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ECONOMY | 13-05-2024 12:07

Milei wins IMF staff support to unlock US$800 million

IMF staff sign off on eighth review of Argentina’s US$44-billion programme, endorsing President Milei’s shock therapy programme and freeing up access to nearly US$800 million.

The International Monetary Fund’s staff signed off on the eighth review of Argentina’s US$44-billion programme, giving a key endorsement to President Javier Milei’s shock therapy six months into his government. 

The deal, if backed by the IMF’s executive board, will give Argentina access to nearly US$800 million, according to an IMF statement on Monday. The cash will allow Milei to honour upcoming debt repayments to the Washington-based lender, buying him time to decide whether to continue with the current programme brokered by his predecessor or negotiate a new one.

The staff-level agreement comes just after officials from Argentina’s Economy Ministry and Central Bank held negotiations last week with IMF staff in Washington. Last month, they received representatives from the Fund in Buenos Aires. Milei and Economy Minister Luis Caputo also attended the same conference in Los Angeles as the Fund’s Managing Director Kristalina Georgieva last week.

Caputo said last month that Argentina is starting talks about a new financing programme that could involve fresh funds, adding that Milei’s monetary and foreign exchange plans are part of the discussion. The libertarian leader has said Argentina would need about US$15 billion from different sources to lift a series of capital controls put in place by the former Peronist government.

The staff-level agreement comes as no surprise after Milei boasted that his tough austerity measures exceed the Washington-based lender’s demands. Since taking office in December, Milei delivered a quarterly primary fiscal surplus, which doesn’t take into account debt payments, for the first time in nearly two decades.

In order to produce those savings, the president has frozen public works, lowered energy and transport subsidies for consumers, and let inflation erode public wages and pensions.

While Milei’s tough medicine enjoys support from Washington, inflation running at nearly 300 percent per year has destroyed household purchasing power, hurtling the economy into what is projected to be a 2.8 percent contraction this year, according to the IMF. 

Unions and those most affected by the austerity measures have staged repeated protests in the past few months, including a nationwide strike last Thursday. Monthly consumer price rises nonetheless have been slowing consistently since hitting a three-decade high of 26 percent in December.

The deceleration in monthly inflation has led the Central Bank to carry out a series of key interest rate cuts, which now stand at 50 percent, compared with 133 percent when Milei took office. Milei’s monetary policy goes against the Fund’s orthodox recipe for real positive rates, although the government maintains that lower rates will allow the Central Bank to clear its interest-generating liabilities and absorb excess liquidity to eventually lift capital controls.

Milei has also marched ahead with his fiscal adjustment in Congress. He scored a major victory for his sprawling economic reform bill in the lower house Chamber of Deputies at the end of April, which includes a separate bill expanding the income tax base. 

The package is expected to face a stiffer fight on the Senate floor later this month.

by Manuela Tobias, Bloomberg

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