The International Monetary Fund (IMF) has made it clear to Argentina’s economic team, in diplomatic terms, that the real possibilities of a rapid agreement between them, including concrete cash remittances, are remote – at least in the medium term.
President Javier Milei’s government will just have to wait before adding more debt to the US$44.8 billion already owed under the 2018-2019 stand-by agreement signed by the Mauricio Macri government, which was recycled as an Extended Fund Facility programme in March, 2022 during former president Alberto Fernández’s administration (with three technical reviews) and in the current agreement concluded last January.
Clarification over the new state of affairs was made by the Venezuelan Luis Cubeddu, the IMF official in charge of the Argentine case and empowered by the IMF second-in-command Gita Gopinath, who has the real power in the negotiations with the Milei government, as represented by the trio present in Washington formed by Finance Secretary Pablo Quirno, Economic Policy Secretary José Luis Daza and Central Bank deputy governor Vladimir Werning.
In the IMF’s eyes, the country must comply with two non-negotiable requisites which are complex for the Milei government – even more complex than the objectives of a balanced budget, not printing money and increasing the Central Bank reserves, three questions where the libertarian and his Economy Minister Luis ‘Toto’ Caputo seem on the ball.
The two obligations which Cubeddu made clear in Washington conversations of recent days are: first, that any agreement implying more indebtedness for Argentina would have to be approved by law of Congress and then endorsed by the IMF’s Executive Board. Secondly, real structural changes in the domestic economy, including the local exchange market, where the IMF feels that there is plenty of work cut out.
Not in the short term
According to Milei, both conditions are feasible, but not in the short term. A new long-term agreement with fresh dollars from the IMF will just have to wait.
How long? Firstly, until the presidential inauguration of Donald Trump next January 20 since the Republican would be Argentina’s presumed unconditional ally with the Fund helm as – at least in theory – the “godfather” of the agreement driving the votes on the IMF board.
Once Trump is in power dominating the international situation, Milei would still face a complex step: winning Congress approval for the taking on of new debt. It’s the same condition IMF chief Kristalina Giorgieva imposed on then-economy minister Martín Guzmán for Argentina’s 2022 agreement, causing a terminal crisis in the relationship of then-president Fernández with Kirchnerism with Máximo Kirchner’s refusal to back the initiative and the curious alliance with a then-united Juntos por el Cambio coalition, whose deputies provided the votes for the previous government to obtain legislative passage of the Stand-By Agreement.
Milei would supposedly have the support needed for approval this time around but it would take its time to negotiate, as well as being a parliamentary procedure which would have to await the ordinary sessions of 2025, only due to start on March 1. The timeline is tight for the IMF – it would be a stellar agreement to present at the Fund’s first important event next year: its Spring Assembly in April, 2025, just four months away.
Removing the cepo
Meanwhile, if Argentina wants to approve a technical agreement with more money on the table, effective measures for its currency exchange system are required.
Cubeddu and the IMF technicians showed themselves to be astounded by the plunge in the exchange rates for the “blue” parallel and financial dollars but they still consider that there are problems, both in terms of overvaluation and operational restrictions linked to the curbs on the access to and the exit of hard currency beyond the country’s financial frontiers for markets. Speaking in more concrete terms: the ‘cepo.’ This leads to a paradox – Argentina considers that IMF money is needed to unblock the cepo, while the Fund believes that it cannot grant a remittance in these circumstances without guarantees that it is not financing a run on the currency – firstly, the exchange rate must be updated before turning on the tap for dollars.
In other words, the IMF is insisting that Argentina will have to free up its exchange rate and, obviously, devalue, precisely what Economy Minister Luis Caputo ruled out in Córdoba on December 5.
Once again, Argentina is trusting in the magic date of January 20 when Trump returns to the White House.
Milei and Caputo want the IMF to give them almost US$11 billion, claiming it is needed to demonstrate that their idea of improving competitiveness via the crawling peg monthly devaluation of two percent (which might be tweaked either slightly upwards or downwards) can work by maintaining an inflation averaging a monthly two percent or less, as assured by the government. The strategy of unblocking the cepo, according to the criteria considered best by the government and the Economy Ministry, will be respected as long as the pace is in the direction of liberation and not dependence.
In less ideological terms, currency controls should be dismantled and not deepened or maintained.
Access to hard currency
The criterion of priorities as to the economic sectors where access to hard currency can be made more flexible will be left up to the Milei government, but here both sides agree.
Before all else, priority will be given to unblocking the cepo for production and the possibility of transferring local dividends abroad. This would totally normalise dollar access for importers, not only for the PyMES small and medium-sized firms (who have already been almost updated, according to the government), but also for major companies. Otherwise, the IMF accepts that the general public’s possibilities for buying dollars for saving or tourist purposes will continue to be hampered for some time to come. This includes maintaining some kind of taxation on the use of dollars for credit cards or digital channels at a level of costs similar to the current – i.e. some 1,600 pesos per dollar.
Both the IMF and government agree that now is not the time for a massive outflow of dollars for tourism or popular savings – least of all at current values which both sides see as cheap. The IMF will accept these policies,which are not in the classic file of its technical reviews and far less in the head of Western Hemisphere director Rodrigo Valdés, who has been taken out of the discussion.
Meanwhile, the Economy Ministry is winding up its numbers for 2024. In order to be able to start projecting ahead, it needed a fiscally benevolent November and it got it.
According to official data, Argentina’s financial surplus (including debt interest payments) accumulated in the first 10 months of the year reached 0.5 percent of Gross Domestic Product, implying some US$2 billion, while primary surplus (revenue minus spending) was around US$8 billion, close to 1.8 percent of GDP. The Economy Ministry trusts in this trend continuing into this month (even if December is always complex on the spending side) with the primary surplus topping 2.1 percent of GDP, while the financial surplus will be 0.6 percent of GDP. There will be no problems in showing a final result in tune with the IMF with official fiscal data similar to those at the exit from convertibility, which, it is promised, will be repeated in 2025.
End-of-year business
In parallel to the 2025 agreement, Caputo is seeking to close out 2024 business as soon as possible. He is pressed for time but there are still hopes before January. What might be announced in the next few days is approval of the April-June and July-September periods (Argentina’s ninth and tenth quarterly reviews).
There is only one problem to resolve. Argentina overshot its primary fiscal surplus targets in both periods and will have no problem reaching the annual objective of saving 2.1 percent of GDP between revenue and spending. The Economy Ministry can even show a financial surplus (primary surplus minus the payment of running debt) between January and September of approximately 0.45 percent of GDP, i.e. some US$2.5 billion (unprecedented since the 2003-2005 period with Roberto Lavagna as minister and a country in default).
Argentina’s government can also show strict compliance with zero money-printing through to September. Just what the IMF asked for. Where a waiver will have to be requested is in the accumulation of reserves, up to September some US$1 billion to US$2 billion short of the number pledged to the IMF. An understandable and unfulfilled objective on track for recovery in the last quarter of the year via the tax whitewash.
The Economy Ministry assures that the Central Bank will be close to recovering the US$8 billion of reserves by the end of the year and if not, it will not be far off.
