Argentina has secured a crucial staff-level agreement with the International Monetary Fund (IMF) that will unlock $4.7 billion in funds as the country struggles to stabilize its economy.
Background
Argentina has had a turbulent relationship with the IMF for decades. In 2018, under former President Mauricio Macri, the country signed a $57 billion financing deal – the largest in IMF history. However, Argentina struggled to meet the strict fiscal targets under that program.
When President Javier Milei took office in late 2023, Argentina was in arrears on $2.8 billion in delayed payments. Milei vowed to break from previous governments and not seek another IMF program. However, with dwindling foreign reserves, Argentina had little choice but to return to negotiations.
An IMF mission team visited Buenos Aires last week to discuss a reboot of the $44 billion debt deal. After marathon talks, the two sides announced an agreement on January 11.
Deal Details
Under the new staff-level agreement, Argentina will receive $4.7 billion after the deal is approved by IMF management and executive board.
This will allow Argentina to meet $5 billion in debt payments due this quarter and avoid another damaging default.
In return, Argentina has committed to far-reaching economic reforms to control spiraling inflation and reduce its fiscal deficit to sustainable levels. These include:
- Gradual spending cuts to reach a primary fiscal balance by 2025
- Further decreasing energy subsidies
- Tighter monetary policy
- Increasing interest rates
- Building up foreign exchange reserves
“This understanding will allow us to access the remaining resources from the 2018 agreement, which will provide clarity about the availability of funding for Argentina over the next two years,” said Argentina’s Finance Minister Hernán Lacunza.
The IMF also released a supportive statement highlighting Argentina’s “ambitious stabilization framework” centered on fiscal discipline.
Challenges Ahead
Finalizing this agreement is a major accomplishment for the young Milei administration. However, implementation risks remain high given Argentina’s long track record of failed IMF deals.
Several economic analysts have warned the fiscal adjustment plan is still too backloaded. Most of the spending cuts don’t take effect until after Argentina’s general elections in October 2023.
| Key Economic Targets | 2023 | 2024 | 2025 |
|---|---|---|---|
| Primary Fiscal Balance | -1.9% GDP | -0.9% GDP | 0% GDP |
| Inflation | 60% | 48% | 40% |
This has raised questions if Argentina will follow through if Milei is not re-elected. The main opposition party has already voiced concerns about the deal’s social impact.
Securing political and social consensus for reform will be difficult ahead of a heated election cycle. Public protests over rising prices have increased pressure on Milei to slow the pace of subsidy cuts.
Meanwhile, Argentina must still restructure its debt with private creditors. The country continues to be cut off from voluntary debt markets.
Outlook
The IMF agreement provides urgent relief for Argentina and signals a reset in relations after previous failed programs. But many risks remain before Argentina escapes its long history of economic instability.
With elections fast approaching, the path to fiscal balance could be derailed by political forces beyond Milei’s control for now. However, if Milei can consolidate support and see his reforms through 2025 as planned, Argentina could finally break its cycle of crises.
What’s Next
In the short term, Argentina faces two critical tests:
-
January Debt Payment: Argentina must make a $1 billion bond payment on January 23 to avoid default ahead of sealing the IMF deal. Reserves remain extremely thin, but the government expects to scrape together enough through extraordinary measures.
-
Congressional Approval: Argentina’s Congress must approve the 2023 budget for the IMF agreement to take effect. Opposition lawmakers have criticized the deal and called for changes, threatening to delay approval. The government is lobbying aggressively for passage.
Once the deal clears these hurdles, the IMF Executive Board will need to ratify it. That is expected by the end of March. Argentina would then immediately receive the first $4.7 billion disbursement.
Further out, Argentina’s economic stabilization and political unity will be severely tested ahead of October’s presidential vote. Most experts concur that if Javier Milei has a strong electoral mandate, he may have enough capital to stay the course of gradual fiscal reforms through 2025 with IMF support. If not, Argentina risks falling back into crisis yet again.
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