Argentina reached a preliminary agreement on a review of its $44 billion financing deal with the International Monetary Fund, potentially unlocking $4.7 billion in funds for the cash-strapped nation.

“IMF staff and the Argentine authorities reached understandings on a set of economic policies that can restore macroeconomic stability in Argentina and bring the current program back on track,” the IMF said Wednesday in a press release. “This agreement, subject to continued and durable policy implementation, will be brought forward for approval by the IMF Executive Board over the coming weeks. Upon completion of the review, Argentina would have access to about US$4.7 billion.”

The staff-level agreement, while still tentative, is a boost for the right-wing government of President Javier Milei, who took office a month ago pledging radical measures to stabilize the public finances.

Indeed, his economy minister, Luis Caputo, said in a press conference on Wednesday that the funds will be used to pay debts through April, after which there will be another review of the program.

Ahead of the negotiations, Caputo arranged a $960 million loan from the Latin American development bank CAF to meet the payments to the IMF. The $4.7 billion will cover this repayment, he added.

To be sure, Caputo said the deal with the IMF does not unleash fresh funds but is part of a wider plan to slash the budget deficit to zero this year through a series of austerity measures. The efforts so far have included a 118% devaluation of the peso against the US dollar and a series of a belt-tightening measures at a time when the country is virtually out of money. The central bank’s debts exceed its reserves, now at $23.4 billion, the government has said.

RESTORING GROWTH

The IMF said both sides reached understandings on “a strengthened set of policies to restore macroeconomic stability and bring the current program back on track,” adding that “key program targets were missed by large margins due to severe policy setbacks of the previous government” of left-leaning Alberto Fernández.

The efforts are also aimed a rebuilding international reserves and attracting investment with market-oriented policies, with a wider goal of reining in inflation and narrowing the gap between the official and parallel exchange rates.

“The program went severely off track,” the IMF said. “The end-September primary fiscal deficit and domestic arrears targets were missed, and preliminary data suggest that the end-year targets were missed by an even larger margin. The targets for net international reserves were also missed, with deviations relative to end-year target by around US$15 billion prior to the start of the new administration.”

RESTORING STABILITY

To turn this around, the Milei administration is seeking to restore economic stability, rebuild reserves, and revive economic growth, including through an “omnibus” bill of more than 300 laws now being debated in Congress.

“Although the path to stability will be a challenging one, with conditions worsening before they get better, initial actions were successful in avoiding an intensification of the crisis,” the IMF said. “This marked an inflection point, with central bank FX purchases exceeding $3.6 billion over the past month, and some Argentine corporates starting to tap international markets.”

To be sure, YPF, the country’s state-run energy company, returned to the international bond markets on Wednesday with the sale of $800 million worth of seven-year, US dollar-denominated bonds.

The IMF said it expects the implementation of new policies will help restore confidence in the country, leading to a “gradual disinflation process,” a rise in export revenues, a recovery in economic growth and a rise in real wages to help the new administration meet the goals of the program.

NEW GOALS

These goals include reaching a primary surplus of 2% of GDP this year, helped by increased agricultural export revenue and a reduction in administrative costs, energy and transport subsidies, discretionary transfers to provinces and state-owned enterprises, and lower-priority infrastructure spending.

International reserves are expected to increase by $10 billion this year, including the $2.7 billion added in the last weeks of 2023, the IMF added.

Argentina will not seek fresh funds for now but will instead focus on extending the maturities of domestic debt and rebuilding its relationship with the international capital markets.

The Milei government did not seek a new agreement in the negotiations as that would have taken more time than the government has to put the economy back on track, Caputo said.

“We believe” he added, “that it is time for the country to solve its financial problems by solving its underlying structural problems, which is its addiction to excess public spending and a fiscal deficit, which is ultimately what ends up generating the problems that society later suffers.”

[PHOTO: Screen-grabe of Argentine Economy Minister Luis Caputo (right) speaking at a press conference with Central Bank Governor Santiago Bausili.]