Economy Minister Luis Caputo says Argentina will receive US$20 billion in fresh funding from the International Monetary Fund (IMF) as part of a new financing programme.
Caputo, speaking at an insurance industry event on Thursday, also confirmed that President Javier Milei’s government is in talks with the World Bank, the CAF Latin American development bank and the Inter-American Development Bank (IDB/BID) over additional financing.
The minister claimed that all the funds being sought would lift Argentina’s Central Bank gross reserves to US$50 billion, a level not seen in decades.
Caputo’s remarks, delivered appropriately enough at the Buenos Aires Stock Exchange, were an attempt to calm financial markets. A run on the peso drained reserves by more than US$1.2 billion last week. In the last six months, the peso has fallen about 10 percent against the US dollar.
Argentina’s economy minister revealed that during a call with IMF Managing Director Kristalina Georgieva on Wednesday, he asked her for permission to disclose the amount of fresh funding under consideration.
The decision, Caputo said, was made as a final agreement could still take “several weeks” to be sealed.
The minister said the IMF loan would "not be used to finance expenses" but used to recapitalise the Argentine Central Bank.
Argentina has been a serial defaulter in recent decades, leaving it few options for borrowing cash on international markets.
“Combining the IDB, the World Bank and CAF, we’ll have around US$50 billion in gross reserves” at the Central Bank, said Caputo. “The money supply is US$25 billion at the official exchange rate and US$20 billion at the free exchange rate. Therefore, we’ll have more than double the reserves than the money supply,” he added.
He boasted that the level of reserves had “never been seen before, not even during [the era of] convertibility [in the 1990s] and, what’s more, with a fiscal surplus.”
“Although I can’t provide details about the rest of the agreement, I thought it was important to say what amounts we’re talking about and what the new agreement implies,” Caputo said.
The minister specified that the purchase of short-term non-transferable bonds which the Treasury will make from the Central Bank with the money it will receive from the IMF will be made “at market value,” with which he calculated “that in the margin there will be a fall in the gross debt.”
The new agreement should reduce Argentina’s country risk rating, tracked by JP Morgan, and allow the nation to “return to the markets to refinance capital for upcoming maturities.”
Less than an hour after Caputo’s remarks, at a press conference in Washington DC, IMF Spokesperson Julie Kozack refused to confirm the US$20-billion figure, limiting herself to a declaration that the new programme would be “sizeable.”
At a press conference, Kozack said “discussions on a new Fund-supported programme are well advanced” and that its size “will ultimately be determined by our executive board.”
According to the IMF spokesperson, there is a shared recognition of the need to continue to adopt a “consistent set of fiscal, monetary, and exchange rate policies, while promoting growth-enhancing reforms.”
Regarding the modality of disbursements, Kozack said that “disbursements will be made in tranches over the life of the programme. However, the exact timing and size of each disbursement is part of ongoing discussions.”
Praising the Milei administration, she stressed that “Argentina has embarked on a truly impressive stabilisation programme and the country has demonstrated its determination to put the economy on a more sustainable path.”
Kozack remarked that “since the end of 2023 inflation in Argentina has fallen thanks to a very large fiscal consolidation and measures to clean up the Central Bank's balance sheet.”
She added that “economic activity is recovering strongly, real wages are increasing and poverty is decreasing,” she said.
New deal
Argentina is seeking a new financing deal to replace its current US$44-billion extended fund facilities agreement, which is no longer active.
The debt was initially taken on by former president Mauricio Macri’s government in 2018 as part of a US$57-billion agreement made during United States President Donald Trump’s first term in office. Renegotiated by Macri’s successor, ex-president Alberto Fernández, a few years later, the revised deal later fell into disarray.
After taking office in December, 2023, President Javier Milei indicated a desire to renegotiate the deal and, subsequently, seek additional funding to help Argentina remove the so-called ‘cepo,’ a set of complex rules limiting access to foreign currency.
Talks over a new financing programme for Argentina are now “advanced,” according to IMF officials, though no official timeline has been recognised.
President Milei said in comments to the Bloomberg Línea website last week that a final agreement could be reached by “mid-April.”
IMF staff and board members met this week to assess details of the new programme. A technical team, led by Luis Cubeddu, briefed the board on the state of the discussions, said a source at the lender.
“The IMF’s technical team is holding consultations with the Executive Board. Talks on a new Fund-supported programme are advanced and taking place within the framework of our usual internal processes,” a source from the organisation told the Noticias Argentinas news agency on Tuesday.
The meeting took place amid a fresh surge in the parallel exchange rate, with the unofficial “dólar blue” rate nearing 1,300 pesos per greenback midweek.
Last week, President Milei’s executive decree authorising new borrowing from the IMF won the approval of the Chamber of Deputies.
Details of the amount of fresh funds involved was not provided prior to the vote by lawmakers.
The briefing of the IMF’s board implies a deal is imminent. It also serves to gauge the positions of key G7 member members.
Germany and Japan are typically more stringent, while the United States holds veto power with 16 percent of the voting share and considerable sway.
Although Congress authorised a 10-year loan with a four-year and six-month grace period and an interest rate of 5.63 percent last week, the government is in a race against time to finalise an extended fund facility agreement.
Argentina’s goal is to have the necessary documentation ready and board approval ahead of the IMF’s spring meetings on April 21-22 in Washington. This would give officials more room for manoeuvring in negotiations with investors.
It remains unclear what conditions the IMF will impose before increasing its exposure to Argentina, which remains the Fund’s largest debtor.
A key sticking-point is IMF scepticism over foreign exchange rules and currency intervention. Argentina wants the Central Bank to only intervene if the rate falls outside of its set boundaries; otherwise, the currency would be allowed to float freely.
The limits could be widened on a monthly basis, gradually expanding the floating range, according to analysts. But this presents an added challenge in containing exchange rate fluctuations and their impact on inflation.
– TIMES/NA
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