The IMF unlocks $4.7 billion in funds for Argentina

The government of Javier Milei and the International Monetary Fund (IMF) have announced a new agreement for Argentina to continue paying off its $44 billion debt with the multilateral organization. In its first visit to Buenos Aires to meet with members of the government of the far-right president Javier Milei, which ended on Wednesday after almost a week of talks, the IMF mission reached a technical agreement to unlock $4.7 billion from the loan program, a decision that must be endorsed by its board and will depend on a “continuous and lasting implementation” of the fiscal adjustment announced by the new government of Argentina in mid-December.

The money does not represent a new loan, but is rather part of pending disbursements that the IMF and Argentina had agreed to, to be made effective between December 2023 and the first quarter of 2024. The government will use that money to pay off part of its own debt with the global organization.

The IMF celebrated in a statement that “the new administration is already implementing an ambitious stabilization plan, anchored on a large upfront fiscal consolidation, along with actions to rebuild reserves, correct relative price misalignments, strengthen the central bank’s balance sheet, and create a simpler, rules-based, and market-oriented economy.” “This is not a new agreement,” underscored Economy Minister Luis Caputo at a news conference on Wednesday night in Buenos Aires. “The previous agreement, which was down due to non-compliance with goals, has been revived.” However, Caputo has not closed the door to requesting more financing from the multilateral organization. “If we wanted to reach a new agreement and eventually request new funds, the Monetary Fund is open to that possibility,” said the minister.

The government had been warning for days that the payment plan that its Peronist predecessors had signed with the Fund in January 2022 to comply with the conditions of the $44 billion loan taken out by the conservative president Mauricio Macri in 2018 had “virtually collapsed” by the country’s failure to meet fiscal adjustment and reserve accumulation goals. Although formally it was not. Milei, who during the presidential campaign boasted that his cutback plan was “even tougher” than what the IMF was asking for, was very confident that he would not have problems with the global organization.

The IMF backed him up: when the new administration announced its first rate increases, the elimination of energy and transportation subsidies, and a 50% currency devaluation, the organization celebrated the moves. On Wednesday, before announcing the new technical agreement, the IMF published a statement warning that “The new administration inherited an exceptionally challenging economic and social situation, with rising macroeconomic imbalances primarily reflecting inconsistent and expansionary policies, especially during the final quarters of last year.”

January 28 will mark two years since the Peronist government of Alberto Fernández and the IMF agreed on a new payment plan for the original 2018 loan. There were no fewer than six reviews of that plan between January 2022 and July 2023, when the government met for the last time with the international organization. With currency reserves depleted, Argentina ended up paying its maturities with other loans and with yuan granted by China. The refinancing agreement opened a war between Fernández and the majority sector of the government, led by the vice president, Cristina Fernández de Kirchner.

The Fund then recognized that Argentina had not met its goals of reducing public spending and accumulating reserves due to the drought that sank agricultural exports and due to political deviations by the government, but still agreed to disburse $7.5 billion that Argentina would use to pay off its debt. The last meeting with the Fernández administration ended with a payment schedule to the end of 2022 and the promise of a new meeting to review objectives in November of last year. The previous economy minister, Sergio Massa, had managed to get the IMF off his back while running for president of Argentina. But he lost to Milei on November 19, and the review was left up in the air until now.

The IMF delegation arrived in Argentina last Friday, and the contents of the meetings were kept completely secret. But the possibility of requesting fresh funds had been ruled out by government officials. The presidential spokesperson, Manuel Adorni, announced the agreement on Wednesday at the government’s morning news conference. The release of funds will allow the administration to strengthen the balance of payments, which is currently compromised, and send a message to international investors.

With Milei, a new stage has opened up in Argentina’s relations with the Fund, a more orthodox and pro-market one. Milei’s alignment with the IMF reinforces the far-right libertarian leader’s alignment with the United States, a position that, in Milei’s mind, also means distancing himself from countries that he considers “communist” such as Brazil or China, its two main trading partners. The new president has formally renounced the country’s membership in the BRICS, the economic alliance made up of Brazil, Russia, India, China and South Africa to which Argentina was admitted in August. The decision reduced the financing options available to the Argentine government, which has pledged to make its economic adjustment plan effective enough to depend solely on the IMF.

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