The board of the International Monetary Fund approved the staff-level agreement it had reached with Argentina and disbursed US$4.7 billion on Wednesday. 

The Fund’s head, Kristalina Georgieva, said the government committed to eliminating exchange restrictions which lead to multiple exchange rates “in the near term” — implying that the IMF believes Argentina will soon lift currency controls known as the cepo.

The government used nearly US$2 billion to repay the Fund, the Central Bank’s latest public reserve balance sheet shows. Gross international reserves grew from US$25.1 billion on Tuesday to US$27.6 billion on Wednesday.

According to an official statement by the lender, the payment was made to support the Milei administration’s “strong policy efforts to restore macroeconomic stability and bring the program back on track.”

Along the same lines as the IMF staff’s comments on January 10, when it reached an agreement with the country, the board said that key program targets were missed under the previous administration and required waivers of nonobservance. 

“[Milei’s] plan is centered on the establishment of a strong fiscal anchor along with policies to durably bring down inflation, rebuild reserves, and tackle distortions and long-standing impediments to growth,” the statement said.

The board approved some rephasing of the planned disbursement schedule, but within “the existing envelope of the program.” It will also extend the current deal — whose last disbursement was scheduled for September 2024 — through December 31 this year.

The staff-level agreement the lender reached with the country on January 10 includes tightening the country’s fiscal goal — a target 2% surplus of GDP instead of a 0.9% deficit, implying greater austerity measures than previously envisioned.

‘Eliminating distortive restrictions’

Georgieva said that the foreign exchange policy should “continue to secure reserve accumulation goals.” She added that government authorities are “committed to eliminating remaining distortive exchange restrictions and multiple currency practices in the near term.” The government will also develop plans for gradually unwinding capital flow management measures, Giorgieva said.

On December 12, Economy Minister Luis Caputo announced a 54% devaluation of the peso, which put the official U.S. dollar rate closer to the parallel rates, thus encouraging exporters to sell their dollars to the Central Bank. But the gap between the parallel and official rates has since widened. As of Wednesday, the difference between the official and the blue-chip swap rate is 49%.

The government said it would return to a crawling peg scheme, devaluing the currency by 2% monthly, but analysts agree that another steep jump in the exchange rate to account for the current wave of inflation is to be expected.

The week after the agreement was reached, Caputo met with Gita Gopinath, the lender’s first deputy managing director. An Economy Ministry source told the Herald that Gopinath “stressed the importance that politics accompany the measures,” implying the need for political support for Javier Milei’s mega-decree and omnibus bill. Giorgieva also highlighted the importance of the government making “efforts to build social and political support for the program,” as well as it having “clear communication and well-targeted social assistance,” in her Wednesday statements.

The disbursement came while Congress was having a marathon session to debate the omnibus bill, which contains a variety of austerity measures. On Tuesday, the Fund revised its forecast for Argentina’s economy down by 5.6 percentage points, estimating that GDP will shrink by 2.8 points in 2024.

The IMF returned as a major player in Argentina’s economy when then-president Mauricio Macri signed a record-high loan of US$44 billion in 2018. The debt was renegotiated under President Alberto Fernández’s office, which reached an Extended Fund Facility program with the lender. This includes an economic program that Argentina must comply with to receive disbursements every three months, which the government uses to pay the previous debt. The agreement reached on Wednesday is the lender’s seventh review under the new deal.