What To Make of Argentina's Latest IMF Deal

(JUAN MABROMATA/AFP via Getty Images)

Aerial view of 9 de Julio Avenue in Buenos Aires, Argentina, is seen on April 10, 2025, during a 24-hour strike called by workers' unions against the economic policies of President Javier Milei.

In the short term, Argentina's new IMF deal will help reduce financial risks, enable the government to further liberalize capital account restrictions, and grant the country access to international capital markets next year, but the risk of renewed reform and policy slippage will increase in the run-up to the 2027 presidential election. On April 11, the International Monetary Fund (IMF) and Argentina agreed on a four-year financial package and program, known as an Extended Fund Facility (EFF). The deal will provide the South American country with $20 billion in net financing, with an immediate disbursement of $12 billion. It will also unlock additional multilateral financing, with the World Bank already announcing a $12 billion support package for Argentina and China agreeing to roll over existing central bank swap lines. In exchange for the IMF's financial support, Argentina committed to maintaining macroeconomic adjustment policies and continuing structural reform. Buenos Aires also agreed to switch from a crawling peg to an exchange rate band to facilitate the adjustment of the balance-of-payments.

Argentina's last IMF program, a 30-month EFF, expired in December 2024. Prior to the new agreement, the country owed the Fund $44 billion. Loan repayments, absent a new financial package, would have severely constrained Argentina's foreign exchange liquidity position.
On April 14, Argentina lifted most capital controls on individuals, while largely maintaining capital controls on companies. Per the new IMF agreement, the government also introduced an exchange rate band within which the Argentine peso is allowed to fluctuate to 1,000-1,400 per U.S. dollar. Following the widening of the exchange rate band, the peso fell 9%, which suggests that Argentina's former crawling peg regime had translated into an overvalued currency. The more flexible currency band, combined with much reduced intervention by Argentina's central bank, will help the market find the equilibrium exchange rate and facilitate the necessary balance-of-payments adjustment, which will, in turn, help shore up the central bank's foreign reserves over time.

Both sides were motivated to reach an agreement, given the IMF's large loans to Argentina and its eagerness to get repaid, and Argentina's need for additional financial assistance to support its ongoing structural reform efforts and macroeconomic adjustment push. Since taking office in December 2023, the administration of Argentine President Javier Milei has made significant strides toward macroeconomic adjustment. Its sweeping spending cuts have dramatically improved Argentina's primary fiscal balance (i.e., balance before interest), which grew from -2.8% of GDP in 2023 to 1.8% of GDP in 2024. This enabled the government to register an overall surplus in 2024, and the IMF projects another primary surplus of 1.3% of GDP for 2025, along with a balanced budget. The major progress the Milei government has made in terms of fiscal consolidation granted the IMF with both a financial and institutional motive to support Argentina, even if it meant extending even more credit to the country in the short term. This is because Argentina is now more likely to repay its IMF loans in the context of such strong policy discipline. Additionally, the IMF is institutionally mandated to support economic adjustment and reform in member countries that accept conditionality and are committed to reform, as the Argentine government currently appears to be. Meanwhile, the Milei government also had every interest in securing additional external financing and foreign exchange liquidity to alleviate its external debt service schedule and increase economic and investor confidence in the context of ongoing structural and macroeconomic reform.

All IMF programs since the presidency of Mauricio Macri (2015-19) failed to restore economic and financial stability in Argentina. This ultimately resulted in macroeconomic disequilibria, which forced Argentina to restructure its external debt in 2020. It also led to massive inflation in the run-up to the 2023 presidential elections, paving the way for Milei's victory after he ran on a campaign focused on sweeping economic reform.

The additional IMF financing will help support Argentina's continued macroeconomic adjustment and could grant it access to international capital markets next year. Despite recent improvements, Argentina's financial situation remains vulnerable. It will thus be crucial for the government to push forward with wide-ranging structural reform, including measures aimed at improving tax administration and the quality of revenue and spending, as well as those that seek to deregulate the electricity sector and boost product and labor market flexibility. Buenos Aires will also need to maintain very disciplined macroeconomic policies, including tight fiscal policies and a balanced budget, in the context of a further balance-of-payments adjustment to allow for the generation of greater foreign exchange liquidity. Reforms that can largely be implemented by the executive — including those related to the peso's exchange rate, monetary policy and capital account liberalization — will be easier to pursue compared with structural reforms that require congressional approval (e.g., changes to tax policy). In this context, the IMF expects Argentina to move toward further exchange rate flexibility and capital account liberalization, which is necessary to bolster investor confidence. If it does so, the Fund projects that Argentina will be able to access international capital markets in 2026, way before the IMF program expires in 2029. Once the Argentine government is able to access international markets at reasonable costs, the financing outlook for the entire country will then improve and enable Argentina to further liberalize its capital account and begin to wean itself off IMF financial support. This is the most likely scenario, as the Milei government's current commitment to economic reform suggests that, in the short term, the Argentine economy will continue to recover while inflation will remain at more manageable levels. However, in the lead-up to the 2027 presidential election, where Milei will likely run for another term, the government will be increasingly tempted to ease up on macroeconomic discipline to shore up public support by way of stimulative macro-policies. Whether and to what extent Milei caves to this temptation will largely depend on how well he is polling 18 months before the election. If this leads to policy slippage, investor confidence could weaken and Argentina's economic outlook could deteriorate. Buenos Aires' relations with the IMF would also sour, but with the Fund having already disbursed most of its new loan by then, it would have limited leverage to get the government back on track.

The IMF projects a strong economic recovery with real GDP growth reaching 5.5% this year and 4.5% next year, while inflation is set to fall to 18-23% and 10-15%, compared to average inflation of 120% in 2024.
In addition to this threat of weakening economic discipline ahead of the 2027 presidential election, Argentina's economic outlook also remains vulnerable to the global economic fallout from growing U.S. protectionism. The country faces greater foreign exchange liquidity constraints, and the indirect effect of U.S. tariffs on global economic growth and demand for commodities could threaten Argentinian export earnings. However, the direct negative effects of U.S. tariffs will be less significant, given Argentina's lesser reliance on exports to the United States (which account for less than 10% of its total exports) and lesser sensitivity to a decline in export revenues. Argentina is also set to face fewer U.S. trade restrictions, namely a 10% tariff, than most other countries.