The International Monetary Fund (IMF) and the Argentine government reached a staff-level agreement on the first review of the program they signed in April. The lender’s board is set to meet in late July to give final approval of the review, which would unlock a US$2 billion disbursement.

News of the agreement arrived a mere two days after the fund published a critical analysis of the country’s international reserve coverage.

“The program has had a strong start despite a more challenging external backdrop,” said a statement by the Fund issued on Thursday. “Disinflation and growth have continued, poverty has fallen further, and Argentina has re-entered international capital markets ahead of schedule.”

On April 11, the IMF’s Executive Board approved a US$20 billion Extended Fund Facility (EFF) arrangement for Argentina. After that, the government partially lifted the foreign currency controls known as the “cepo” and changed its exchange rate regime from a fixed 1% monthly depreciation of the peso to a currency band scheme. The new strategy allows the Central Bank to sell or buy dollars to keep the peso “floating” between two values, originally AR$1,000 to AR$1,400.

The statement by the fund said that the policy changes “have proceeded smoothly.” 

“The official exchange rate has remained around the midpoint of the band,” the fund added. On Thursday, the wholesale exchange rate was AR$1,262 per dollar.

This month, the exchange rate held an upward trend amid growing political tension following the Senate’s approval of several bills that the government rejects on fiscal grounds and a new setback in the YPF expropriation trial in New York. The rate went up despite the strong rise in interest rates that the Treasury approved on last week’s tender.

In its statement, the fund said that the government will implement policies aimed at “safeguarding achievement of the fiscal anchor, rebuilding reserve buffers, durably reducing inflation, and continuing to enhance the clarity and functioning of the monetary framework.” 

The fund said that the Milei administration will take further actions to “create a more open, resilient, and market-based economy.”

Reserves in doubt

The IMF warned of the weaknesses of Argentina’s international reserves in its External Sector Report, issued on Tuesday. Media reports said that the Argentine government had requested a waiver from the Fund, but a source in the Economy Ministry denied it. A spokesperson for the IMF did not immediately respond to a Herald’s request for comment.

The fund’s report said that while net international reserves “rose by $6 billion during 2024,” accumulation has been “more challenging since mid-2024.” “Reserve coverage remains inadequate,” the document said.

On Thursday, the fund’s spokeswoman, Julie Kozack, said that the lender and Argentina’s government share the “recognition of the need to continue to build buffers against external risks.”

According to the Central Bank’s daily update on Thursday, gross international reserves are US$40.43 billion. Net reserves are close to US$1 billion, according to the Ecolatina consultancy.

The government has decided not to buy U.S. dollars when the exchange rate is over the currency band’s floor (AR$1,000), even though it is authorized to do so. However, the Treasury has started to buy reserves in a bid to reach the program’s goals.

“Early efforts are essential to rebuild reserves, while allowing for greater price discovery and FX (foreign exchange) purchases to meet FX debt service obligations,” the fund’s External Sector Report said.