Argentina reached an agreement with staff from the International Monetary Fund on the seventh review of the country’s US$44-billion programme, likely unlocking a larger-than-expected loan disbursement from the Washington-based lender.
Pending approval by its executive board, the IMF would make available US$4.7 billion to President Javier Milei’s government, it said in a statement late on Wednesday. That’s more than the US$3.3 billion initially expected, which will be used to pay down previous IMF debts due at the end of the month and beyond.
Among the conditions agreed upon with the Fund, Argentina will target this year a primary fiscal surplus of two percent of gross domestic product. Milei’s “ambitious stabilisation plan” is expected to boost net foreign reserves to US$10 billion by year-end, including US$2.7 billion accumulated in the final weeks of 2023, according to the statement.
More broadly, the staff-level deal buys Milei time to decide whether to continue with the current programme brokered by his predecessor or negotiate a new one.
“We have plenty of confidence that the measures we are adopting will take us on the right path,” Economy Minister Luis Caputo said in a press conference following the announcement. He added that the IMF was open to exploring a new programme but it was too early on in the presidency for that.
The staff-level agreement comes after senior IMF officials visited Argentina for negotiations, a symbolically positive development after talks were held almost entirely outside the country for years as tensions flared between President Alberto Fernández and the Fund’s leadership.
Before this round of IMF talks, Milei’s team, led by Economy Minister Luis Caputo, proposed sharp austerity measures, mass deregulation and implemented a 54 percent currency devaluation with an aim of resetting the crisis-prone economy. Still, monetary policy remains a point of contention: IMF officials have long insisted interest rates remain above inflation; the Central Bank changed its benchmark instrument last month, leading to a sharp rate cut despite galloping prices.
Central Bank officials continue to maintain a crawling peg currency system inherited from the previous government, letting the peso slowly devalue only two percent a month. Analysts say that pace won’t last long with inflation at current levels and the parallel peso beginning to sell off again in January.
Milei’s first IMF pact would mark a new chapter in the president’s most recent saga in Argentina where, by the Fund’s own reckoning, it faces major reputational risks. A record bailout in 2018 — where Caputo was ousted as Central Bank governor at the time — failed to rescue the economy from a currency crisis and was eventually replaced in 2022 with another agreement with which the previous government routinely failed to comply.
But so far, Milei and the fund are in a honeymoon phase. IMF Managing Director Kristalina Georgieva applauded his first moves and top members of the president’s economic team even met with senior US Treasury officials in the president’s first month in office. Milei went as far to say that the IMF “sees us as heroes” because of his austerity-driven program.
While Milei enjoys support from Washington, his market-friendly measures to fix Argentina’s economy imply severe pain ahead, and public pushback has already flared up. A general strike organised by labour unions is scheduled for January 24, while scenes of Buenos Aires residents banging pots and pans in defiance of his austerity campaign are becoming routine. Inflation likely surpassed 200 percent in December, according to private estimates, as Milei dismantled price controls amid the peso devaluation.
by Patrick Gillespie & Manuela Tobias, Bloomberg
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