The government of Javier Milei and the International Monetary Fund have announced a new agreement under which Argentina will continue to pay its $44,000 million debt to the multilateral organization. In its first visit to the government of the far-right Milei party, which ended this Wednesday after almost a week of meetings, the IMF mission reached a technical agreement with the government to grant it a new disbursement of 4.7 billion dollars, which approved must be carried out by its board and depends on a “continuous and lasting implementation” of the budget adjustment announced by the new Argentine government in mid-December. The money is not a new loan, but corresponds to the disbursements that the fund had planned with Argentina between December last year and the first quarter of 2024. The country will use the payout to pay off its own debts to the organization.
The IMF celebrated in a statement that “the new government is already implementing an ambitious stabilization plan based on comprehensive initial fiscal consolidation, measures to rebuild its reserves, correct relative price imbalances, strengthen the central bank's balance sheet and create a system. “Simpler, rules-based and market-oriented.” “This is not a new agreement,” said Milei's Economy Minister Luis Caputo at a press conference on Wednesday evening in Buenos Aires. “The previous agreement, which failed due to non-compliance with objectives, has been revived,” clarified Caputo, who did not shy away from requesting more funding from the multilateral organization. “If you want to reach a new agreement and ultimately request new funds, the Monetary Fund is open to this possibility,” the minister said.
The Argentine government had warned for days that the payment plan that Peronism signed with the Fund in January 2022 to pay off the $ 44,000 million of debts assumed by the government of the conservative Mauricio Macri in 2018 was “virtually broken” by non-compliance “Failed” to achieve the goals of budget adjustment and the creation of reserves. Although this was not formally the case. Milei, who boasted during the election campaign that his austerity plan was “even tougher” than the IMF's demands, was very confident that he would not have any problems with the organization.
The fund accompanied him: When the new Argentine government announced the first interest rate hikes, the abolition of energy and transport subsidies and a 50 percent devaluation, the organization celebrated the “strong first measures” to “significantly improve finances”. This protects the most vulnerable in society and strengthens the exchange rate system.” This Wednesday, ahead of the announcement of the new technical agreement, the Fund released a statement in which it warned: “The new government faces an exceptionally difficult economic and social situation with growing macroeconomic imbalances inherited, mainly due to inconsistent and expansionary policies, particularly in the final quarters of last year.
January 28 marks two years since the Peronist government of Alberto Fernández and the IMF agreed on a new payment plan for the original 2018 loan. With six revisions to this plan between January 2022 and July 2023, when the Peronist government met for the last time with the international organization, the road was rocky. With foreign reserves historically red and Argentina eventually having to pay off its maturities with other loans and the yuan granted by China based on future benefits, the refinancing agreement sparked a war between Fernández and the majority government led by the vice president. Cristina Kirchner and Peronism said goodbye to the IMF on the eve of the August 13 presidential primaries.
The Fund then acknowledged that Argentina had failed to achieve its goals of reducing public spending and accumulating reserves due to the drought, which led to a decline in agricultural exports, and due to “policy deviations” by the government, but agreed to 7 .5 billion that Argentina would use to pay its debts, and the last meeting with this government ended with a payment plan until the end of 2022 and the promise of a new meeting to review the targets in November last year. The Peronist Economy Minister Sergio Massa managed to get rid of the IMF when he ran as a candidate for the presidential election. But he lost to Milei and the review agreed for late last year remained in limbo until this week.
The Fund's mission arrived in Argentina last Friday to usher in the Milei era, and meetings with the new Argentine officials were kept completely secret. The IMF representatives met last Friday with the technical teams of the ministries and this Monday with Economy Minister Luis Caputo and Chief of Staff Nicolás Posse. According to the government, the agenda was not predefined and the possibility of requesting new funds was ruled out by the head of the Finance Palace.
The fund expects Argentina to end this year with net reserves of $10 billion and a budget surplus. During the government announcement, Minister Caputo entrusted the objectives to the issue that has been at the center of Argentine politics these weeks: his draft law on state reform, which was discussed in Congress this Tuesday, and the Decree of Necessity and Urgency with 300 reforms included the privatization of public companies, the flexibility of the labor market and the deregulation of health insurance. “The President is taking the right path and has had enormous courage to take shock measures given the urgency and need for change. It is clear that society accompanies this. The question is whether politicians will rise to the occasion,” Caputo said of lawmakers who will have to vote on the measures in Congress. “To the extent that the law is not passed, the measures will be tougher,” he warned.
With Milei, a new phase begins in Argentina's relations with the fund, one more orthodox and market-friendly. Milei's harmony with the IMF strengthens the far-right's alignment with the United States. A position that for Milei also means distancing himself from countries that he considers “communist,” such as Brazil or China, his two most important trading partners. The right-wing extremists have just officially renounced the country's membership in the BRICS, the economic alliance of Brazil, Russia, India, China and South Africa that Argentina joined in August. The decision limited the financing options of the Argentine government, which has committed to making its economic adjustment plan effective by relying solely on the fund.