Caputo indicates that Argentina’s recent agreement with the IMF encompasses a financial package of US$20 billion. Argentina is set to secure US$20 billion in new funding from the International Monetary Fund (IMF), according to Economy Minister Luis Caputo, as part of an updated financing initiative.
At an insurance industry event on Thursday, Caputo confirmed that the administration of President Javier Milei is engaged in discussions with the World Bank, the CAF Latin American development bank, and the Inter-American Development Bank regarding supplementary financing options. The minister asserted that the total funds requested would elevate Argentina’s Central Bank gross reserves to US$50 billion, a benchmark not reached in decades.
Caputo’s statements, made fittingly at the Buenos Aires Stock Exchange, sought to stabilize financial markets. Last week, a significant run on the peso resulted in a depletion of reserves exceeding US$1.2 billion. Over the past six months, the peso has depreciated approximately 10 percent relative to the US dollar. Argentina’s economy minister disclosed that in a conversation with IMF Managing Director Kristalina Georgieva on Wednesday, he sought her approval to reveal the amount of new funding being contemplated.
According to Caputo, the decision was reached as a conclusive agreement may still require “several weeks” to finalize. The minister indicated that the IMF loan would “not be utilized for financing expenses” but rather allocated for the recapitalization of the Argentine Central Bank. Argentina has consistently defaulted in recent decades, resulting in limited avenues for securing loans in international markets. Caputo stated that the amalgamation of the IDB, the World Bank, and CAF will result in approximately US$50 billion in gross reserves at the Central Bank. The money supply stands at US$25 billion when evaluated at the official exchange rate, while it is US$20 billion at the free exchange rate. Consequently, we will possess reserves exceeding twice the amount of the money supply,” he added. He asserted that the current level of reserves is unprecedented, surpassing even the period of convertibility in the 1990s, and additionally, it is accompanied by a fiscal surplus. “While I am unable to disclose specifics regarding the remainder of the agreement, I deemed it essential to clarify the financial figures involved and the implications of the new arrangement,” Caputo stated.
The minister indicated that the acquisition of short-term non-transferable bonds, which the Treasury will procure from the Central Bank using funds received from the IMF, will occur “at market value.” He estimated that this approach will lead to a reduction in the gross debt margin. The recent agreement is expected to lower Argentina’s country risk rating, as monitored by JP Morgan, thereby facilitating the nation’s re-entry into the markets to secure refinancing for impending maturities.
Shortly after Caputo’s comments, during a press conference in Washington DC, IMF Spokesperson Julie Kozack refrained from verifying the US$20-billion figure, instead stating that the new programme would be “sizeable.” During a press conference, Kozack stated that “discussions regarding a new Fund-supported programme are progressing well” and that its magnitude “will ultimately be decided by our executive board.” The spokesperson for the IMF indicated a collective acknowledgment of the necessity to maintain a coherent framework of fiscal, monetary, and exchange rate policies, alongside the promotion of reforms that enhance growth.
Kozack indicated that the disbursements will occur in tranches throughout the duration of the programme. Nonetheless, the precise timing and magnitude of each disbursement remain subjects of active deliberation. In commending the Milei administration, she emphasized that “Argentina has initiated a remarkably effective stabilization program, showcasing the nation’s resolve to steer the economy towards a more sustainable trajectory.” Kozack noted that “following the conclusion of 2023, inflation in Argentina has decreased due to significant fiscal consolidation and efforts to rectify the Central Bank’s balance sheet.” She noted that “economic activity is recovering robustly, real wages are on the rise, and poverty is on the decline,” she stated.
Argentina is pursuing a new financing arrangement to substitute its existing US$44-billion extended fund facilities agreement, which has become inactive. The debt was first incurred by the administration of former president Mauricio Macri in 2018, as a component of a US$57-billion arrangement established during the initial term of United States President Donald Trump. The agreement, initially renegotiated by Macri’s successor, former president Alberto Fernández, subsequently deteriorated a few years later.
Following his inauguration in December 2023, President Javier Milei expressed an intention to revisit the existing agreement and, in turn, pursue supplementary financing aimed at assisting Argentina in dismantling the ‘cepo,’ a series of intricate regulations that restrict access to foreign currency. Discussions regarding a new financing program for Argentina have reached a “advanced” stage, as indicated by IMF officials, although an official timeline has yet to be established. President Milei indicated in remarks to the Bloomberg Línea website last week that a conclusive agreement might be achieved by “mid-April.”
This week, staff and board members of the IMF convened to evaluate the specifics of the new program. A technical team, under the leadership of Luis Cubeddu, provided the board with an update on the current status of the discussions, according to a source within the lending institution. The technical team of the IMF is currently engaged in consultations with the Executive Board. Discussions regarding a new programme backed by the Fund are progressing and occurring within the parameters of our standard internal procedures,” a representative from the organization informed the Noticias Argentinas news agency on Tuesday.
The meeting occurred against the backdrop of a renewed increase in the parallel exchange rate, as the unofficial “dólar blue” approached 1,300 pesos per dollar by midweek. Recently, President Milei’s executive decree permitting additional borrowing from the IMF received the endorsement of the Chamber of Deputies. The specifics regarding the quantum of new funds at stake were not disclosed ahead of the legislative vote. The recent briefing of the IMF’s board suggests that a deal is on the horizon. It additionally functions to assess the stances of pivotal G7 member nations. Germany and Japan generally exhibit a more rigorous approach, whereas the United States retains veto authority with a 16 percent voting share, granting it significant influence.
Despite Congress approving a decade-long loan featuring a grace period of four years and six months, alongside an interest rate of 5.63 percent last week, the government faces an urgent timeline to finalize an agreement for an extended fund facility. Argentina aims to finalize the requisite documentation and secure board approval prior to the IMF’s spring meetings scheduled for April 21-22 in Washington. This would provide officials with greater flexibility in their negotiations with investors. The conditions under which the IMF will consider increasing its exposure to Argentina, currently the Fund’s largest debtor, remain uncertain.
A significant point of contention is the skepticism of the IMF regarding regulations on foreign exchange and the practice of currency intervention. Argentina seeks to establish a framework wherein the Central Bank intervenes solely when the exchange rate breaches predetermined thresholds; in the absence of such fluctuations, the currency would be permitted to float unimpeded. Analysts suggest that the limits may be incrementally broadened on a monthly schedule, thereby progressively enlarging the floating range. This introduces an additional difficulty in managing exchange rate volatility and its effects on inflationary pressures.