Anxiety is the word of the moment in Argentina. The Javier Milei administration enters the second quarter of the year with the certainty that it will face a character test. The result will set the tone for the rest of the President’s first term.
This is not an overstatement. Milei’s surprising performance so far has been fuelled by the assumption that he is sorting out the country’s economy, which for ordinary Argentines means inflation going down. The President desperately needs those two things to continue to be true for voters – at least until the October midterm elections.
The problem is that the country is spending more than it earns of a key component of its economy: US dollars. For the last eight months now, the net balance of US dollars coming in and out of the Central Bank has been negative. In the first two months of the year, the red accelerated – one reason for that is that hordes of Argentines decided to vacation abroad: 3.7 million people flocked across the borders in January and February, versus 2.1 million in the same two months of 2023. That’s an extra 1.6 million people.
Is Argentina requesting money so it can keep sending people on holidays abroad? IMF staffers are looking at those numbers closely. Famously, former US Treasury Secretary Paul O’Neill said a quarter-century ago that Washington was against wasting “US plumbers’ and carpenters’ tax money” on an ill-conceived IMF loan for Argentina. A few months after that, in December 2001, the IMF walked out and the country defaulted on its mammoth US$100-billion debt.
Milei might not get that line in public from Donald Trump’s staff. But with his chainsaw symbol of small government, Argentina’s President has inspired the work of his new friend Elon Musk, whose DOGE (Department of Government Efficiency) office is cutting spending on all sorts of foreign altruism, from malaria vaccines for children in Senegal to food distribution for one million in Ethiopia. In comparison, not paying for the caipirinhas of a few thousand Argentines in Ipanema sounds like minor collateral damage.
The IMF, however, is trapped in a maze it built for itself in 2018, when it gave the country a mammoth loan worth US$57 billion, of which it eventually coughed up US$44 billion. Argentina now accounts for around 35 percent of the total cash the IMF has given to nations – as a way of measure, Ukraine, at war with Russia, has received about a third of that.
IMF bureaucrats – and some of its board members too – believe that the Milei adventure might be one of the last chances they will get to get anything back from Argentina. Like it or not, Milei has managed to deliver a solid fiscal surplus in his first year in office, something nobody in the country’s uncreative political establishment believed feasible. Plus, he tells the world that not paying debt would be the last thing he would do. Another – Milei is promising to put Argentina’s natural resources at the service of an uncertain global economy, as he made clear in a call this week with French President Emmanuel Macron, who noted cooperation on critical metals.
So, there is reason behind the Fund’s decision to throw its weight behind Milei, which means partnering with his political objectives too. Argentina’s President needs to win the midterm elections in October to be politically viable enough to introduce further reform in the second half of his first term. And to win the election, he needs to show Argentines that he is in control and that inflation keeps going down. For that, he needs US dollars in the Central Bank.
But it is a fine line, one that the IMF blurred completely in 2018. The natural inclination for an Argentine leader in an election year (be it a Peronist, conservative, or libertarian) is to continue to appreciate the peso all the way to victory. But Milei claims to be different from “the caste,” and has said he would not stop his chainsaw adjustment even if that cost him votes.
He is not telling the full truth, though. In the first three months of the year, the federal government has discretionarily distributed among select provinces 43 billion pesos in freewill handouts known as ATN (“Aportes del Tesoro Nacional”). This is about the same amount channelled during the entirety of 2024, when Milei’s “chainsaw” was in full motion. This cash is used to win votes in Congress or muster electoral agreements ahead of the October midterm vote – nothing your typical Peronist wouldn’t do.
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