The International Monetary Fund (IMF) has announced that it has reached a staff-level agreement with the Argentine government regarding the first review of the program established in April. The lender’s board is scheduled to convene in late July to provide final approval for the review, a decision that would facilitate a US$2 billion disbursement. Just two days after the fund released a critical analysis of the country’s international reserve coverage, news of the agreement emerged. “The program has had a strong start despite a more challenging external backdrop,” a statement from the Fund released on Thursday noted. “Disinflation and growth have continued, poverty has fallen further, and Argentina has re-entered international capital markets ahead of schedule.”
On April 11, the IMF’s Executive Board gave the green light to a US$20 billion Extended Fund Facility (EFF) arrangement for Argentina. Subsequently, the government took steps to partially lift the foreign currency controls referred to as the “cepo” and transitioned its exchange rate regime from a fixed monthly depreciation of 1% for the peso to a currency band scheme. The Central Bank’s new strategy enables it to engage in the buying or selling of dollars to maintain the peso’s “floating” status within a range of AR$1,000 to AR$1,400.
The fund’s statement indicated that the policy changes “have proceeded smoothly.” “The official exchange rate has remained around the midpoint of the band,” the fund added. On Thursday, the wholesale exchange rate stood at AR$1,262 per dollar. This month, the exchange rate exhibited an upward trend, driven by escalating political tensions. This follows the Senate’s approval of several bills that the government opposes on fiscal grounds, alongside a new setback in the YPF expropriation trial in New York. The rate increased, even in light of the significant rise in interest rates that the Treasury approved during last week’s tender. The fund’s statement emphasized that the government is set to implement policies focused on “safeguarding achievement of the fiscal anchor, rebuilding reserve buffers, durably reducing inflation, and continuing to enhance the clarity and functioning of the monetary framework.” The fund stated that the Milei administration plans to implement additional measures to “create a more open, resilient, and market-based economy.”
The International Monetary Fund (IMF) issued a warning regarding the vulnerabilities of Argentina’s international reserves in its External Sector Report released on Tuesday. According to media reports, the Argentine government sought a waiver from the Fund; however, a source within the Economy Ministry refuted this claim. A spokesperson for the IMF has yet to respond to a request for comment from the Herald. The fund’s report indicated that net international reserves “rose by $6 billion during 2024,” but noted that accumulation has been “more challenging since mid-2024.” “Reserve coverage remains inadequate,” the document stated. On Thursday, Julie Kozack, the fund’s spokeswoman, stated that the lender and Argentina’s government acknowledge the “recognition of the need to continue to build buffers against external risks.”
In a daily update released on Thursday, the Central Bank reported that gross international reserves stand at US$40.43 billion. According to the Ecolatina consultancy, net reserves are nearing US$1 billion. The government has opted against purchasing U.S. dollars when the exchange rate exceeds the currency band’s floor of AR$1,000, despite having the authorization to proceed with such transactions. In a strategic move, the Treasury has begun purchasing reserves to achieve the objectives of the program. “Early efforts are essential to rebuild reserves, while allowing for greater price discovery and FX (foreign exchange) purchases to meet FX debt service obligations,” stated the fund’s External Sector Report.