December 19, 2018 / 8:17 PM / a month ago

IMF says Argentina should cap upcoming wage increases at 25 pct

BUENOS AIRES, Dec 19 (Reuters) - Argentina should cap public sector pay increases at 25 percent to stay in line with its 2019 budget, the International Monetary Fund said on Wednesday in a review of the country’s standby financing agreement.

Argentina, suffering from high inflation and a shrinking economy, agreed in the middle of the year to take unpopular fiscal measures to lock in a $56.3 billion deal.

On Wednesday the IMF’s executive board said in a statement that it approved the release of $7.6 billion to the government, bringing total disbursements so far to $20.21 billion.

Labor and opposition groups have slammed President Mauricio Macri for signing the agreement, which calls for cutting utility subsidies to help erase the government’s primary fiscal deficit next year.

“It will be important to resist pressures to maintain energy subsidies and increase wages. Reducing energy subsidies remains an important component of the fiscal rebalancing,” the IMF said in its second review of the pact, also released on Wednesday.

The government has agreed to wage increases for public sector employees in December, January, and February, effectively raising nominal wages by 14 percent in the first half of 2019, the review said.

“Since the 2019 budget has a 34 percent annual increase in wages, this will require limiting the next wage increase, from June 2019 to June 2020, at no more than 25 percent,” the review said.

Reporting by Gabriel Burin, writing by Hugh Bronstein

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