Franco Uccelli of Bear Stearns reports that governmental non-compliance with particular fiscal targets of the IMF standby agreement has led to the delayed completion of the scheduled April-May IMF review and the US$62-million disbursement. ?For all intents and purposes, the standby agreement with the IMF is at the moment on standby,? writes Uccelli in his analysis released on 24 May.
He points out that the Mejia government did not abide by the Non-financial Public Sector (NFPS) surplus for the first quarter, and went on to contract new public debt that was higher than anticipated. To this, Uccelli adds the higher-than-expected inflation, currency devaluation and elevated oil prices during the first quarter of the year.
Uccelli goes on to report that while the Mejia administration has indicated its willingness to reduce expenditures to make up for first-quarter deviations, it has also announced it will not send a comprehensive fiscal reform bill to Congress by July, as stipulated in the IMF agreement. He explains that Mejia has decided instead to shift the burden of proposing and seeking Congressional approval for the fiscal reform to the incoming Fernandez administration. Because Mejia?s dominates in Congress, however, this creates new uncertainties as to when fiscal reform could be implemented.
Uccelli speculates that Mejia?s decision to transfer the responsibility of tax reform to Fernandez suggests that he may very well opt to do the same with the US$27-million interest payment on the 2013 sovereign bond that comes due in late July. If this is the case, the Mejia administration will not have defaulted, as the 16 August inauguration day of his successor Fernandez would fall within the payment?s grace period. Nevertheless, Uccelli comments that the new President would be forced to act quickly on the matter to avoid an outright default.
He also comments that the DR has to cover a residual US$100-million external financing gap left over from governmental negotiations of the US$293-million pending debts with the Paris Club. Uccelli says that by mid-July, the current government is due to present a progress report to the Paris Club, outlining its plan to close the gap. ?While we believe that the current government remains committed to this goal, concerns remain that electoral defeat may work as a disincentive for the Mejia administration to accomplish much on this front,? he explains.
On the positive side, Uccelli says that, regardless, ?the apparent spirit of cooperation between the incoming and the outgoing administrations is encouraging.?
He writes that the IMF is now seeking assurances that any agreement reached with the current Mejia administration will be honored by the incoming Fernandez administration.