By Jorgelina do Rosario and Rodrigo Campos

LONDON/NEW YORK (Reuters) -The International Monetary Fund (IMF) and Argentina reached a staff-level agreement on the fourth review of their $44 billion loan program, the IMF said in a statement on Monday, confirming that some economic targets for the country could be eased.

The IMF staff said that adjustments were being requested to key targets to build up foreign currency reserves, which has been hampered by a major drought gripping the grains producing nation that has hurt exports of soy, corn and wheat.

It said adjustments would be focused on early 2023 and would help adapt the program for the “impact of the increasingly severe drought”, while also taking into account plans by the country to save dollars by cutting spending on energy imports.

Argentina, the world’s biggest exporter of soymeal and soyoil and the No. 3 for corn, is facing the worst drought in at least six decades, combined with repeated heat waves.

The IMF said that the country would need to strengthen its policy package in the face of the drought to ensure stability, rein in annual inflation running near 100% and address what it called “recent policy setbacks”.

Reuters previously reported that Argentina was looking to lower the bar on the reserves targets agreed with the IMF, including by linking the targets to its exports.

“The IMF is acknowledging that the macroeconomic backdrop has become more challenging, especially considering the severe drought,” said Gordian Kemen, a New York-based head of EM sovereign strategy at Standard Chartered.

Even so, he said, it was unclear how Argentina would be able to “re-accelerate reserve accumulation later”, especially with pressure to spend ahead of elections slated for October.

SCARCE RESERVES

Argentina’s net reserves stood at around $4.2 billion at the end of February, according to calculations from Buenos Aires-based firm FMyA.

The review is now pending board approval, after which some $5.3 billion would be made available to Argentina.

The current loan arrangement was worth $44 billion when it was agreed in early 2022 to replace a failed $57 billion program from 2018. Most of the cash would be used to pay the fund back.

Argentina surprisingly announced in January a debt buyback despite depleted hard currency reserves – a move that Moody’s considered a default, while S&P and Fitch did not.

A top IMF official later said the fund would “prefer not to have actions that undermine the reserve accumulation that we’re assuming in the program.”

(Reporting by Rodrigo Campos in New York and Jorgelina do Rosario in London; Editing by Alison Williams and Stephen Coates)

---