Pilar Wolffelt 
The International Monetary Fund (IMF) is satisfied with some aspects of President Javier Milei’s economic plan, such as the reduction of fiscal deficit, deregulation, and spending cuts. The Fund, however, considers that exchange restrictions (known as “cepo”) and Central Bank reserve accumulation are issues that require adjustment. If progress is not made on these fronts, an agreement with the IMF bringing in fresh funds will be difficult.
These statements were made by Alejando Werner, former director of the Western Hemisphere Department of the IMF at the 45th Annual Convention of the Argentine Institute of Finance Executives (AEF, for its Spanish initials). Werner said that he expects Economy Minister Luis Caputo to correct some of these issues but nonetheless opened the door to the possibility that an agreement for funds may not be reached.
“Cepo” and monetary policy, the main problems for the IMF
Speaking to congress moderator Gustavo Bazan, Werner said that the IMF had “doubts about the sustainability of the economic program due to its monetary policy problems.” He also stated that inflation cannot be lowered with “artificial measures, such as the elimination of the PAIS tax,” adding that a price reduction in the short term is not the best answer to the fiscal problem.
Contradicting what Caputo announced a few days ago, Werner warned that there “likely will not be an agreement with the IMF.” In the case it does happen, the most likely scenario is that it would center around refinancing and not the arrival of funds as the government expects.
Nonetheless, the former IMF official pointed out that it would be a “colossal mistake” for the international financial community not to support Javier Milei’s government with US$15 or US$20 billion more so that “new policies regarding exchange rates and debt control can be implemented faster.”
The IMF has doubts about the “cepo”
Regarding the exchange restrictions and the government’s promise to end them, Werner said that they could be removed tomorrow and high exchange rate volatility would be the scenario for everyone, but “history shows that this is not politically sustainable.” He pointed out that what must be guaranteed moving forward is the permanence of the measure.
“It’s not good if restrictions are eliminated and nine months later they are placed again,” he said.
He explained that Argentina’s stabilization policy has so far been based on the fiscal and exchange rate anchor. Going forward, he stated, what is needed is a program that favors less rapid disinflation but allows reserve accumulation in order to lift the “cepo” instead of moving in the opposite direction — as it is doing now — and using Central Bank dollars to stabilize the exchange rate.
“We believe that we have to move in that direction and start doing it gradually, as other countries have done, such as Chile, possibly with a more dollarized economy. Argentina has to work on the accumulation of reserves in order to gradually lift the ‘cepo,’” he said.
