What F&B firms need to know about Argentina's $50bn IMF loan
IMF approved the three-year loan last week and Argentina received its first $15bn cash injection last Friday. The funds were given the nod after a lengthy review of the country's future economic plans and in consideration of its huge fiscal deficit of more than $305bn and rates of inflation at 25%.
The Argentinian authorities, led by current president Mauricio Macri, said they would use the initial $15bn and consider the rest precautionary. According to proposals, the loan would be used to lessen finance needs, reduce public debt, lower inflation and reinforce independence to its Central Bank.
To watch - currency and inflation
Roberto Simon, lead political risk analyst for Latin America and director at FTI Consulting, said for the time being Argentina had framed it as money to be used in extreme cases, giving the country access to capital to stabilize “very difficult times”.
“Argentina has a huge fiscal challenge – it's been running a fiscal deficit for quite some time,” Simon told FoodNavigator-LATAM. “...There's also an issue of credibility here that the Argentinians are really trying to fight. With inflationary problems and huge currency swings, the marketplace is questioning the credibility of the Central Bank.”
Industry onlookers and the marketplace as a whole would be carefully watching the next steps of the government, Simon said.
“Of course, food and beverage industries depend on consumption, prices etc. so they have a direct interest in seeing Macri be able to just put the house in order again.”
For these food and beverage manufacturers specifically, he said there were two key variables to keep a close eye on.
“One is the currency itself – the value of the peso. For any company with operations in Argentina, these huge currency swings are kind of a nightmare because at this point it's really difficult to predict where the peso will be in a month. It creates a lot of uncertainty. At the same time, you have difficult inflationary problems in Argentina.
“At the beginning, people were very optimistic about growth (...) but those forecasts are less optimistic now and if consumption goes down, industries like food and beverage will inevitably suffer a little bit,” he said.
Political implications and credibility
Simon said political implications also had to be considered, especially with Macri running for re-election in 2019.
“The first question is: will the Macri administration be able to restore its credibility? This is the biggest challenge at this point. If they are able to convince the market now that they have someone in charge of the Central Bank who can communicate a clear strategy moving forward and at the same time has a plan to continue to close the budget deficit and continue to bring down inflation, industries and the market itself will calm down a little bit.
“At the same time, there are big questions in the longer run regarding what the political implications of this turbulence in Argentina will do in electoral terms. I would pay attention to the beginning of political movements, looking at the 2019 election and Macri's bid for re-election.”
If policies towards fiscal balance continued to frustrate voters, for example, along with with inflationary pressure and currency volatility it could create a “dangerous scenario” politically, Simon said.
For the time being, he said Macri remained an interesting politician because he was pro-business but realistic, some might say progressive, with social policy.
In its IMF economic plan, his government outlined plans to implement support programs for vulnerable populations and maintain current social spending commitments as well as prioritize gender equality, with steps to change taxes, provide childcare support for working families, promoting equal pay for equal work and fight gender-based and domestic violence.
