IMF staff show support for ‘ambitious stabilisation plan’

Declaring that Argentina’s programme went “severely off track,” IMF criticises “continued reliance on Central Bank financing and interventionist measures” by Alberto Fernández administration.

Economy Minister Luis Caputo confirmed in a press conference on Wednesday night that Argentina and the International Monetary Fund had reached an agreement over the nation’s Us$44-billion loan programme, the first of the Javier Milei government.

The staff-level agreement paves the way for a new disbursement of US$4.7 billion in funds from Argentina’s programme, which had collapsed “due to the failure to meet targets” by the previous government, said the minister.

The announcement comes as part of the seventh review of Argentina’s credit agreement with the Fund.

Stressing that the deal was “not a new agreement,” Caputo said the loan programme is now “refloated” after missed targets during former president Alberto Fernández’s government. “Refloating the agreement required a greater commitment to compensate for the loss of credibility in the last two quarters,” said the government official.

In a statement issued prior to the press conference at the Economy Ministry headquarters, the IMF confirmed that a staff-level agreement had been reached between the two parties. The accord is pending approval of the IMF’S Executive Board, which is likely to take a few weeks.

“IMF staff and the Argentine authorities have reached staff-level agreement on the seventh review under Argentina’s EFF (extended fund facility) arrangement. Subject to approval by the IMF Executive Board, Argentina would have access to about US$4.7 billion,” the multilateral lender said in a statement.

PRAISE

The statement – which the IMF stressed represented the views of its staff who had visited Buenos Aires for talks and not necessarily those of its Executive Board – was full of praise for the government.

President Milei has taken steps to fulfill his campaign promise to slash public spending and shake up an economy riddled with inflation and other woes. The libertarian leader has presented to Congress last month a decree and bill to amend laws and allow the privatisation of more than 40 public companies and limit the right to assembly and demonstration.

“The new administration is already implementing an ambitious stabilisation plan, anchored on a major upfront fiscal consolidation, along with actions to rebuild reserves, correct relative price misalignments, strengthen the Central Bank’s balance sheet and create a simpler, rules-based, and marketoriented economy,” it read.

Citing “understandings” on new policies to “restore macroeconomic stability and bring the current programme back on track,” the IMF also criticised the previous government which it said missed “key programme targets” by “large margins.”

It blamed the problems on “severe policy setbacks.”

Declaring that Argentina’s programme went “severely off track,” the IMF criticised “continued reliance on Central Bank financing and interventionist measures” by the Fernández administration.

TARGETS

News of the agreement comes exactly one month after Milei assumed office. The IMF had reached an impasse with the Fernández administration after previous quarterly reviews required a number of waivers for missed targets.

The IMF team, led by Luis Cubeddu, IMF Deputy Director of the Western Hemisphere Department, and Ashvin Ahuja, Mission Chief for Argentina, met with Caputo and Central Bank Governor Santiago Bausili, along with other officials, during their visit to Buenos Aires.

“IMF staff and the Argentine authorities reached understandings on a set of economic policies to restore macroeconomic stability in Argentina and bring the current programme back on track,” the IMF said in its statement.

“Upon completion of the review, Argentina would have access to about US$4.7 billion, consistent with some rephasing within the envelope of the programme,” it added.

Under the new understanding, Milei’s government aims to “achieve a primary (fiscal) surplus” before debt interest payments “of two percent of gross domestic product this year,” the IMF statement revealed.

Confirming a figure later cited by Caputo in his press conference, it also noted that the Milei administration’s attempts at reserve accumulation “are expected to lead to a Us$10-billion build-up in net reserves by the end of 2024.”

The multilateral lender went on to highlight the Milei government’s commitment to “expenditure rationalisation” which will be implemented via “reductions in administrative costs, energy and transport subsidies, discretionary transfers to provinces and state-owned enterprises, and lower-priority infrastructure spending.”

DECREE, ‘OMNIBUS LAW’ The IMF noted Milei’s emergency decree and ‘Ley Omnibus’ bill had been submitted to Congress and said the government is building “social and political support.” It praised the libertarian administration for acting “quickly and decisively” to implement its policies.

During his press conference, Caputo warned lawmakers that if the bill is not approved by Congress, tougher economic measures would follow. He said that would be “very bad news for all Argentines.”

“This does not imply that we will return to the previous administration’s goal. Even if it does not pass, we will make every effort to meet it. In Argentina that is the root of the problem, our commitment to the people was to solve the problem and not to continue deceiving ourselves,” he argued.

Caputo, who was joined by Bausili for the press conference, also revealed that IMF staff had indicated they were willing to negotiate a new agreement in the future.

“If we eventually want to ask for new loans, the Fund is open, but we believe that it is time for the country to solve its financial problems by solving its underlying structural problems, which is its addiction to excessive public spending, to the fiscal deficit, which is ultimately what ends up generating all the problems,” declared the minister.

“We have full confidence that the measures we are taking will lead us down the right path,” he concluded.

In a press conference Thursday, IMF Spokesperson Julie Kozack said the Omnibus “bill has important fiscal implications, and as such, we hope that the authorities will continue to generate political support to movekeyaspectsofthisbillforward.”