Two major Wall Street financial firms expect Argentina to reach a deal with the International Monetary Fund (IMF) this year that could bring fresh funds to the country. In two separate reports, Bank of America and Morgan Stanley also suggested that the government could gradually lift the foreign exchange controls in 2025.

They both encouraged investing in the bonds issued by the country.

Morgan Stanley and Bank of America are the latest U.S. financial institutions to share their optimistic outlook on Argentina. Last week, Moody’s credit ratings agency upgraded Argentina’s long-term foreign and local currency debt issuer’s score from Ca to Caa3, changing its outlook from “stable” to “positive.” 

In a report issued on Wednesday, Morgan Stanley said “currency strength comes in handy” when fighting inflation. However, it warned that the strong Argentine peso and the resumption of import payments “have led to a surge of a (manageable) current account deficit.” The report added that the situation raises “questions about the country’s ability to shore up its weak [international] reserves position and to keep honoring [foreign currency] debt payments.”

However, they added that the current account deficit could be financed through a surplus in the financial account.

“An IMF program entailing a US$5 billion front-loaded disbursement already in 2025, [net foreign currency] inflows from multilateral organizations, and corporate debt issuance explain the bulk of the surplus in the financial account” for 2025, Morgan Staley said in their report, adding that they forecast a 0.3% current account deficit and a 1.3% financial account surplus.

Argentina signed an Extended Fund Facility agreement with the IMF in 2022 when Alberto Fernández’s administration renegotiated the US$44-billion debt former President Mauricio Macri acquired in 2018. Javier Milei has said a new deal with the lender of last resort is one requirement to lift foreign exchange controls, enforced in 2019 and tightened over Fernández’s administration. The main reason for the controls — collectively known as the cepo — is the country’s low international reserves, which are still in the red.

Morgan Stanley’s report also said that its base scenario is a “gradual lifting of the foreign exchange controls.” They expect the government to eliminateed the “blend” dollar, a scheme allowing agricultural and services companies to liquidate 20% of their financial market exports, in the second quarter.

The document added that Javier Milei’s austerity policies in 2024 provided “ample evidence of policymakers’ commitment to rebalancing the economy.”

“In turn, this means we also suggest investors stay long both Argentina’s external bonds (including EUR bonds and CDS) and equities,” they added, meaning that their price is expected to increase.

However, the investment bank warned of a negative scenario in which the IMF does not provide “new and front-loaded funding,” meaning continued foreign currency controls further draining the Central Bank’s reserves.

Meanwhile, Bank of America said Argentina and the IMF agreeing on a new “Extended Fund Facility program by April” seems very likely.  “We expect a significant initial disbursement and the refinancing of the bulk of IMF debt service through 2028,” the bank added in its report. 

“We imagine a gradual transition towards a more flexible exchange rate regime, to support [foreign exchange] reserves. Capital controls should be lifted gradually, with a push after the mid-term elections, and we expect [foreign exchange] unification by December,” the report said.

Like Morgan Stanley, Bank of America recommended investing in Argentine external debt, adding that the risks are the “low level of international reserves, real appreciation of the currency, elections, and a potential drought.”