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Argentina said on Thursday it had agreed a $20bn loan deal with the IMF to replenish the country’s central bank reserves, in a key step forward for libertarian President Javier Milei’s economic plan.
Economy minister Luis Caputo said the deal still needed approval from the fund’s board, which could take several weeks, but that he had asked IMF director Kristalina Georgieva’s permission to announce the figure after uncertainty over the agreement prompted a sell-off of Argentine pesos over the past week.
“What we are aiming for with this agreement is that people can rest assured that pesos are backed by the central bank. That will give us a healthier currency,” Caputo said.
Milei is betting that a fresh loan from the IMF, to whom Argentina is already the world’s largest debtor with more than $40bn owed for a previous programme, will keep his revival of the troubled South American economy on track.
While he has slashed inflation and stabilised the economy, Milei has been unable to rebuild the scarce foreign exchange reserves he inherited, which he needs to prop up the peso, repay debts, weather external shocks and lift Argentina’s strict currency controls. IMF cash gives him firepower to do so.
Caputo said he was also negotiating an “additional package of freely available” funds with the World Bank, Inter-American Development Bank and the CAF, the Latin American development bank.
He said the central bank’s gross reserves, which include a loan from China and money backing consumers’ bank deposits, would rise from $26bn to $50bn after deals with the multilateral lenders. Excluding liabilities, reserves are currently about $6bn in the red.
The central bank was forced to sell more than $1bn in reserves in just six days in the past week to prop up the peso, after traders began a sell-off prompted by uncertainty around the loan.
As speculation rose about the IMF insisting on a devaluation as part of the deal, Caputo unnerved investors by telling local media its size was “not yet defined”.
The country’s parallel exchange rate, used by individuals and companies that cannot access the official rate, has taken a sharp downward turn since mid-March. The closely watched gap between the official and unofficial rate has widened to 18 per cent, up from 13 per cent in early March.
A larger gap puts more pressure on the government for an official devaluation, which could undo Milei’s progress on inflation and endanger his performance at crucial midterm elections in October.
Caputo’s announcement would “help to calm [pressures on the peso] a bit for now”, said Salvador Vitelli, head of research at Romano Group, a financial consultancy in Buenos Aires. But he said the greater impact would come when the IMF disburses the cash to Argentina.
Argentina’s US dollar bonds due in 2030 rose in price on Thursday by about half a cent to just under 75 cents on the dollar, or a yield of just over 7 per cent, against 12 per cent a year ago.
Analysts say part of any IMF funds will be used to roll over upcoming payments due on Argentina’s previous loan. It is not yet clear how much will be disbursed upfront or what conditions the IMF will attach to its use.
Still, the $20bn figure “seems like a significant amount, and will be useful for the government to show a more solvent central bank”, Vitelli said.
Additional reporting by Joseph Cotterill
https://www.ft.com/content/26a0fa78-9a70-4d28-be50-f40c63bea335
