Argentina and the International Monetary Fund are close to reaching an agreement on a review of their $44 billion loan program, according to three sources who informed Reuters. This is a crucial step that would put the country on track to unlock the next financing tranche.
Government authorities and representatives of IMF staff are engaged in discussions regarding the seventh review of the 2022 loan, according to sources close to the matter. The review was initially scheduled to be completed in November but was delayed due to the change in government, with President Javier Milei taking office on December 10.
“A deal is close, the country is working towards obtaining approval this month,” said one of the sources, who requested anonymity due to the private nature of the discussions.
A spokesperson for Milei declined to make any comments.
A spokesperson from the IMF stated that the agency’s staff will travel to Buenos Aires on Thursday to continue negotiations for the seventh review. Additionally, it was mentioned that Argentina will consolidate its overdue capital payments into one single payment at the end of the month.
This month, Argentina needs to make a payment of approximately $2 billion to the International Monetary Fund.
The seventh review, which assesses the program’s performance criteria until September, is crucial to getting the agreement back on track, as it had veered off course shortly after its last formal evaluation in August due to failure to meet objectives.
If approved by both the IMF staff and the Board of Directors, the review will also unlock disbursements of around $3.3 billion.
Of Actions Prior to Resignation
Milei’s government in Argentina has officially submitted a request for exemption from the program after the previous administration failed to meet the agreed-upon objectives in August.
“One of the three sources stated that the key is that the country’s recent prior actions may allow for a waiver in the program. According to the IMF’s guidelines, the IMF generally approves waivers for missed quantitative performance criteria if it believes the program will ‘still be successful’.”
The IMF recently took a tougher stance on Argentina after the country failed to meet fiscal and reserve accumulation targets.
Precautionary actions are steps that a country takes before completing a review. The Milei administration has proposed a set of economic measures to address a significant fiscal deficit, triple-digit inflation, and a shortage of foreign reserves.
Argentina implemented a 54% devaluation of its currency, which caused the official exchange rate to weaken from 366 to 800 pesos per dollar in December. This decrease narrowed the gap with the black market exchange rate to levels not seen since 2019, when capital controls were imposed.
Milei’s government also stated that it is working on reducing energy and social subsidies to restore fiscal balance by 2024. The IMF described the economic measures as “bold,” and added that their decisive implementation will help stabilize the economy.
Milei has also submitted a reform project to Congress that proposes far-reaching changes to the tax system, electoral law, and management of the country’s public debt.
In January and February, Argentina has to pay $2.8 billion in IMF repayments. The last payment to the IMF was secured through a short-term financing bridge of $960 million from the Latin American and Caribbean Development Bank (CAF), as the country’s net reserves are in negative numbers.
Morgan Stanley, the Wall Street bank, stated that it anticipates a completely revamped program from the IMF for the country in the second half of the year, according to a note to clients published on Tuesday.
