Argentina urgently needs to reinforce the central bank’s reserves, currently with a negative balance. He needs them to get out of the stocks, as the South American country calls the exchange restrictions that hinder the arrival of new investments. The Minister of Economy, Luis Caputo, said this Wednesday that they hope that this money will arrive from the International Monetary Fund (IMF), with whom they are already “analyzing” a “new program” to replace the current one, which expires in December. “That would consolidate what we are doing and the additional money could relieve central bank reserves. We are beginning to debate it, but it is a long process,” Caputo warned in Washington after receiving the award for “best finance minister of the year” from LatinFinance magazine. Regarding the possibility that the Fund, in addition to once again refinancing Argentina’s $45 billion debt, adds fresh funds, Caputo said that “it would be the most normal thing,” although “it is difficult to predict how much money there will be.” “It will depend on the type of program” that is agreed upon, he said. Formal negotiations will only begin in 2025.
Argentina is the Fund’s main debtor, and the Fund is its main creditor. Last June, Caputo had already announced his intention to negotiate a new agreement with the IMF. The current one was signed in January 2022, during the administration of Peronist Alberto Fernández. Argentina achieved periodic disbursements to comply with the payment of interest on the debt contracted in 2018 by President Maricio Macri. In exchange, the South American country committed to fiscal deficit goals, issuance and accumulation of reserves. Between 2026 and 2032 Argentina must return the capital.
Milei over-met all its goals in the first quarter of 2024. The ninth review of the agreement is currently underway, with one tenth remaining, scheduled for the end of the year. The intention of the far-right Government is to achieve a new refinancing that includes an extra disbursement of between 10,000 and 15,000 million dollars, which it considers it needs to lift the stocks and sustain the adjustment and reduction plan of the State.
In July, Minister Caputo met with the managing director of the IMF, Kristalina Georgieva, within the framework of the G-20 summit held in Rio de Janeiro. Since then, what seemed like an ongoing negotiation has been paralyzed. The situation came to a head in mid-September, when Rodrigo Valdés, director of the Western Hemisphere of the multilateral, stepped down from supervising the negotiations with Argentina. Valdés had been resisting direct attacks from Milei for months, who accused him of being a “leftist” and having “bad intentions” towards Argentina. The Argentine case has since been in the hands of Luis Cubeddu, deputy director of the Western Hemisphere department, and Ashvin Ahuja, head of the mission in Argentina, under the direct supervision of Georgieva, and her number two, Gita Gopinath.
Argentina doesn’t have much time. Next year it has debt maturities for $20 billion and its dollar reserves are in the red. “We are moving forward” with the IMF, Caputo said Wednesday. “We are not deviating from the right path, this is the period to do things and investors perceive it, we are very optimistic,” he concluded.
The Fund celebrates that Milei has achieved primary and secondary fiscal surpluses (after paying interest on the debt) and has reduced monthly inflation from 25% in December to 3.5% in September. But it demands that the exchange rate also be freed and the end of restrictions on the purchase and sale of currencies. The fear of the Casa Rosada is that a free exchange, in a context of scarcity of reserves, will accelerate inflation again. Lowering the CPI is the basis of Milei’s economic model and what so far guarantees it a popularity of around 40%, although it has lost 12 points since May, as a result of the social consequences of the adjustment.
On Tuesday, the IMF maintained the macroeconomic forecasts for Argentina in a report prior to its annual meeting: a 3.5% drop in GDP and an inflation of 230% by 2024 and a 5% rise in GDP with a CPI of 62 .7% in 2025. And although he welcomed the direction of the policies, especially those related to the adjustment of public spending, he warned that much remains to be done.
“Our projections for Argentina have not changed since July. “Our team is talking to the authorities there in the middle of the negotiations, but the figures are the same,” IMF chief economist Pierre-Olivier Gourinchas said in a press conference. “What is happening on the inflation side, I think the progress has been very substantial and that is something to recognize,” said the economist. “The hope” is that the measures “will continue to improve the situation on that front,” he said.
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