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The IMF has agreed to pay out $4.7 billion to Argentina despite the country failing to meet the terms of its $43 billion loan in recent months. This represents a crucial lifeline for new libertarian President Javier Milei as he pursues ambitious reforms.
The money includes a $3.3 billion tranche of the loan that was supposed to be paid out in November, which was delayed by Milei's inauguration in December, and $1.4 billion that the IMF planned to pay out early.
Argentina's hard currency reserves have been virtually depleted in the worst economic crisis in two decades. The government is relying on IMF disbursements to repay the fund money previously lent to it under the program – which was first launched in 2018 and refinanced in 2022 – with repayments worth more by February 1 than $2.7 billion is due. Entering into arrears would destabilize markets and deepen the crisis.
Wednesday's decision by the fund's technical staff must be reviewed by the board, which will take several weeks.
Milei has long promised that his austerity measures would be more drastic than those demanded by the IMF. He has sought to draw a contrast with the previous left-leaning Peronist government, which fell far short of the Fund's goals of fiscal balance, reserve building and curbing money printing.
The “shock therapy” economic plan, which Milei began implementing last month, includes spending cuts and tax increases with the aim of achieving a primary budget surplus this year above the 0.9 percent of gross domestic product deficit target for 2024 approved by the fund last year would go out.
Fund officials who visited Argentina this week said in a statement Wednesday that Milei's team “moved quickly and decisively to develop and implement a strong policy package to restore macroeconomic stability and is committed to continuing the current program.” to get back on track.”
The delay in November's disbursement had forced Milei's new government to take out a bridge loan from Caracas-based CAF to make another $900 million repayment in December. According to local media, a multi-billion dollar credit line from China used by the previous government has not been renewed since Milei's election.
The IMF shied away from negotiating a broader refinancing of the program that could have provided additional money to support Argentina during its reforms – a prospect that some members of the presidential team had raised during the campaign. Milei's spokesman said Monday he was not seeking new funding from the IMF, a move deeply unpopular in Argentina.
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Instead, analysts said the IMF chose to continue disbursements to avoid destabilizing the economy without increasing its risk.
“The fund will first want to examine whether Milei's aggressive savings plan is socially and politically sustainable, which is currently unclear,” said Sebastian Menescaldi, deputy director of economic consultancy EcoGo. He pointed to planned anti-austerity protests and the uncertain fate of Milei's reforms in Congress.
“I don’t think either party has any incentive to look for a new agreement now. The situation is: Let’s stabilize the economy first and we’ll talk again in 2025.”