The International Monetary Fund (IMF) granted Argentina a waiver and lowered its net international reserve accumulation target in the first review of the program signed in April.
The lender published its staff report on Friday, one day after its board approved the program’s first review and a US$2 billion disbursement.
Argentina’s Central Bank has not purchased reserves since the new deal was approved for fear of weakening the peso. The report stated that Argentina missed its mid-June target for net international reserves accumulation because it preferred “greater price discovery and continued disinflation.” It added that the government has taken corrective measures, like placing debt and buying U.S. dollars via the Treasury, reaching around US$5 billion since the end of May.
In the original agreement, Argentina had to add US$4 billion to its reserves by September 30 and US$8 billion before the end of the year. The September accumulation target has now been eliminated, and the Central Bank will have to accumulate US$5 billion by December.
In a letter dated July 24 to the Fund’s managing director, Kristalina Georgieva, Economy Minister Luis Caputo and Central Bank head Santiago Bausili requested a waiver and a modification of the target.
They also asked for a “slight rephasing” of the program’s dates, the approval of remaining exchange restrictions, and a “multiple currency practice.” While most currency controls have been eliminated, restrictions are still in place for settling company debts and transferring dividends from profits generated before 2025. Furthermore, credit card users who are not resident in Argentina cannot buy dollars through the foreign exchange market.
The staff granted all requests, “given the program performance so far and the new policy commitments going forward.”
In April, the IMF’s board approved Argentina’s current program, a US$20 billion Extended Fund Facility arrangement, which included an immediate disbursement of approximately US$12 billion. The remaining disbursements are made every three months, on the condition that the country meets certain targets.
“The new Fund-supported program has had a strong start,” read the staff report, mentioning “appropriately tight fiscal and monetary policies,” the “more flexible exchange rate regime and the easing of most foreign exchange restrictions.”
As part of the agreement, the country adopted a currency band scheme. The dollar is allowed to float between two values, originally AR$1,000 and AR$1,400. The Central Bank intervenes to buy or sell dollars if it reaches these limits. The government also partially eliminated the all-encompassing currency exchange controls known as the cepo (Spanish for clamp).
The staff report also mentioned that “inflation and inflation expectations are firmly on a downward trajectory” and that the exchange rate has fluctuated around the midpoint of a widening band. However, the day the board approved the last disbursement, the exchange rate reached AR$1,380, an all-time high.
The report, however, made some criticisms. “That said, reserve buffers are taking longer to rebuild, amid a widening of the current account deficit, given strong domestic demand and a sharp easing of import restrictions,” it read.
October’s mid-term legislative elections, it noted, could “add to market volatility” — but it added that the risk “should remain well contained given the strength of the underlying fundamentals and commitment to the fiscal anchor.”
Bills recently passed by the opposition to boost pensions and disability benefits, as well as transfers to provinces, were described as “costly.”
“President Milei has declared that he would veto these initiatives to preserve the fiscal anchor and macroeconomic stability gains,” the report said. “Moreover, in the event the veto is overturned by a two-thirds majority in both houses of Congress, the administration plans to challenge these initiatives via court litigations.”