The International Monetary Fund said late Thursday that its executive board approved a disbursement of around $800 million to Argentina as part of the eighth review of its $44 billion loan program, a latest spot of cheer for President Javier Milei.
The disbursement, which takes the total drawn from the extended fund facility to $41.4 billion, will support the Milei administration’s efforts to fight inflation, rebuild fiscal and external buffers, and support a recovery in the economy.
The loan program is “firmly on track,” the IMF board said in a statement. “All quantitative performance criteria for end-March 2024 were met with margins.”
Gita Gopinath, the Fund’s first deputy managing director, praised the Argentine government’s efforts to increase reserves, reach fiscal and external surpluses and achieve a faster-than-expected decline in inflation.
“Nevertheless, some macroeconomic imbalances and barriers to growth remain, and a difficult adjustment path still lies ahead,” Gopinath said. “Policies now need to be enhanced to build on the progress made so far. Efforts should continue to broaden political and societal support for reforms, as well as to protect the most vulnerable.”
Specifically, she called for efforts to reform the tax system, reduce subsidies and tighten controls on spending, as well as to remove distortive taxes and further increase reserves.
“To support the transition towards a new monetary regime, where price and financial stability remain prime objectives of the central bank and individuals are free to use currencies of their choice, the real policy rate should turn positive to support peso demand and disinflation,” Gopinath said.
Indeed, the board said it approved “waivers of non-observance for a new exchange restriction and multiple currency practices in the context of some easing of dividend payment restrictions.”
CURRENCY CONTROLS
Argentina has had tight restrictions on accessing foreign currencies in place for several years to protect international reserves, which tumbled to a low of $20.9 billion at the end of last year from a most recent high of $77.5 billion in 2019.
The central bank has since rebuilt the reserves to $29.2 billion. While that is a 40% increase, Milei has said that the reserves must increase to around $36 billion before he can remove all capital controls.
The lifting of controls has been a key demand from investors, who have been refraining from ploughing large amounts of money into the country on concerns that they wouldn’t be able to use the profits to pay shareholders or service debt.
Optimism that Milei will eventually lift the controls has been growing as he pushes ahead on reforms.
On Thursday, the Senate approved two key economic reform bills with modifications. While the bills — one a sweeping deregulation of the economy and the other for fiscal austerity — must return to the lower house for a second vote, approval is widely expected.
The legislative measures will help Milei achieve one of his main goals of slashing public spending to take the primary fiscal account to a 2% of GDP surplus this year from a 5% deficit in 2023.