditors
may perceive the IMF support as increasing their risk rather than reducing it. This is especially problematic
when a program lacks political consensus. The Argentine 2018 SBA was negotiated without any efforts to
involve the society in a broad social discussion that would create knowledge about the consequences that
such a program would entail. The largest loan in the history of the IMF was decided in a rush and without
any discussion in the National Congress: 77 representatives rejected the agreement and even sent a letter
criticizing the Program.
IMF staff were unable to fully consider certain measures or policies, and ended up determining a set of
measures to be implemented that did not fit the Program’s purpose. This, in turn, closed off valuable
policy space and did not allow resources to be invested in achieving the four pillars of the SBA.
3.5 Structural reforms
The SBA between Argentina and the IMF also failed to restore financial markets’ confidence, and the sharp
contraction in economic activity undermined public debt sustainability. However, the IMF maintains that
if the previous Administration would have adopted additional “market-friendly” structural policies and a
stronger fiscal consolidation, the Program would not have failed. These so-called “structural reforms”
include a whole set of policies that seek to boost the supply side, by removing obstacles to the functioning
of goods and factor markets. According to this stance, to minimize the negative impacts on those
segments of the population that cannot participate from the benefits of the reformed economy, a social
safety net should be provided.
This suggestion reflects an underlying ideological view under which market economies should “aspire” to
a structure that gets as close as possible to the paradigm of perfect markets—and leaves a role for the
state to correct the so-called “market failures”, often just of static nature under this view—one that
ignores that markets do not work in a vacuum but rather in environment that are shaped by power.
The experience drawn from the long relationship between Argentina and the IMF suggests that there is
no direct link between the implementation of IMF recommendations and the exit of crises. While certain
structural reforms may have some positive effects, the overall benefits of structural reforms that our
country undertook in the past were overstated and their risks minimized—at the end, what actually
happened in previous programs, as in the 2001 crisis and the 2018 SBA, was a massive transfer of risk to
the most vulnerable.
11
A healthy economy is not necessarily a “reformed” economy under what has been the conventional IMF
criterion in the last decades. The accumulation of human capital (associated for instance with spending in
health and education), the expansion of trade, improved infrastructure, and financial deepening, which
can clearly have a more direct and positive effect on growth and social conditions, can be achieved in a
myriad of ways, with very different degrees of public-sector involvement, but hardly under the
preconceptions stipulated in the Agreement and leaving aside the specific needs associated with
Argentina's economic and social structure.
In our view, the ultimate answer to social problems is not transfer schemes, but job creation through
inclusive and sustainable economic growth. To achieve that goal, Argentina needs to implement tailor
made initiatives and policies that address the particularities of our social and economic structure.
First, Argentina needs to expand its supply of tradable goods. In an economy that lacks an adequate
growth in the supply of tradable goods, its overall macroeconomic performance cannot be satisfactory.
To accelerate economic growth while improving social conditions, Argentina needs to diversify its
productive system. This requires a higher rate of investment in critical activities to once and for all
overcome the external constraint that periodically suffocates economic growth. Only with an economic
structure that leaves behind the external constraint, generates enough foreign exchange and has market
access, a steady growth dynamic with creation of formal employment for the vast majority can
materialize.
In order to develop those sectors, additional investment should be stimulated via the combination of
correct incentives, including those created by productive policies since the correct incentives may not be
fully provided by free markets, and macroeconomic stability. Profit rates between sectors do not
adequately reflect the social benefits of the different economic activities, and not all the sectors that
Argentina needs can progress without support.
Economic development involves producing new goods with new technologies, as well as transferring
resources across sectors. This process does not take place automatically and as a result of market forces
alone. The productive policies that help critical activities emerge and grow are of utmost importance. The
question is not whether governments should engage in productive policy, but how to do it right.
A deep and stable domestic currency capital market is also critical for development. Overcoming the
limited existence of profitable investment options in domestic currency contributes to avoid channeling
excess liquidity to exert pressure on the exchange rate. The development of a domestic currency capital
market is hence necessary to reduce the demand for foreign currency; moreover, a well-functioning, deep
domestic capital market will also contribute to increase domestic savings, which are critical to promote
economic growth while minimizing volatility.
Both the reestablishment of the local currency debt market and the widening of the range of options in
pesos offered to domestic investors are essential for addressing the problem of currency mismatches and
foster domestic investment and sustainable growth.
3.6 Lip service to governance and gender equity policies
At the time of presenting the agreement to the Argentine society and the world, a series of conditions
aimed at improving institutions and protecting the most vulnerable were boasted. Particularly, the issues
12
of governance and gender equity were given particular importance. However, the view of the Argentine
authorities’ today is that these banners were raised with the political objective of generating consensus
while in practice no concrete progress was made.
3.6.1. Absence of governance improvements
Improvements in governance were one of the crucial elements posited when making the case for
exceptional access criteria. In this regard, the staff considered that "The administration is committed to
prudent policy making, transparent government, and a strong governance framework. Staff deems the
administration's institutional capacity and technical competence to be strong and fully able to deliver the
core elements of the expected reform program." (IMF, 2018; p. 32). However, little progress in terms of
governance during the 2018 SBA was made: the work carried out in those years by the Financial
Intelligence Unit (FIU) and the General Justice Inspection (GJI), two institutions dedicated to improving
governance in legal and financial terms, did not generate any substantial change in governance.
The role of the FIU was expected to be strengthened and to be endowed with more capacity to foster
parliamentary initiatives oriented to rearrange the funds’ administrative freeze and other assets
identified, in a context of suspicious money laundering cases as well as to adapt the Unit’s functions to
the best practices mandated by FATF. However, no legislation was introduced in that regard to the
National Congress.
The FIU lacked initiative in critical areas. It abandoned the pursuit of advancing on several judicial cases
initiated prior to 2016 and had a scarce exercise of its power to file complaints (the paralysis in money
laundering cases of an important internationally sanctioned financial institution is worth mentioning).).
The intensity of supervision on registered regulated entities was reduced, particularly with respect to the
financial sector.
As for the IGJ, during the implementation of the agreement, all guidelines aimed at exercising control and
oversight functions over companies, trusts and legal entities under the agency's jurisdiction were
deregulated. The main general Resolutions issued by the agency during this period had a common
denominator: they eliminated or restricted all the control mechanisms that the IGJ had implemented over
local companies, foreign companies and trusts. This prevented the agency from having an effective policy
to know the companies or trusts operating in the City of Buenos Aires. Compliance with AML regulations
was only formal and was not consistent with the best practices in the field.
Related to anticorruption policies, no actions were carried out to disseminate, implement or control
actions. There was no registry or validation of compliance programs, no training, permanent
communication or empowerment policies, and no serious investigation of conflicts of interest related to
public officials. A participatory process of preparation of a new law on Ethics in the Public Service was
carried out, but it did not receive any impulse or political support to reach parliamentary treatment. The
professed objectives of the Anticorruption Office were denied by its political superiors.
These facts highlight the lack of action and policies aimed at improving governance conditions during the
period under analysis. On the contrary, lack of action and deregulation were the common denominator
at this policy level.
13
3.6.2. Absence of gender equity improvements
Another relevant condition of the 2018 SBA laid in protecting the most vulnerable and supporting gender
equity. Unfortunately, neither of these two aspects were seriously taken into account in the
implementation of public policies during the years of the Program.
In a nutshell, gender equality policies were considered under the same umbrella as the social protection
network and poverty, and not as a crosscutting axis of all public policies implemented. In this sense, social
protection and gender equity were used as political flagships, but the Program and its results did not
reflect an effective study, analysis and implementation of the necessary measures to improve these
aspects. During the implementation period of the 2018 SBA, there were no studies on the diagnosis of the
situation faced by women, the differential impact the crisis had on gendered lines, nor was there a
strategy for implementing policies to improve women’s situation or monitor actions.
Even under this narrow understanding of what gender equity entails, the 2018 Program did not achieve
any of the gender equity and social security objectives that it announced and promised. The quantitative
criteria, goals, and consultation clauses did not consider a gender perspective: there were no specific
indicators within the dimension of “spending on social assistance”, contemplated in the axis of evaluation
criteria of fiscal objectives. There was also no data or diagnosis that served as an initial reference point.
Likewise, there were no compliance indicators for gender goals, nor were there any monitoring indicators.
Although the Memorandum contemplated some commitments regarding gender equity, they lacked
targets and monitoring indicators for this vital issue.
These aspects reveal a political use of fundamental considerations for Argentine society without them
being translated into concrete public policies. While lip service was paid to governance reform and gender
equity, no real effort was made to turn these ideals into reality. During the period of implementation of
the 2018 SBA, no progress was made in terms of governance improvements, no policies with a cross-
cutting gender perspective were implemented, and no real gender equity pursued.
4. Conclusion
Learning from Argentina’s experience with its 2018 SBA is crucial to strengthen the international
community’s readiness to effectively tackle the challenges the Covid-19 pandemic brought about.
Argentina’s authorities are convinced that the IMF would be most effective in managing the current
international crisis if it were to revise the broad principles upon which its programs are often based and
address the mismatch between program recommendations and developing countries’ diverse realities.
With the aim of further strengthening the close collaboration between Argentina and the Fund and the
hope to avoid history repeating itself, Argentina’s authorities conclude by highlighting central lessons to
be considered in the revision of the 2018 SBA.
A proper revision of the frameworks of IMF-supported programs requires an introspective analysis of the
definition of success. Success is often qualified as the recovery of market access, as if “markets knew it
all”—if that was the case, we should not observe waves of disappointments in market expectations as
often as it happens. Market access is certainly one dimension of Program success, as the IMF is not
supposed to be an institution that provides eternal financing, but one that should be dealt with care when
the demands from financial markets are in contradiction with what would lead to success from a more
comprehensive social and economic viewpoint.
14
In the 2018 SBA, compliance with the “market access” requirement was understood to be met if significant
holdings of local paper were in the hands of international investors. This is tantamount to a travesty, in
that a feature of Argentina’s debt structure that was (and still is) a clear source of instability, namely, the
domestic currency debt in the hands of portfolio investors that had been exploiting carry trade
opportunities, was reputed to be a tranquilizing source of stability (an indicator of “access”)—and, as
stated previously, a significant portion of the 2018 SBA financing went to finance the partial flight of these
holders.
In this regard, and while it is not the subject of this evaluation, compliance with Article VI of the IMF
Articles of Agreement should be investigated. In the view of the authorities, a thorough assessment of
whether the SBA policy recommendations were not in clash with the mandates of the Institution is in
necessary to ensure a correct functioning of the institution.
Given that Argentina had lost market access by May 2018, and has not regained it since, even under the
premises of the Program, the results of the policies and of each of the four reviews, should have diagnosed
a clear failure that should have warranted a change in strategy and policies. Yet, this did not occur. Each
of the reviews repeated the assessment that the (failed) policies would turn into “successful” ones.
The failure to admit the Program’s ineffectiveness in tackling Argentina’s real problems, in turn, served
the purpose of tacitly justifying the unwarranted monetary contraction that gave rise to unconscionable
interest rates and maintain the position of holders in Argentina’s domestic instruments. Even if
contractionary monetary policy was proven ineffective to contain inflation and harmful for output
dynamics, the decision of avoiding a debt operation meant that policy design within the Program would
remain attached to high interest rates as a way to sustain the perception of “market access.”
The political use given to the Program, recognizable in its definition of success, is a second important
lesson the IMF should consider. Both defenders and detractors of the Argentine 2018 SBA have suggested
that it ultimately pursued political motives. In reviewing the Exceptional Access initial assessment, the
Program and its four initial reviews, it becomes clear that a focus of the SBA was on how to continue to
finance the policy priorities of the previous Administration. The analysis of the nature of the balance of
payment crisis that Argentina was facing, together with the diagnosis and policies were thus “result
oriented”: the main objective was to avoid a very much needed debt restructuring operation, and the
reintroduction of CFMs at all costs, while the central issue of tackling a mounting crisis was neglected. The
structure of the Program was hence upside down. It was not that the most efficient way of tackling the
balance of payments crisis was assessed with a view to overcoming such crisis. Rather, the real objective
was to maintain the chosen policies—i.e. the “economic and political model” adopted by the incumbent
Administration—at all costs, with IMF financing.
The final result was that IMF resources ended up servicing unsustainable debt and financing a massive
capital flight. Between May 2018 and until strict exchange controls were established in October 2019,
close to US$ 44.5 billion were disbursed. Together with the international reserves, these funds sustained
a capital flight from the private sector, which reached US$ 45.1 billion from May 2018 to October 2019.
What is more, in the context of the current international finance architecture, it is not unfounded to
presume that a portion of the formation of foreign assets may have been located in tax havens, which
would make matters even worse.
The objective of maintaining a chosen set of policies can be recognized in the underlying assumptions of
the Program. That the financial markets exuberance of 2016/2018 should have been viewed as the new
15
normal of the Argentine economy was ill-conceived in the view of the current authorities. This assumption
is contrary to the structure, history and functioning of the Argentine economy. It also shows a total
disregard for the lessons of the 2001 crisis. In effect, to consider that the feverish international
indebtedness process is an indication of the virtuosity of a set of policies or reforms, making the
“restauration of confidence” a main element of the 2018 SBA, was tantamount to doubling a bet on a
model that had already proved ineffective to address the fundamental problems of the Argentine
economy—and this bet neglected that portfolio investment in Argentina is not (and particularly was not
in the period 2016/2019) catalytic of investment in the real economy or FDI. It is noteworthy that the
policies of the SBA compounded the problem of Argentina’s external position, rather than contributing to
a solution. In fact, only four months after the first disbursement of US$15 billion, international reserves
had returned to the previous level.
The final lesson that the authorities draw from the 2018 SBA is the importance of defining the concept of
Program ownership appropriately. The only relevant feature to state that the 2018 SBA had “ownership”
is that it was custom tailored by the prior Administration. Yet, it did not entail a wider sense of ownership
that encompassed Congress, civil society, unions, political parties, and society at large. In fact, it is clear
that greater societal engagement was purposefully avoided. In the light of the relevance the IMF staff
itself has given to this issue, “ownership” should not be narrowly defined. Programs have long-term
implications for societies.
As such, the debate is not and should not be on whether a program has “too much” or “too little
ownership”. Rather, the focus should be on defending a more demanding notion of ownership which
includes program support from Congress, civil society, unions, political parties and society at large. The
current authorities have contributed to strengthen ownership in the future by submitting to the National
Congress the so-called “Ley de Fortalecimiento de la Sostenibilidad de la Deuda Pública”—law that was
approved by the House of Representatives on February 11th 2021, and that implied that the approval of
Congress of any future agreement between the Republic of Argentina and the IMF for a program
supported by the multilateral institution will be mandatory. This is a major achievement for the Argentine
society, as it will prevent that in the future any government moves forward at its discretion with the
signing of deals that have the potential to create dramatic consequences for generations—as the 2018
SBA did, and sets conditions that will strengthen the notion of ownership of the sovereign nation of its
deals with the multilateral institution. On the other hand, it will ensure that the support that the
international community provides through the IMF is not a political support to an incumbent government,
but to a member nation as a whole, thus contributing to a more respected and reliable multilateralism.
16
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15/243, International Monetary Fund.
Furceri, D., and Loungani, P. (2018). The distributional effects of capital account liberalization. Journal of
Development Economics, 130: 127-144.
Giannini, C., Cottarelli, C. (2002). Bedfellows, Hostages, or Perfect Strangers? Global Capital Markets and
the Catalytic Effect of IMF Crisis Lending. IMF Working Paper WP/02/193.
Guajardo, J., Leigh, D., and Pescatori, A. (2011). Expansionary Austerity: New International Evidence. IMF
Working Paper WP/11/58.
Habermeier, K., Kokenyne, A., and Baba, C. (2011). The Effectiveness of Capital Controls and Prudential
Policies in Managing Large Inflows. IMF Staff Discussion Note SDN/11/14.
IEO (2016). The IMF and the Crises in Greece, Ireland and Portugal: An Evaluation by the Independent
Evaluation Office.
IEO (2018). Report on the Evaluation of the Role of the IMF in Argentina, 1991–2001.
IEO (2020). IMF advice on capital flows: evaluation report 2020.
IEO (2021). Growth and adjustment in IMF-supported programs.
IMF (2015). Review of Crisis Programs.
IMF (2018). Request for Stand-By Arrangement - press release and staff report. IMF Country Report No.
18/219.
IMF (2021a). IMF Mission Team Statement on Argentina. March 25th. Available in:
https://www.imf.org/en/News/Articles/2021/03/25/pr2186-argentina-imf-mission-team-statement-on-
argentina
IMF (2021b). Ex-post evaluation of exceptional access under the 2018 Stand-By Agreement.
Kose, A., Prasad, E., Rogoff, K., and Wei, S. (2009). Financial Globalization: A Reappraisal. IMF Staff Papers,
56(1): 8-62.
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Role of Controls. IMF Staff Position Note SPN/10/14.
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IMF Country Report No.

 The Ex-Post Evaluation of Exceptional Access Under the 2018 Stand-By

Copies of this report are available to the public from

International Monetary Fund  Publication Services

International Monetary Fund

© 2021 International Monetary Fund

2 INTERNATIONAL MONETARY FUND

v. Ensuring effective external communication, so that a program is well understood by the

INTERNATIONAL MONETARY FUND 3

alternative policy strategies in response to shocks, before a program is approved. Especially

4 INTERNATIONAL MONETARY FUND

Authorized for Prepared by an interdepartmental team consisting of

PROGRAM STRATEGY: OVERVIEW ______________________________________________________________ 8

PROGRAM DESIGN ISSUES AND OUTCOMES ________________________________________________ 16

CONSISTENCY WITH FUND POLICIES AND PROCEDURES ___________________________________ 43

INTERNATIONAL MONETARY FUND 5

GENERAL LESSONS ____________________________________________________________________________ 65

6 INTERNATIONAL MONETARY FUND

AML-CFT Anti-Money Laundering/Combating the Financing of Terrorism

INTERNATIONAL MONETARY FUND 7

PROGRAM STRATEGY: OVERVIEW

8 INTERNATIONAL MONETARY FUND

INTERNATIONAL MONETARY FUND 9

5. Argentina's complicated history with the IMF motivated a strong emphasis on

IMF Arrangements with Argentina

SBA (Sep 2003)

10 INTERNATIONAL MONETARY FUND

program’s conditions to safeguard spending on social protection were also highlighted. 4 3F

6. The strategy was further shaped by domestic political considerations. The

measures (CFMs), engaging in a public debt operation, or introducing incomes policies.

INTERNATIONAL MONETARY FUND 11

Comparison of Arrangement Size

40 Reduction Disbursement Augmentation Original 40

Comparison of Arrangement Access

Disbursement Augmentation Original

12 INTERNATIONAL MONETARY FUND

8. The SBA was initially to be treated as principally precautionary, to catalyze lending to

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9. From the outset, the program involved considerable risks.

14 INTERNATIONAL MONETARY FUND

INTERNATIONAL MONETARY FUND 15

PROGRAM DESIGN ISSUES AND OUTCOMES

A. Timeline: Program Approval and Reviews

16 INTERNATIONAL MONETARY FUND

Exchange Rate, 2018−19

13 July 2018: SBA 28 October 2019:

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13. Uneven communication of program policies by the administration undermined

18 INTERNATIONAL MONETARY FUND

C. Macroeconomic Targets, Projections and Outcomes

• Capital inflows had started to decline in

INTERNATIONAL MONETARY FUND 19

exchange rate had already depreciated by

REER Depreciation from Pre-porgram Level

17.5-32.5 percent overvaluation assessed in

largely been eliminated by the time the -5

program started. However, compared with

other program episodes, the baseline real

exchange rate projection was on the

experiences under programs with countries

experiencing sudden stops.

economy with a large share of hand-to-mouth 4