In recent weeks, a doubt or question has arisen that has been gaining weight on social networks and that has Argentina and its president as the protagonist: why Javier Milei and the Government of Argentina are negotiating a considerable loan with the International Monetary Fund , if Milei has publicly repudiated the debt on several occasions and, in addition, the Government has managed to balance the accounts, obtaining several consecutive public surpluses. The answer to this question is not simple, but it is logical. The truth is that this help from the IMF will be vital for Argentina’s economy to move forward without falling into default and abandoning with guarantees the exchange rate that prevents the arrival of more investment to the country. In a simple and simplified way: Argentina wants IMF money not to increase its debt, but to restructure what it already has, that is, to extend the maturities and pay less interest on it to avoid damaging the economy more than necessary. All of this is part of the Milei plan to reduce debt and abandon the exchange rate.
Argentina’s economy is in a more favorable situation than a year ago, but its fragility remains its main characteristic. Good proof of this are the negotiations of the Government of Javier Milei with the International Monetary Fund (IMF) to achieve a new line of credit. Argentina faces important debt maturities this year (both in pesos and dollars) and although payment capacity has improved substantially, the risk of default cannot be ignored.
These negotiations should come to fruition, especially after the managing director of the International Monetary Fund (IMF), Kristalina Georgieva, highlighted last Friday that the changes in Argentina’s economic policy are “the most impressive case in recent history.” . The country, in a few months, has gone from fiscal deficit to surplus, from the risk of hyperinflation to price moderation and from a country risk of 2,500 points to one of just over 570. The change has been radical, but there is still We must consolidate all these achievements and 2025 is a year with many obstacles. Therefore, the agreement with the IMF is key to continue moving forward and avoiding problems.
It may seem somewhat contradictory that Javier Milei, who has been a fierce critic of public debt on several occasions, is now negotiating with the IMF for a multi-billion dollar loan that will supposedly increase Argentina’s public debt. However, behind these negotiations there is a more than logical reason and a difference with past times. To date, whenever Argentina had asked the IMF for help it was because the country’s finances were on the ropes (it was suffering significant deficits) and they needed to finance the State’s public deficit. That is, Argentina contracted more debt. Although the IMF provided the money in exchange for supposed reforms and adjustments, These changes never occurred completely, which led Argentina to enter a loop (more debt and vulnerability) that usually ended in default (non-payment of debt).
Today, the situation is almost the opposite. So different that it even seems incoherent. Why does a country that reaps surpluses need help from the IMF? The Government of Argentina has achieved a historic fiscal surplus in 2024 (it has earned more than it has spent). But the inheritance received weighs a lot. The IMF money, those dollars that Milei’s team is negotiating with the fund, is not to cover the deficit, they are necessary to replace debt issued in the past by Argentina with a very short maturity and very high interest rates. IMF money should replace old debt with new debt at advantageous interest rates (much lower than what Argentina pays) and with longer maturities. That is, the Government of Javier Milei intends to replace the bonds that pay double-digit interest and that mature in the short term with that IMF debt. Without the help of this international organization, Argentina’s future would be even more uncertain.
Although Argentina’s situation has improved notably, its gross reserves have increased and country risk has fallen sharply, the fragility of the economy complicates compliance with the avalanche of maturities that the Government faces in the short term as a consequence. of past excesses (of other Argentine governments). Argentina would still have to pay very high interest in the market to refinance the maturing debt. It is estimated that Argentina will face the maturity of some 18.5 billion dollars (debt in foreign currency) in 2025. The first test came last week and appears to have been passed: Argentina made a payment of $4.3 billion to sovereign bondholders, marking its largest repayment since debt restructuring in 2020. But the hardest part still remains.
End the stocks in Argentina
The economists Ernesto Talvi and Sofía Harguindeguy explained in a report published by the Elcano Royal Institute that “This is the decisive moment to capitalize on the successes achieved so far by the stabilization plan and the sacrifice that was asked of citizens, to put Argentina on the path to eradicating the scourge of inflation, macroeconomic instability and recurring crises. The fastest and most reasonable, and certainly most logical, way to achieve this is a new agreement with the International Monetary Fund that provides Argentina with fresh funds (international reserves that it does not have today) to chase away the specter of restructuring the foreign debt. lift the “trap” smoothly, keeping expectations anchored and thus ensuring the success of the program,” these experts point out.
These dollars that will arrive from the monetary fund will also allow Argentina to end the exchange rate (allow the free movement of capital) with somewhat less risk than if it did so without reserves. Once Argentines are free to move their capital without restrictions, the peso can suffer significant fluctuations in the event of possible unexpected events, so having an acceptable level of reserves (dollars) can help smooth out these movements and avoid certain unjustified monetary panics. .
“A virtuous dynamic”
“On this basis, an agreement with the IMF is perfectly achievable. If achieved, a virtuous dynamic would be launched: the certainty of repayment of debt amortizations in foreign currency would further reduce the country risk to levels compatible with Argentina’s re-entry. in the capital markets; the lifting of the exchange rate limit would enable the arrival of investments in strategic sectors that, under the Large Investment Incentive Regime (RIGI), await the elimination of the limit. which will result in a probably vigorous recovery of the economy,” add Talvi and Harguindeguy.
The next phase of the Milei Government’s stabilization program presents two great challenges: lifting the exchange rate and complying with the payment schedule for capital amortization of the debt in foreign currency. The second is already underway and the first depends, in part, on the success of the second and the agreement with the International Monetary Fund if the end of the stocks is to be faced with certain guarantees.
“For both, Argentina needs a level of international reserves that it does not yet have,” comment Talvi and Harguindeguy. To face the second challenge, the government has managed to close with a consortium of international banks (BBVA and JP Morgan) the obtaining of a short-term loan known as ‘repo’ (repurchase agreement) for 1,000 million dollars. This agreement will allow Argentina to receive immediate funds by offering a large amount of sovereign bonds as collateral.
This has only just begun. Talvi and Harguindeguy put a figure on the amount of funds that Argentina needs to lift the stocks and thus attract greater foreign investment: “Considering the amortizations of external debt in the remainder of 2024 and in 2025 (excluding those with the IMF and multilateral organizations , and the official bilateral ones) and the stock of reserves necessary to get out of the stocks without shocks that could “unmoor” expectations, we estimate that Argentina needs some 45,000 to 48,000 million dollars of gross international reserves when it currently has 28,000 million dollars,” say the two economists.
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