International Monetary Fund staff urged Javier Milei’s government in Argentina to build up its foreign reserves faster as part of the nation’s US$20-billion agreement with the lender.
The IMF’s warning adds fuel to a debate between Milei’s team and some investors over whether the government needs to overhaul its currency policy, which has been an Achilles heel in Argentina’s past programmes with the fund.
“In our discussion with the authorities, we have stressed the need to accelerate reserve accumulation efforts to help better manage volatility and to further strengthen market confidence,” spokeswoman Julie Kozack said Thursday at a press briefing in Washington. “Our view at the IMF is that the chosen regime needs to be consistent with strengthening international reserves and external stability, as well as ensuring strong and sustainable growth in the country.”
Kozack added that it’s up to Argentina, or any IMF member, to choose its currency framework. She said it was too early to say whether the country would achieve or miss the next target for reserve accumulation in its program, which will be reviewed in January.
On Wednesday, Economy Minister Luis Caputo confirmed his team plans to accumulate reserves. But he cautioned that the targets in Argentina’s IMF programme were agreed to before a menu of new financing options arose to cover the government’s US$4 billion of global bond payments due in January.
“We’ve managed to separate the financial side from the monetary side” of building up reserves, Caputo said at a conference in Buenos Aires. “Therefore, we now see reserve accumulation as a way to further strengthen the Central Bank’s balance sheet. But it’s not that we need to accumulate reserves today to pay the January coupon – we are solving that financially.”
Since the IMF programme started in April, Argentina has let the peso trade within a band that slowly expands in both directions. Within the range, Central Bank officials aren’t buying reserves to avoid pushing pesos into the market that could ultimately stoke inflation. While monthly inflation remains relatively low by Argentine standards, the government missed its reserve target in the IMF programme earlier this year.
Lack of reserves resurfaced as a point of concern for investors after Milei’s government lost a provincial election in September, triggering a market sell-off that led to US President Donald Trump's administration stepping in to provide a sweeping rescue package. Since Milei’s party came back and won the national midterm race in October, investors are calling on Milei to take advantage of renewed market optimism to change its FX policy so it can build up reserves.
“Recent improvement in market conditions does present a window of opportunity for the authorities to strengthen macroeconomic policies, to entrench stability and to accelerate reserve accumulation,” Kozack added.
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