IMF authorises US$4.7 billion loan tranche, says Milei will remove currency controls

The International Monetary Fund on Wednesday approved a fresh US$4.7 billion for Argentina, praising the “bold” cost-cutting measures by Javier Milei’s government and revealing that currency controls could be lifted before the year is out.

The new disbursement – which brings the amount sent to Argentina as part of a US$44-billion aid programme to around US$40.6 billion – is intended “to support the new authorities’ strong policy efforts to restore macroeconomic stability,” the IMF said in a statement.

The approval by the IMF’s executive board of Argentina’s latest quarterly review follows a staff-level agreement reached in Buenos Aires earlier this month.

IMF Managing Director Kristalina Georgieva praised the Milei government’s “bold actions to restore macroeconomic stability and... address long-standing impediments to growth.”

The Fund’s chief acknowledged that Argentina’s “programme went significantly off-track” prior to Milei’s inauguration, “reflecting the inconsistent policies of the previous government” led by former president Alberto Fernández.

Milei took office in December vowing to slash spending and end decades of economic crisis. Argentina is grappling with severe economic struggles after decades of mismanagement that has driven poverty levels to 40 percent and pushed inflation to an annual rate of more than 200 percent.

But his cost-cutting measures have also prompted backlash and mass protests, with many citizens fearing he will leave them less well-off.

Milei began his term in office by devaluing the peso by more than 50 percent, cutting state subsidies for fuel and transport, reducing the number of ministries by more than half, and scrapping hundreds of rules so as to deregulate the economy.

The government’s “initial actions averted a balance of payments crisis, although the path to stabilisation will be challenging,” Georgieva argued.

“The authorities are committed to eliminate remaining distortive exchange restrictions and multiple currency practices in the near term, and to develop plans for gradually unwinding capital flow management measures, as conditions permit,” she added.

Milei has argued that economic “shock” treatment is the only solution to the country’s troubles, and warned that the situation will get worse before it improves.

The IMF also wants Argentina to boost net foreign reserves to US$10 billion by year-end. The Washington-based lender expects that Milei’s monetary policy stance will evolve in coming months as an initial currency devaluation of 54 percent ripples through the economy.

The latest disbursement is more than the US$3.3 billion initially expected and buys the new president time to honour debt repayments to the Fund. Milei still has to decide whether to continue with the current programme brokered by his predecessor or negotiate a new one.

Milei’s Cabinet Chief Nicolas Posse travelled to Washington this week and met with the IMF’s number two, Gita Gopinath, Tuesday afternoon.

Next review delayed?

The International Monetary Fund will permit Argentina to postpone this year’s last review of the agreement covering the U$S44-billion IMF loan, scheduled for September, according to information shared with Reuters news agency.

If confirmed, it would allow the Milei administration more time to apply economic reforms and potentially negotiate a new programme.

This calendar extension aims at “guaranteeing that the programme meets its objectives,” assured the international news agency, such as the target of a primary surplus of two percent of Gross Domestic Product this year, as agreed with the IMF and divulged by Economy Minister Luis Caputo.

The programme with the IMF expires in September so that postponing the review in that month opens the door to negotiating a new agreement.

In that sense former IMF director Claudio Loser maintained: "The targets are important but they do not bind the country as such” while adding: “If significant austerity is agreed for the first half of the year, there will be no major problems on the part of the IMF board for approving the programme.”

Argentina’s 2023 financial deficit was 6.1 percent of GDP, one percent above the economy minister’s estimate and breaking down into a primary deficit of 2.9 percent with the remaining 3.2 percent coming from interest payments to service the debt.

To make the correction in 2024, which with these data is superior to the numbers agreed when the La Libertad Avanza government came to power, its economic programme could be even stricter and that is precisely what is expected by the IMF as they follow with attention the Congress debate over Milei’s sweeping omnibus reform bill ("Ley de Bases y Puntos de Partida para La Libertad de los Argentinos").

The 2024 calendar of payments to the IMF

According to the Congress Budget Office (OPC in its Spanish acronym), on the basis of Economy Ministry data, the payments currently falling due this year are estimated at U$S33.09 billion.

Much of this sum corresponds to commitments to the IMF in the framework of paying off the loan contracted by the Mauricio Macri administration 2018, equivalent to a total of U$S7.463 billion to be paid in seven months as follows: