The upfront fiscal adjustment curbed inflation, strengthened the peso, and eased public financing needs, boosting private sector confidence. In this LatAm Views, we assess Argentina s fiscal stance, pre-midterm election performance, and the medium-term outlook as part of our fiscal risk series.

This note discusses key challenges in Argentina, where multiple exchange rates have been the norm since 2019, focusing on conditions and timing for exchange rate liberalization and drawing lessons from Egypt's recent successful experience.

Despite painful corrective measures, public support for the government has remained strong. Fiscal consolidation, a deep recession, and exchange rate stability should further reduce inflation in 24H2. A stronger international reserve position is key for foreign exchange market liberalization.

Dollarization would require $30-40bn, but the central bank has run out of usable reserves. Raising dollars in the market looks unfeasible amid little foreign investor debt appetite. The bottom line is that rushing into unfunded dollarization would come at the expense of a painful recession.

A hard-won agreement with the IMF puts off tough decisions until after the election. We estimate the external financing gap at $16bn in 2023. Thus, the primary election is critical. We expect the opposition to do better than expected, but the situation is highly uncertain and market sensitive.

Crisis risk is on the rise ahead of the October presidential elections. We put the 2023 external financing gap at $15bn amid negative net foreign reserves. Advancing IMF money could help but will require policy corrections. The next administration will be pressed to adopt a stabilization plan.

We project moderate current account deficits despite strong imports. Nonresident capital flows will rebound this year, particularly in Brazil and Chile, and foreign reserves will improve supported by IMF SDR allocation. We see capital flows gradually slowing amid tighter global liquidity conditions.

LatAm countries have been forced to partially extend fiscal policy support this year amid increased social demands. Maintaining some stimulus while sustaining investor confidence has proven challenging. Fragile public finances could result in undue pressure on monetary policy, weighing on growth.

We compare the cases of 12 countries that have attempted to unify their FX markets. Unified exchange rate systems eliminate distortions, reduce rent-seeking, and boost fiscal revenues. However, successful unification hinges on consistent underlying credit and fiscal policies and broad reforms.

We project a real GDP contraction of 7.5% in 2020 and a modest rebound in 2021. Tourism remains depressed, but remittances have surpassed pre-COVID-19 levels. SLV, JAM, and PAN are set to endure the steepest recessions, while GTM should contract the least due to its stable macroeconomic framework.

Exchange rate flexibility has eased the adjustment to COVID-19 in most large countries. However, "fear of floating" is still high across Central America and the Caribbean. While local market financing is increasing, countries have largely had to borrow in hard currency to help withstand the shock.

COVID-19 has increased external funding challenges despite moderate borrowing needs. Notwithstanding oil price relief, collapsing remittances and tourism will weigh on current account receipts. While some countries have tapped global debt markets, uncertainty over financing sources remains.

COVID-19 has affected Latin America through multiple channels. Pre-existing challenges and increased exposure put the region in a difficult position. We project a deep recession this year amid a sudden stop in capital flows and limited policy space.

Argentina introduced capital controls last summer. We draw lessons from the 2011-15 controls episode. Capital flight fell and the central bank bought FX, but reserves were spent absent nonresident inflows. Capital controls will only buy temporary respite.

Current account deficits in Frontier LatAm are wide by EM standards, largely due to energy trade imbalances, but lower oil prices since 2014 have helped ease financing gaps. Despite global headwinds and regional tensions, we project CA deficits to stay contained in 2019-20, broadly financed by FDI.

We have long argued Argentina’s program is too small, given our estimates for the country’s external funding gap. The principal drivers of that gap are debt amortization and – to a large and rising extent – resident capital flight. Debt reprofiling is unlikely to change these numbers.

Resident outflows were a source of pressure in 2018. They are unlikely to abate as the election approaches since Argentina’s electoral cycles often prompt outflows. We are far from the outflows seen in the 2001 crisis, but the external funding picture will remain tough given limited resources left under the IMF program.

Argentina’s public debt will decline markedly, if fiscal consolidation is large and long-lasting. Fiscal easing could critically affect debt levels, and complicate refinancing of maturing debt. Debt vulnerability will remain high for years.

Funding will be tight as the election approaches, mostly due to persistent resident capital flight. We see reserve losses even in upside scenarios that may continue after the election takes place. Argentina will likely need extended IMF support.

Argentina’s bailout involves tough fiscal adjustment. Many fiscal measures have been implemented so far, but adjustment needs to be deeper and long lasting. Some IMF programs delivered similar adjustment, but many fell short of what Argentina is aiming for. Few EMs kept a tight fiscal stance for many years.

Increasing international reserves provide a buffer, but inflows excluding official support are still weak. Amortization is lower in 2019 but still sizable and renewed domestic capital flight remains a risk.

Turkey and Argentina saw sharp depreciations in 2018, that erased substantial real exchange rate overvaluations. We assess the BoP impact in 2019 using our Nowcast.

Argentina agreed a $50 billion bailout with the IMF, "¦ involving tough conditions on fiscal adjustment. Can Argentina deliver on the IMF program? It.

We recently estimated an annual financing need around $15 bn for Argentina, on benign assumptions for the current account, debt rollover and capita.

We have been writing on the growing vulnerabilities across EM, where we have been focused on two countries: Turkey and Argentina . Given recent dev.

Argentina's fiscal position worsened under the Kirchner administration. The current government is committed to redressing the situation, and is imp.

The peso is among the weakest EM currencies year-to-date. This reflects a rapidly widening current account deficit, in part due to pent-up demand. Whi.

The government has taken advantage of increased political capital to push for needed structural changes Relying on a gradual policy approach, producti.

A strengthening economy has helped the government obtain a positive result in the midterm elections' Increased public support for prudent policies pro.

Primaries reflected overall support for moderate candidates, positioning the government well for the October 22 midterm elections A brighter political.

The new CPI covers a broader geographical area, reflecting a more representative consumption basket The central bank will rely on this benchmark to as.

Policy Continuity is the Key Argentina's reclassification to EM status by MSCI has been halted by doubts over the continuity of the current policies.

The recent decline in inflation sets the ground for monetary easing Factors hindering the central bank's inflation-fighting capacity, however, favor a.

Following the country's reinsertion in global markets, the real exchange rate has steadily appreciated FX appreciation is a byproduct of the current p.

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Global manufacturing sentiment has improved reflecting higher commodity prices and a rebound in European growth. Despite policy uncertainty in the US,.

Smooth access to external financing has allowed for a gradual policy shift Improved policies have progressively begun to pay off with growth strengthe.

We returned with a cautiously optimistic mood from our recent trip to Argentina. The gradualist policy approach, supported by markets thus far, has sl.

Benefitting from increased capital market access, the government has adopted a more gradual policy approach with the goal of winning next year's mid-t.

Our recent visit to Argentina found a mood of cautious optimism despite insufficient fiscal consolidation. The hope is for a turnaround next year fuel.

New monetary policy path forward: The central bank will formally begin targeting inflation next year. Implementing an effective inflation targeting r.

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DOMESTIC CHALLENGES TO THE FORE Our recent trip to Argentina found a more cautious mood and an increasingly less cooperative congress amid rising res.

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Recent turbulent market conditions have raised concerns that the already struggling global economy could tip into recession. Our baseline forecast rem.

The next step is mustering political support for wage ne.

At the end of last week's "intense but civil" negotiations, Argentina offered three proposals to settle with its holdout bondholders. The offers will.

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The bedrock of policy corrections must be putting fiscal policy on a sustainable path after years of increased public spend.

Despite recent FX calm, we expect dollar demand to increase in the months ahead amid expectations of peso depreciation under the next administrati.

The regional economy is set to contract marginally in 2015, reflecting more difficult external conditions, but most of all policy shortcomings in key.

The debt default, subsequent deepening of interventionist policies and declining agricultural export prices have weakened macro conditions ahead of th.

Exit from quantitative monetary easing in the U.S. and lower commodity prices induced by slowing Chinese growth are putting increased stress on policy.

Increasing fiscal deficit monetization has fueled inflation, eroded international reserves and deteriorated the central bank's balance sheet. The gove.

The U.S. Court of Appeals has reaffirmed the verdict of a lower court regarding payment to holdout creditors. It has, however, stayed its ruling pendi.

Draconian controls on foreign exchange outflows have failed to ease strains on external accounts. International reserves have declined and underlying.

Market sentiment remains volatile in light of the uncertainty surrounding the final verdict on litigation with holdout creditors. While the appeals co.