Argentina weakens the peso with trade taxes in an effort to get money from the International Monetary Fund

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Argentina is set to introduce tax and currency measures that will, in effect, devalue the peso as part of a tricky deal with the International Monetary Fund to launch delayed tranches of a $44 billion loan programme.

Buenos Aires will introduce a new preferential exchange rate for agricultural exports and duties on imports on Monday, according to Economy Ministry staff.

Argentina and the International Monetary Fund have been engaged in negotiations for three months over the country’s failure to abide by the terms of a debt restructuring agreement last year after a record bailout in 2018.

The fund says that Argentina is suffering from a shortage of foreign exchange reserves and a reduction in the fiscal deficit, and last month it delayed the disbursement of $4 billion. Buenos Aires blames its shortage on a severe drought that has wiped out $20 billion in exports this year.

Without the cash, Argentina risks defaulting on the multilateral lender for an earlier loan, with $3.4 billion in liabilities due by Aug. 1. This would further destabilize the country’s already fragile economy ahead of the presidential elections in October.

The International Monetary Fund and Argentina said in a joint statement on Sunday that they “agreed on the central objectives and parameters” of a staff-level agreement to “unify the financial system and strengthen reserves,” before reviewing the country’s support programme. Two Economy Ministry employees familiar with the talks said the deal would be finalized on Wednesday or Thursday.

Economy Minister Sergio Massa said in a television interview Sunday night that the fund is preparing to launch “a very large package of payments in August and another package in November.” He refused to give exact numbers.

Analysts have expressed doubts that the IMF will release much more money than Argentina needs to make its payments.

The peso has fallen by a third against the dollar this year on parallel currency markets, where it trades at about half the official rate.

Massa was reluctant to sharply lower the official peso rate. Analysts said the minister, who is also a presidential candidate for the ruling Peronist coalition, fears the impact of devaluation on inflation, which has already soared to more than 115 percent, but his objections have proven to be a major sticking point in the IMF talks.

Salvador Vitelli, head of research at Buenos Aires-based Romano Consulting Group, said the new trade-related measures appeared to be aimed at meeting the International Monetary Fund’s demands for currency devaluation.

Under the plan, producers of corn and other crops will be offered 340 pesos per dollar to clear their stocks, compared to the official rate of 268. Tax authorities will also impose a 25 percent tax on imports of services and 7.5 percent on imports of goods.

But Vitelli warned that the policies could lead to an increase in prices. Agricultural and industry lobbies said the measures would distort markets and raise production costs.

While a final deal with the IMF is likely to include more measures, including reducing the fiscal deficit, the currency and tax adjustments are a far cry from the sweeping macroeconomic changes the IMF seeks in the long term.

In its Global Offshore Sector Report published last week, the lender criticized Argentina’s multiple exchange rates and currency controls, which it said “created distortions that discourage trade and foreign investment.”

However, Vitelli added that the IMF may accept alternative solutions with “one eye on negotiations” with the next government. “I think the fund will make a kind of concession in order to allow Masa to hold the economy together until the elections.”

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