By Caroline Stauffer
BUENOS AIRES (Reuters) – Argentina outlined plans to reduce its fiscal deficit and make the central bank independent in a letter of intent to the International Monetary Fund on Thursday, explaining it could take additional measures to achieve the targets of the $50 billion financing deal.
The government will ensure revenue forecasts in the budget it will present to Congress by October are “appropriately conservative” and freeze hiring in the federal civil service for two years, the letter addressed to IMF Managing Director Christine Lagarde said.
President Mauricio Macri’s government will phase out gas and transportation subsidies, scrap non-crucial public works, and if needed delay planned tax cuts in order to achieve a fiscal deficit of 1.3 percent of gross domestic product in 2019, the letter said.
The stand-by arrangement, negotiated after Argentina’s peso weakened sharply in April and May, is a political gamble for Macri because many Argentines fear fund-imposed austerity and blame the IMF for a 2001-2002 economic crisis.
The letter acknowledged economic growth this year, once forecast above 3 percent, would likely be closer to 0.4 percent and rise to 2 percent in 2019.
Still, it pledged to implement anti-poverty measures and maintain minimum social assistance spending of 1.3 percent of GDP, noting previous fiscal reforms had floundered in Argentina because “society’s most vulnerable” were not protected.
“We will not make this mistake,” the letter signed by Treasury Minister Nicolas Dujovne and Central Bank President Federico Sturzenegger said.
They said the policies should be “adequate to achieve the macroeconomic and financial objectives of the program,” but added “we will take any additional measures that may be appropriate for this purpose.”
The letter said gross public debt should fall to 55.8 percent of GDP by the end of 2021 from 57 percent in late 2017.
The government will submit a new charter on the central bank to Congress by March 2019 and is committed to granting the bank financial autonomy, with adequate levels of capital, by December 2019, the letter said.
The central bank will soon publish rules for foreign exchange auctions to intervene in spot and forward markets. On Wednesday the finance ministry said $7.5 billion of fund assistance would be sold on the market.
The government abolished its 15 percent inflation target as unrealistic and said consumer prices could end 2018 at 27 percent. Its targets are 17 percent, 13 percent and 9 percent for the next three years.