Javier Milei’s controversial decision to issue an emergency decree mandating that Congress support his administration in a deal with the International Monetary Fund (IMF) has sparked different reactions from Argentina’s legal, political, and economic actors.

Legal experts criticized the decision, as it could end in court since a 2021 law mandates loans with the IMF to go through Congress.

Emergency decrees are law the moment the government issues them and can be only repealed if both houses vote against them. Conversely, regular bills become law only after both houses vote for them. The lender’s spokeswoman, Julie Kozack, said that congressional approval as a prerequisite for a new IMF deal is “a decision of the authorities as legislated in Argentine domestic law.”

Constitutional lawyer Andrés Gil Domínguez wrote in a post on X that the decree is “absolutely and irrevocably null” and that it “consolidates an autocratic model.”

Economy Minister Luis Caputo justified the decision, saying that the Senate has a “Kirchnerist majority that wants the country to do badly, and [approval] could take a long time, and this cannot be delayed.” Constitutional lawyer Roberto Gargarella said that idea “is typical of economists close to the government [who see] democracy as a stumbling block to be overcome and law as a useless formality.”

Political analyst Gustavo Córdoba, director of the Zuban Córdoba consulting firm, said that, by sending an executive order with no details of the agreement, the administration is “definitely looking for culprits for an eventual devaluation.” He told the Herald that Congress would presumably reject the decree.

He added that the political crisis unleashed after the $LIBRA crypto scandal is “far from over” and that economic actors are losing confidence in the government. “These are times of very high uncertainty, both economic and political,” he added.

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Market reactions

Milei has consistently said he would use the fresh funds from an IMF deal to lift the country’s byzantine foreign exchange controls, which stem from Argentina’s international reserve scarcity crisis. Net international reserves are around negative US$9 billion, close to what the previous administration left in the Central Bank. The administration’s urgency to reach an agreement has been interpreted as a sign that the country’s finances are more dire than the administration has admitted. 

Milei came to power with the mandate of stopping inflation. However, his strategy of appreciating the local currency to stop the rising of prices has come at a high cost in U.S. dollars, which the country does not have.

Analysts say that the country should lift its foreign exchange controls to recover a degree of normalcy. However, that would mean a devaluation of the peso that could translate into a spike in inflation, which, added to low reserves, could hurt Milei’s chances for this year’s midterm elections.

Some economists say that the local currency is overvalued and that the so-called “super-peso” is hurting the country’s foreign currency account. While the Central Bank has been buying U.S. dollars, it is also selling them in the secondary market to contain the financial exchange rate.

Financial analyst Gustavo Quintana said that the market is seeing the ending of negotiations with the Fund “favorably.” “It is an important step in the official strategy to achieve its objectives, which at some point will surely include the definitive dismantling of exchange restrictions,” he told the Herald. “I would say that the agreement would bring a certain dose of optimism.”

A Friday report by consulting firm 1816 said that the country is in “the final stretch of a new agreement with the IMF” and that investors are placing their bets on how big the program will be. They highlighted that the country must pay the Fund US$12.7 billion between principal and interest in the remainder of the Milei era. 

“The size of the program, the disbursement schedule, the sequencing, and the conditionalities (both for the use of the funds and concerning monetary and exchange rate policy) will determine the markets’ response to an eventual understanding with our main institutional creditor,” the report said.

Other analysts think similarly. “The main and only thing that matters is what exchange rate scheme — as well as the monetary scheme associated with it — will come [after the IMF deal],” Pablo Repetto, head of research at broker Aurum Valores, told the Herald. “Everything else is irrelevant.”

For Repetto, even if the IMF disburses fresh funds, what matters is the establishment of a scheme ensuring international reserve accumulation. “As long as this does not change, this mediocre situation where the country risk cannot be lowered to access markets will continue to dominate the scenario,” he added. After falling to 560 points in January, Argentina’s JP Morgan Emerging Market Bond Index is now around 700. With that score, Argentina cannot access voluntary credit in the international financial markets.

“If they sign something just to maintain the status quo until after the elections, it will not be well received,” he added.