The International Monetary Fund soon extended its hand to the new president Javier Milei and granted this Wednesday a vital new disbursement so that Argentina can honor its commitments and not fall into default and a way to resurrect the program that had died. It is clear that the organization likes the new spirit and promises of the libertarian government and this was manifested in the complimentary tone of Washington’s statement.
There is strong support for the adjustment and the new targets for 2024 which are welcome in the organization led by Kristalina Georgieva. But that doesn’t mean there aren’t still doubts about what will happen. Today’s announcement is a lifeline that the Fund is quickly offering to weather the storm, but there will be no blank check. They want to see to believe.
History weighs on the Fund with two failed programs, the one in 2018 with Mauricio Macri and the one then reformulated with Alberto Fernández. The history of defaults is too much and the executive committee of the Fund is wary, especially because the years pass and Argentina has only refinanced the maturities and the macroeconomy, far from improving, has worsened.
Sergio Massa had started with a gradual adjustment and promises of change, but with the drought and the approaching elections of the ministerial candidate, the panorama has become explosive. The “Platita Plan” was a hard blow for the Fund because Massa did everything opposite to what was agreed. They’ve never seen anything like it, they swear in Washington. The negotiators had harsh words for him in the statement: they spoke of “serious setbacks” in the previous programme, which “deviated seriously”.
Milei’s arrival represented a new beginning for the Fund, but with more acute macroeconomic imbalances and greater distrust from the board. Beyond the libertarian proposals and the fact that Milei had promised an even more drastic fiscal adjustment than the one requested by the organization, Milei’s “pragmatic turn” was immediately liked, which deflated his idea ofdollarization and closure of the Central Bank , two initiatives that are making noise in the organization and in the White House.
Likewise, the government has seen its initial enthusiasm for the IMF curbed by a wave of reality: There were no fresh funds as Minister Luis Caputo wanted, The October deadline was paid in fits and starts with an emergency loan from CAF and there is now an outlay of $4.7 billion, but to avoid default and continue to pay the debt.
This is a patch to relaunch the battered program and Minister Luis Caputo took great care to highlight this detail. It has new, ambitious goals for the end of this year (2% of GDP fiscal surplus and $10 billion in reserves), but it’s the same program because establishing a new one would require approval from Congress, which is currently on fire . on other issues…
Similarly, a new program (Extended or Standby Facilities) could be negotiated in the coming months with more time and scope: the Fund needs to see a “precedents” and “previous actions”, That is to say, preventative measures have already been taken. You are tired of words and promises. And, also, that these initiatives enjoy political support when they pass Congress again.
“Argentina is the IMF’s largest debtor. This is a common challenge. But in the Fund they know that they are now negotiating with a government diametrically different from the previous one. It would be absurd that, after having been deceived by a government that promised what it repeatedly failed to deliver, they now push into default a government that intends to do more than what it asked of the previous one,” he said. Clarion Héctor Torres, former representative of Argentina before the organization.
As for the future, the former official underlines that “it depends on the outcome of this first legislative package”, i.e. on the massive DNU and the laws under discussion in Congress. “I think that in the short term it is easier to “rebuild” the program signed by the previous government and for the IMF to resume disbursements. Now, since IMF programs are actually government programs, which the IMF agrees to finance, one would expect that this government would want to have a new program, tailored to its times and objectives. At least until we can regain access to the capital market.”
For the expert what is perceived in Washington is “a “wait and see” attitude.. There is sympathy for the management, but also concern for governability and the government’s ability to implement measures in a socially acceptable way.”
The Government is in favour Today he has the firm support of the White House and also of the Treasury, key to any vote in the council, where Germany and Japan are the most reticent. The United States likes Milei’s alignment with Washington and Israel and the cooling of relations with China. An important signal was the visit to Buenos Aires of key Treasury official Jay Shambaugh, who months ago had suggested ending support for Argentina, and who this time welcomed the new president’s adjustment plan, even if he asked to maintain support for Argentina, the most vulnerable.
Source: Clarin
