An agreement would give Milei's government the tool it seeks to eliminate capital controls that block new investment and return to the global market: a lot of dollars.
The pending $20 billion agreement between Argentina and the International Monetary Fund (IMF) will give libertarian President Javier Milei the tool he seeks to eliminate capital controls that block new investment and return to the global market: a lot of dollars.
The South American country, which has been a recurrent debt defaulter and has grappled with intermittent economic crises for decades, is in advanced talks with the IMF on what would be its 23rd program aimed at bolstering the country's depleted foreign exchange reserves.
An agreement would give the government room to begin dismantling the exchange controls in place since 2019, while the agency's support could help reduce the premium Argentina must pay to take on new debt, potentially reopening access to global credit markets.
"You have a lot of dollars for very few pesos," Milei said in March, referring to the central bank's goal of doubling its gross reserves to about $50 billion with loans from the IMF and other entities. He added that the goal is to eliminate exchange controls (known as cepo) by the end of the year, or sooner if the IMF accelerates disbursements.
"On January 1, 2026, the currency controls will no longer exist," the president said. "If there's a disbursement from the Fund, we can do it faster."
Reuters spoke with former IMF and government officials, and economists, most of whom agreed that the deal—which still requires board approval—would help dismantle capital controls and access capital markets, although it would not happen overnight.
This is key for the grain, energy, and lithium-producing country to reactivate its economy, as it attempts to emerge from one of its worst crises with the implementation of harsh austerity measures by Milei, an economist allied with US President Donald Trump.
Annualized inflation approached 300% last year, net reserves plummeted to a deficit of $11 billion, and poverty surpassed 50% as the country fell into recession. These indicators are now improving, but the economy remains fragile.
"A guarantee from the Fund gives the government a certificate of good conduct, makes the World Bank, the IDB, and others feel comfortable lending to Argentina," said Claudio Loser, former IMF director for the Western Hemisphere, estimating that this would boost the confidence of other organizations to grant loans and help contain inflation.
"Country risk could fall, and then the government could approach the financial markets," he added.
GOING INTO MORE DEBT?
Milei took office in December 2023 with the promise of drastically reducing public spending to reverse years of fiscal deficits. This has stabilized the economy and was key to slowing the inflation rate.
The acid test now is the economic recovery. There are signs that the economy is improving, but pressure on the currency has increased, and reserves have fallen in recent weeks.
Martín Guzmán, a former economy minister who opposes Milei, said the risk of a new agreement is that the funds will simply be used to offset the depreciation of the peso, which would eventually generate a larger debt burden.
"The positive aspect of a new agreement would be the refinancing of the IMF's own debt, which begins to mature in September 2026. The negative aspect is the additional debt," Guzmán, who as economy minister renegotiated a $44 billion agreement with the IMF in 2022 to replace a failed 2018 program, told Reuters.
He added that it is "very unlikely" that exchange controls will be lifted quickly, as some $9 billion in profits from multinational companies are being held back, which would put further pressure on the exchange rate and inflation.
However, Pablo Guidotti, former deputy minister of economy under Carlos Menem, a president from the 1990s whom Milei admires, said an agreement would provide greater clarity on the long-term exchange rate regime, boost market access, ease the debt burden over the next four years, and pave the way for the elimination of exchange controls.
"Ultimately, it will allow us to return to the capital market (...) It will have a very positive impact on the Argentine economy," he added.
