The Government of Javier Milei and the International Monetary Fund have announced a new agreement for Argentina to continue paying its debt of 44,000 million dollars with the multilateral organization. In its first visit to the Government of the far-right Milei, which ended this Wednesday after almost a week of meetings, the IMF mission has reached a technical agreement with the Government to grant it a new disbursement of 4.7 billion dollars that must be endorsed by its board and will depend on a “continuous and lasting implementation” of the fiscal 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 scheduled with Argentina between December of last year and the first quarter of 2024. The country will use the disbursement to pay its own debt with the organization.
The IMF has celebrated in a statement that “the new Government is already implementing an ambitious stabilization plan based on a large initial fiscal consolidation, actions to rebuild its reserves, correct relative price imbalances, strengthen the balance sheet of the Central Bank 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 this Wednesday night in Buenos Aires. “The previous agreement, which was down due to non-compliance with goals, has been revived,” clarified Caputo, who has not closed the door to requesting more financing from the multilateral organization. “If you want to reach a new agreement and eventually request new funds, the Monetary Fund is open to that possibility,” said the minister.
The Argentine Government had been warning for days that the payment plan that Peronism had signed with the Fund in January 2022 to comply with the debt of 44,000 million dollars assumed by the Government of conservative Mauricio Macri in 2018 was “virtually fallen” by the failure to meet fiscal adjustment and reserve accumulation goals. Although formally it was not. Milei, who during the campaign boasted that his cutback plan was “even tougher” than what the IMF was asking for, was very confident that he would not have problems with the organization.
The Fund accompanied him: when the new Argentine Government announced its first rate increases, the removal of energy and transportation subsidies, and a 50% devaluation, the organization celebrated the “strong initial actions” to “significantly improve public finances in a way that protects the most vulnerable in society and strengthen the exchange rate regime.” This Wednesday, before announcing the new technical agreement, the Fund published a statement warning that “the new Administration inherited an exceptionally challenging economic and social situation, with growing macroeconomic imbalances that mainly reflect inconsistent and expansionary policies, especially during the last quarters of the last year”.
This 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 of that plan between January 2022 and July 2023, when the Peronist Government met for the last time with the international organization, the road was tortuous. With currency reserves in historic red, Argentina ended up paying its maturities with other loans and with yuan granted by China on account of future benefits, the refinancing agreement opened a war between Fernández and the majority sector of the Government, led by the vice president. Cristina Kirchner, and Peronism said goodbye to the IMF on the eve of the presidential primaries on August 13.
The Fund then recognized that Argentina had not met its objectives of reducing public spending and accumulating reserves due to the drought that sank agricultural exports and due to “political deviations” of the Government, but agreed to disburse 7.5 billion dollars that Argentina would use to pay its debt, and the last meeting with that Government ended with a payment schedule until the end of 2022 and the promise of a new meeting to review objectives in November of last year. The Peronist Minister of Economy, Sergio Massa, had managed to get the IMF off his back while he faced the presidential campaign as a candidate. But he lost to Milei, and the review agreed to at the end of last year remained up in the air until this week.
The Fund's mission arrived in Argentina last Friday to inaugurate the Milei era, and the 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 the Minister of Economy, Luis Caputo, and the Chief of Staff, Nicolás Posse. The agenda was not predefined, according to the Government, and the possibility of claiming fresh funds had been ruled out by the head of the Treasury Palace.
The Fund expects Argentina to end this year with $10 billion in net reserves and a fiscal surplus. During the Government announcement, Minister Caputo has entrusted the objectives to the issue that has been the focus of Argentine politics these weeks: his State reform bill, which began to be discussed this Tuesday in Congress, and the decree of necessity and urgency with 300 reforms that include the privatization of public companies, the flexibility of the labor market and the deregulation of health insurance. “The president is going down the right path and has had enormous courage to take measures of shock given the urgency and need for change. It is clear that society accompanies this. The question is whether the politicians are going to rise to the occasion,” Caputo said about the legislators who will have to vote on the measures in Congress. “To the extent that the law does not pass, the measures will be tougher,” he warned.
With Milei, a new stage opens in Argentina's relations with the Fund, a more orthodox and pro-market one. Milei's harmony with the IMF reinforces 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 main trading partners. The far-right has just formally renounced the country's membership in the BRICS, the economic alliance made up of Brazil, Russia, India, China and South Africa to which Argentina acceded in August. The decision reduced the financing options available to the Argentine Government, which has committed itself to making its economic adjustment plan effective enough to depend solely on the Fund.
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