The International Monetary Fund (IMF) has granted approval for a disbursement of approximately $4.7 billion to Argentina in support of President Javier Milei’s “bold measures” as the country debates a contentious package of ultraliberal reforms.
IMF Managing Director Kristalina Georgieva stated that the new administration in Argentina is taking audacious steps to restore macroeconomic stability, which has averted a balance of payments crisis. However, Georgieva cautioned that the path to stabilization would be challenging. This comes a day after the IMF forecasted a 2.8% contraction in Argentina’s economy, signaling a recession for the country in 2024.
Georgieva attributed the challenging economic situation to an “arduous legacy,” including elevated and rising inflation, depleted reserves, and high poverty levels, which worsened in the final months of the previous government led by Peronist President Alberto Fernández.
The IMF head expressed satisfaction with the ambitious stabilization plan agreed upon by Argentina. The plan entails ending all government financing by the central bank and achieving a primary fiscal surplus of approximately 2% of GDP this year before debt interest payments. This surplus will be sustained through a combination of temporary taxes, efforts to streamline energy and transportation subsidies, and administrative cost reductions.
Since assuming office less than two months ago, Milei has devalued the peso by 50%, initiated a price liberalization process, and intends to amend hundreds of regulations and laws to address a crisis that has left over 45% of Argentinians in poverty, with an annual inflation rate of 211% in 2023.
Georgieva stressed the importance of continuing to guarantee reserve accumulation objectives after the currency adjustment. Reinforcing the central bank’s balance remains a priority, and correcting price imbalances, reforming the energy sector, and creating a simpler, market-oriented economy are emphasized.
To achieve these goals, Georgieva believes the government must combine agile policy formulation with contingency planning. Clear communication, well-targeted social assistance, and securing social and political support are deemed essential.
Milei faces challenges in gaining public and congressional support for his controversial Omnibus Law, encompassing economic, political, security, and environmental reforms. The opposition plans to scrutinize the law, and the government recently withdrew a contentious “fiscal chapter” aimed at ensuring a “zero deficit” in fiscal accounts.
The IMF’s approval of the seventh review of the credit agreement with Argentina, facilitating an immediate disbursement of $4.7 billion, brings the total amount provided to the South American country to approximately $40.6 billion as part of a $44 billion assistance program. Argentina is grappling with a crisis marked by a shortage of foreign exchange, high indebtedness, and virtually no access to international credit markets.