by Valen Iricibar and Facundo Iglesia

The International Monetary Fund (IMF) and Argentina have reached a staff-level agreement that could unlock access to a US$4.7-billion disbursement from the lender.

The latest deal includes a tightening of the country’s fiscal goal — a target 2% surplus of GDP instead of a 0.9% deficit, which would imply greater austerity measures than previously envisioned.

“IMF staff and the Argentine authorities reached understandings on a set of economic policies that can restore macroeconomic stability in Argentina and bring the current program back on track,” read the communiqué. “Upon completion of the review, Argentina would have access to about US$ 4.7 billion (or SDR 3.5 billion), consistent with some rephasing within the envelope of the program.”

In a communiqué, the IMF supported the administration’s “ambitious stabilization plan” and “strong policy efforts.”

Since coming to power, President Javier Milei’s administration has attempted sweeping changes to the Argentine state via an unprecedented mega-decree and a large omnibus bill, legislative measures that are making their way through the courts and Congress. 

When asked if the new fiscal deficit goal depended on Congress passing the mega-decree and the omnibus bill, Economy Minister Luis Caputo answered: “We are committed to that goal.”

“The measures are going to be harsher if the omnibus bill does not pass,” Caputo warned in a press conference at the Economy Minister on Wednesday evening. “Argentines will suffer them more.”

Caputo highlighted the idea that fiscal deficit is Argentina’s main economic problem in the country but that it is “extremely important” that the bill passes to “do this in the most harmonious way possible.” 

The minister did not answer a question about eventual compensation for the impact the austerity measures could have on the country’s middle and working classes.

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‘Back on track’

The Fund returned as a key player in the country’s economy when former president Mauricio Macri signed a record-high loan of US$44 billion in 2018 with the lender. The debt was renegotiated under President Alberto Fernández’s administration, agreeing to an Extended Fund Facility program. This includes a comprehensive economic program that Argentina must comply with to receive disbursements every three months, which the government uses to pay the previous debt.

However, most of the goals were missed throughout 2023. In its fifth and sixth reviews of the program, the IMF’s board said that net international reserve accumulation was about US$11 billion below the agreed-upon goal. That report — the last one published during Fernández’s administration — concluded that the program had gone “off track” and added that the country did not comply with its fiscal deficit goal either. This was reiterated in Wednesday’s communiqué from IMF staff.

“The program went severely off track,” it said, highlighting several goals that were missed, including the end-September primary fiscal deficit and adding that preliminary data suggested that the end-year targets were missed by a large margin. 

“The targets for net international reserves were also missed, with deviations relative to end-year target by around US$15 billion before the start of the new administration.”

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In the press conference, Caputo stressed that what the government signed was not a new agreement, but the Fernández-era one revived.  

“Reviving this agreement required a greater commitment to compensate for the loss of credibility that occurred in the last two quarters,” he said, referring to the previous administration.

However, the minister said that the IMF left the door open for a possible new agreement. “If [the government] wanted to go to a new agreement and eventually ask for new funds, the Monetary Fund is open to that possibility.”

Milei traveled to the United States to meet with IMF officials before taking office. Two days after his inauguration, Caputo announced a 54% devaluation that was praised in the IMF Staff’s communiqué.

“Following the large step devaluation in mid-December, the authorities’ exchange rate policy will continue to support reserve accumulation goals,” they said, also praising the new administration’s change of administrative import controls. 

Wednesday’s staff-level agreement will be presented to the IMF Executive Board for approval in the coming weeks — Argentina must continue to implement the policies it has agreed on with the lender. If accepted, the disbursement would be used to pay for the December, January, and April maturities with the Fund.

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