IMF Sees Argentine Economic Recovery Starting in Second Quarter

(Bloomberg) -- Argentina’s deepening recession will continue through the first quarter before the economy sees a sustained and gradual recovery, the International Monetary Fund said, while outlining a long list of threats to that rebound.

“The bottom -- the floor -- is going to be in the first quarter,” mission chief Roberto Cardarelli told journalists in Buenos Aires Saturday. "We believe the recovery will begin in the second quarter."

Cardarelli is in Buenos Aires all week for a scheduled review of the IMF’s $56.3 billion bailout for Argentina’s economy. The deal was initially struck in June, then revised in September when market jitters forced IMF officials to speed up the pace of disbursements.
While forecasting that the economy will start to pick up later next year, Cardarelli acknowledged challenges ranging from a broad emerging market selloff to next year’s presidential election to tighter U.S. monetary policy.

"There are a lot of risks," Cardarelli said. One threat is "that inflation doesn’t come down as soon as we expect, then there’s a necessity for a more restrictive monetary policy for more time."

The IMF forecasts Argentina’s economy will contract 1.6 percent in 2019, more than the 0.5 percent predicted by the government. Cardarelli said the difference lies in views over economic activity in the second half of this year, but he notes that both sides agree on the timing of the recovery.

As part of the revised deal with the IMF, Argentina’s central bank pledged to freeze the amount of pesos in circulation until at least June. The policy led the peso to have its best month since 2003 in October, gaining 14 percent against the greenback. Inflation expectations for the next 12 months have also come down.

However, economists warn that the flip-side of the monetary policy -- cutting off economic activity by making it almost impossible for businesses to borrow money -- will become increasingly apparent. The backdrop was already bad with industrial production tanking 11.5 percent in September, the sharpest decline since the nation’s economic meltdown in 2002, which followed a failed IMF program. The new monetary policy didn’t begin until Oct. 1.

"It’s clear that the fiscal and monetary policies are policies of stabilization," Cardarelli said. But, “macroeconomic stabilization has a cost.”

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