IMF to release $4.7bn to Argentina as Javier Milei pursues austerity  

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The IMF has agreed to disburse $4.7bn to Argentina despite the country’s failure to meet the terms of its $43bn loan in recent months, offering a crucial lifeline to new libertarian President Javier Milei as he pursues ambitious reforms.

The money includes a $3.3bn tranche of the loan that had been due to be disbursed in November, which was delayed by Milei’s inauguration in December, and $1.4bn that the IMF agreed to disburse ahead of schedule.

Argentina’s hard currency reserves have been virtually wiped out amid its most severe economic crisis in two decades. The government is relying on the IMF’s disbursements to pay the fund back for money lent earlier in the programme — which was first launched in 2018 and refinanced in 2022 — with repayments worth more than $2.7bn coming due by February 1. Entering into arrears would destabilise markets and deepen the crisis.

The decision by the fund’s technical staff on Wednesday must be reviewed by its board, which will take several weeks.

Milei has long pledged that his austerity measures would be more drastic than those demanded by the IMF. He has sought to draw a contrast with the previous left-leaning Peronist government, which fell far short on fund targets on fiscal balance, reserve accumulation and curbing money printing.

The “shock therapy” economic plan Milei began implementing last month includes spending cuts and tax increases aiming to reach a primary budget surplus this year, which would overshoot the 2024 fiscal deficit target of 0.9 per cent of gross domestic product approved by the fund last year. 

A report published on Wednesday by economics consultancy EcoGo found that Milei had now halted central bank money printing to finance treasury spending. But it said that in December the central bank still printed 6tn pesos, worth about $7.5bn at the official exchange rate, to pay interest on a pile of short-term debt with local creditors, buy dollars and meet other obligations. Some of this activity took place before Milei took office on December 10.

Fund officials who visited Argentina this week said in a statement on Wednesday that Milei’s team had “moved quickly and decisively to develop and begin to implement a strong policy package to restore macroeconomic stability and are fully determined to bring the current program back on track”.

The delay of November’s disbursement had forced Milei’s new government to take out a bridge loan from the Caracas-based CAF to make another $900mn repayment in December. A multibillion-dollar credit line from China tapped by the previous government has not been renewed since Milei’s election, according to local media.

The IMF stopped short of negotiating a wider refinancing of the programme that could have provided extra cash to support Argentina during its reforms — a prospect some in the president’s team had floated during the campaign. Milei’s spokesperson said on Monday that he was not seeking new funds from the IMF, which is deeply unpopular in Argentina.

Instead, analysts said the IMF opted to continue with disbursements in order to avoid destabilising the economy without increasing its exposure.

“The fund will want to see first if Milei’s aggressive austerity plan is socially and politically sustainable, which is so far unclear,” said Sebastian Menescaldi, EcoGo associate director. He pointed to planned anti-austerity protests and the uncertain fate of Milei’s reforms in congress.

“I don’t think either party has an incentive to look for a new agreement now. The situation is: let’s stabilise the economy first and in 2025 we’ll talk again.”