Argentina’s government continues to advance in negotiations with the International Monetary Fund (IMF) over a new financing programme with fresh funds.
Following the January 22 return of Economy Minister Luis Caputo – from his trip to the United States accompanying President Javier Milei at Donald Trump’s inauguration – negotiations with an IMF mission team continued to fine-tune a future agreement which is likely to include a remittance of some US$11 billion to bolster Central Bank coffers, allowing Argentina to remove the ‘cepo’ currency and capital controls.
The market remains expectant, with speculation over conditions.
Economist Maximiliano Ramírez explained that the IMF committee’s visit has a technical purpose to review the country’s numbers for the next few years, “seeking to consolidate the fiscal surplus and avoid Central Bank assistance to the Treasury, something which the government had already achieved last year.”
Ramírez underlined that a crucial point would be the increase of net international reserves, directly related to the stability of the dollar and a cepo exit.
As for Central Bank coffers, “the net reserves are in negative territory by around US$9 billion so that US$11 billion from the IMF would barely leave them neutral,” explained Ramírez.
He further highlighted that opening up the restrictions would also depend on the policy signals and gradual measures such as the elimination of “parking.”
Taking the multilateral lender’s side, former IMF Western Hemisphere director Alejandro Werner commented: “When Argentina floats its exchange rate without cepo, it will be needing a more competitive exchange rate and higher interest rates so that the IMF believes that the Central Bank will have to move in that direction.”
The former IMF official points to one of the main concerns regarding exchange rate policies, including restrictions, unification and a floating dollar.
Economist Aldo Abram, the executive director of Libertad y Progreso, told Perfil: “Unification will come in the form of a single, free and floating exchange rate below the parallel rates. Every country does a dirty float, which is what this government wants.”
An alternative has recently come up in these negotiations – a floating exchange rate band.
Cepec director Leo Anzalone told Perfil that this “could be an intermediate tool between total control of the exchange rate and a free float, providing a framework of stability in a period of transition.”
He added: “While predictable, it will continue needing reserves to prevent the exchange rate from running out of control. For some economists, intermediate régimes are more vulnerable to speculative attacks which can test the limits of the band. That’s why it is crucial to have robust reserves and a credible framework of economic policy.”
Credibility is crucial. On January 24 Moody’s raised Argentina’s rating from “Ca” to “Caa3” while improving its outlook from “stable” to “positive.”
“The forceful changes in fiscal and monetary policies, the stabilisation of external finances and the adoption of market-friendly reforms have increased confidence and revived market dynamism,” said the agency.
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