Milei, Caputo increasing bullish as they outline new IMF deal timeline

Argentina is increasingly bullish over the prospects of a new financing programme with the International Monetary Fund in the first third of next year.

Both President Javier Milei and Economy Minister Luis Caputo expressed optimism midweek as to a new agreement with the multilateral lender to replace its existing US$44.5-billion credit programme. 

In an interview with The Wall Street Journal, Milei anticipated that the support of incoming US president-elect Donald Trump would prove to be decisive, throwing in for good measure that a free-trade agreement with the United States is “very probable.”

Bullish about his chances with Trump backing him, Milei said that Washington had now “discovered that we are a partner worthy of confidence.”

“We’ll make all the free trade agreements we can. Others can do what they like, I’m going to carry on seeking free trade,” insisted Milei.

In a December 10 speech marking his first year in office, Milei said he would seek a free-trade deal between Argentina and the United States in the coming months.

Washington, at least on the record, also seems keen. Trump spokesperson Taylor Rogers told the CNN news channel on Wednesday that Trump and Milei will work together to “mutually benefit the United States and Argentina through capitalism and free trade.”

Rogers said that Milei is one of many world leaders seeking to sit at the table with Trump to win his support.

“Foreign leaders like President Milei are coming to the table to gain President Trump's support because they recognise that his ‘America First’ policies are brilliant and will restore America's dominance on the world stage,” Taylor Rogers told the CNN news channel.

IMF timeline

Caputo went even further on the chances of an IMF deal, pinning a target of the first third of next year during a lunch with the AEA grouping of business leaders. The economy minister set an outside date of April for the agreement

“We’re well on the way even if the Fund’s pace is slow. We have a very good dialogue and I estímate that in the first third of next year we’ll be reaching a new agreement,” said Caputo in a later radio interview.

Caputo participated in a lunch with AEA (Asociación Empresaria Argentina) businessmen in the Palacio Duhau hotel where he unveiled the government plans for 2025 and sought to transmit confidence about the immediate future. He began by explaining the recent rise of the dollar to company representatives.

While the parallel exchange rate had climbed 40 pesos to close at 1,165 pesos in the previous session, the minister attributed this rise to seasonal reasons, pointing out that "people could be buying because they’re going on holiday.”

Caputo assured that the increase is minor: “We’ve come out of levels of 1,500 pesos and then we were coming out of a drop of 30 percent so that this three-percent recovery we’ve had is hardly relevant.”

Milei’s government is seeking fresh funds from the IMF to bolster Central Bank reserves and facilitate the lifting of the currency controls, known locally as the ‘cepo.’

Capital controls which have been in place since 2019 and restrict access to dollars in a country where the US dollar serves as a safe haven for savings.

Last month, a top IMF official said that negotiations over a new deal to replace its existing loan were "taking place within the context of Argentina’s current Extended Fund Facility" programme.

IMF Spokesperson Julie Kozack confirmed that authorities in Argentina “are exploring the option of moving to a new arrangement.”

However, Presidential Spokesperson Manuel Adorni subsequently played down the role of Trump’s support, stating Argentina’s plan would be so thorough that all nations would back it.

Cepo: no deadline but the objective

Caputo was again pressed this week over when currency controls would be lifted, but he told AEA business group that “there is no deadline but targets to be met.” 

He expressed enthusiasm that a new IMF agreement could supply the dollars lacking in Central Bank reserves.

“To exit the cepo three conditions must be met. The first is inflation converging with the level of crawling peg [devaluation]. The second is balancing the money markets, the supply and demand of pesos. That is extremely important because when we came to office, the imbalance was total – who would want pesos last December? Central Bank liabilities were fourfold the money supply,” he recalled.

Along those lines, he explained that the government "balanced that because it increased the demand for pesos by lowering inflation and because we sharply shrank the money supply when we had negative real interest rates at the start. That was a crucial part of the programme. If we had not done that, we would have had to print an extra money supply every month.”

Finally, he assured that having more Central Bank reserves is the third condition for exit from the cepo: “An agreement with the IMF would have to come with a cash injection to recapitalise the Central Bank. If those three objectives are met, we will probably be up to taking leave of the cepo."

Crawling peg: Caputo’s projections

Referring to the pace of micro-devaluation, Caputo explained that if December inflation stays in the levels of October and November, “the crawling peg will probably be lowered to one percent in the course of January or February.”

Consulted as to how the IMF is seeing the current phase of the Argentine economy, Caputo spoke of “praise” for Argentina with its officials and the performance of its economic plan “the wonders of all the world.”

The Wall Street Journal accompanied its Milei interview with warm praise, listing such achievements as mortgages for the first time in years, wage recovery, booming stock markets, rising exports and falling country risk.

Monthly inflation had been reduced from over 25 percent  to 2.4 percent in less than a year while public spending had been slashed 30 percent, the newspaper continued, at the expense of public works, pensions running behind inflation, cuts in subsidies for utility billing, reduced transfers to the provinces, the closure of entire ministries and 33,000 less public employees earning less.

The International Monetary Fund forecasts that Argentina’s economy will shrink by 3.5 percent this year, before bouncing back with five percent growth in 2025.

– TIMES/AFP/NA