The larger-than-expected IMF package will support Argentina's efforts to eliminate the peso peg in place since 2019.
Don't cry for Argentina just yet. The International Monetary Fund's new $20 billion loan for Argentina might seem like a sad continuation of decades of interventions that failed to stabilize the South American nation's economy.
But by dismantling strict controls on the official value of its currency, President Javier Milei opens the door to international trade just as crushing U.S. tariffs deteriorate global relations.
The larger-than-expected IMF package will support Argentina's efforts to eliminate the peso peg in place since 2019.
It was always a volatile endeavor: On Friday, the currency's official price closed at $1.074 per US dollar, but commonly used parallel exchange rates locally stood at $1.355.
By allowing the peso to fluctuate freely within a band that widens over time, Milei facilitates access to global markets, and investors are responding.
The gap between the two exchange rates narrowed to 5% from 26% last week, Argentine international bonds recovered, and the S&P Merval stock index rose.
This is a radical change for a country that often clashes with international financiers. A debt default in 2002 triggered years of disputes with investors, led by Paul Singer's Elliott Management.
Separately, a dispute over the 2012 expropriation of YPF, an oil and gas company, resulted in a US$16 billion U.S. court ruling in favor of Burford Capital, which is still pending.
The IMF ironically notes that the 2022 program "failed" to achieve its objectives.
Meanwhile, although inflation and poverty rates have decreased, they remain at 56% and 38%, respectively. However, Milei has time on her side.
As markets around the world recover from President Donald Trump's sweeping tariffs, Argentina remains relatively isolated, with trade with the United States representing less than 3% of GDP.
The country's large reserves of raw materials could tempt trading partners looking to reorient their supply chains.
The southern country, with the world's third-largest reserves of lithium, a crucial ingredient for batteries used in everything from cars to stabilizing power grids, could benefit from increased infrastructure spending.
About 85% of its $19 billion in soybean exports last year went to China, a boon if the People's Republic weans itself off U.S. supplies.
Some international investors are already showing their support. Hedge fund manager Stanley Druckenmiller told CNBC in 2024 that he was buying Argentine stocks.
Jay Newman, a former Elliott portfolio manager, has argued against Burford's ruling.
Milei maintains a close relationship with the Trump administration. This time, finally, it could be truly different.
CONTEXT
On April 11, the International Monetary Fund approved a $20 billion loan for Argentina to assist the central bank in its efforts to undo much of its monetary and capital controls, while the World Bank announced its own $12 billion support package.
According to the announced changes, the Argentine peso will now be traded within a gradually expanding range of between $1,000 and $1,400 per US dollar, moving away from the previous exchange rate, which allowed for a monthly depreciation of only 1%. The peso depreciated 10% on April 14.
