Sunday, May 26, 2024

ECONOMY | 13-05-2024 13:05

IMF endorses Milei's austerity and paves way for new funds

Multilateral lender signs off on eighth review but says Milei government has put US$44-billion programme “firmly back on track”; Argentina to receive US$800 million in funds to make upcoming loan payment.

The International Monetary Fund has announced that it has signed off on an eighth quarterly review of Argentina's US$44-billion credit programme, paving the way for the release of almost US$800 million in fresh funds.

The staff-level agreement is a tacit endorsement of President Javier Milei’s austerity measures, which are intended to balance national accounts and tackle runway inflation nearing 300 percent per annum. 

The IMF said in a statement Monday that Milei had made "faster-than-anticipated progress in restoring macroeconomic stability” and praised the government for putting Argentina’s massive loan programme “firmly back on track.”

Once the review of the loan deal is rubber-stamped by the Fund’s executive board in the coming weeks, Argentina will receive a batch of fresh funds, which will allow it to meet repayments owed to the Fund.

An IMF spokesperson confirmed Monday that the staff-level agreement means Argentina is on track to receive a payout of roughly US$792 million in the coming weeks.

The announcement will be well-received by Milei, who was elected on a pledge to tackle runaway inflation, improve stagnant growth rates and tackle rising poverty. 

Milei's economic reform programme has been praised by international institutions but labour unions have called a number of strikes since his election to voice their opposition to the austerity plans. 

Last Thursday, the nation’s huge umbrella union grouping, the CGT, staged a nationwide general strike – the second of Milei’s six months in office. 

Since taking office last December, the President has embarked upon a strict campaign of austerity. Public spending cuts allowed the government to record a budget surplus in the first quarter of the year for the first time since 2008, but those advances came at the cost of thousands of lay-offs, rising utility rates and the deterioration of wages and pensions.

Milei insists his "plan is working," but critics say his government’s few wins have come at the cost of the poor and working classes, and are unlikely to last.

‘Back on track’

In its statement, the IMF praised the Milei government for putting Argentina’s loan programme “firmly back on track.”

The Milei administration’s “decisive implementation” of its stabilisation plan had “resulted in faster-than-anticipated progress in restoring macroeconomic stability,” said the Fund’s technicians.

"Notable results include the first quarterly fiscal surplus in 16 years, rapidly falling inflation, a turnaround in international reserves, and sovereign spreads near multi-year lows," it added. 

Alongside economic progress, the Argentine authorities have also "made significant efforts to scale up social support for vulnerable young mothers and children and protect the purchasing power of pensions," IMF staff said.

"Progress continues in broadening the political and societal support for these efforts and in tackling vested interests," it added. 

However, it warned that the quality of the adjustment and Argentina's monetary framework must be improved.

Despite the praise, continued efforts are needed “to improve the quality and fairness of fiscal consolidation, fine-tune monetary and exchange rate policy frameworks, and address bottlenecks to growth,” said the IMF.

Addressing challenges, the IMF said that “social assistance” should be “strengthened as needed” and warned that blocks on productivity, private investment and formal employment must be tackled.



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