IMF holds off on fresh Argentina loan despite praise for Javier Milei

The IMF has damped expectations of an imminent new loan for crisis-stricken Argentina, even as it praised its “better than expected” performance on economic targets under libertarian president Javier Milei.

The fund said on Monday that Argentina had met all the targets of its existing $43bn loan in the first quarter of 2024, and that it would release funds worth $800mn in line with the programme’s current schedule.

Argentina needs the money to pay the IMF back for borrowing by previous governments under the programme, which was originally worth $57bn when taken out in 2018. It was refinanced in 2022.

Milei, who has slashed Argentina’s fiscal deficit since taking office in December, said in a March interview that his government was “in a very strong position” to reach a new deal with the IMF. He added that he wanted to raise $15bn from external lenders to support his plan to remove Argentina’s strict capital controls, which economists say are a major barrier to growth.

Argentina’s finance secretary Pablo Quirno told the Financial Times that the government and the IMF had begun to discuss a new agreement in recent weeks.

“But we are speaking without urgency,” he said. “For once Argentina is not going to the Fund from a place of necessity . . . we are focused on proving that this government delivers on its promises.”

Analysts said the IMF was unlikely to approve extra funds for Argentina — which is already its largest debtor and has had 22 IMF loans since 1958 — until Milei can prove his reforms are sustainable. 

“A new agreement will come after 2025’s midterm elections, when a favourable result [for Milei] would act as a trampoline for him to implement the structural reforms the IMF supports,” said Sebastián Menescaldi, associate director of Argentina’s EcoGo consultancy.

Milei controls less than 15 per cent of seats in congress. He has so far relied on executive power to deliver Argentina’s first quarterly primary fiscal surplus since 2008, including by slashing social spending and suspending public works projects.

Last month Milei won lower house backing for his first pieces of legislation, a wide-ranging economic reform bill and a set of tax hikes. But tough battles are expected over both bills in the senate. 

Argentina’s economic crisis has deepened in recent months, with real wages and consumer spending tumbling. Powerful unions have staged increasingly frequent protests against the government.

The IMF predicts gross domestic product will shrink by 2.8 per cent in 2024.

Menescaldi said some of the government’s measures run counter to the IMF’s advice, including the central bank’s decision to set negative real interest rates, and a preferential exchange rate scheme for exporters. 

In its statement, the fund said the government’s “decisive implementation of their stabilisation plan [had] resulted in faster-than-anticipated progress in restoring macroeconomic stability”.

It added: “Progress continues in broadening the political and societal support for these efforts and in tackling vested interests.”

The $800mn disbursement still needs to be approved by the fund’s board.