A new IMF deal would improve Argentina’s short- and medium-term economic and financial outlook in the face of limited international financial market access and negative foreign exchange reserves, and open the door to the lifting of capital controls. On March 11, the Argentinian government issued a presidential decree allowing it to enter an agreement with the International Monetary Fund, or IMF, on a new adjustment program to replace the one that expired in December 2024. The Argentinian government and the IMF have been working on a new stand-by agreement to support Argentina’s economic and financial reform in the past few months, following the expiry of the previous arrangement. In 2021, Argentina passed a law that requires the government to put any IMF program to a vote for approval in the legislature. Concerned that opposition lawmakers might vote against a new program, the administration of Argentine President Javier Milei instead decided to issue an executive order, which can only be overruled by a two-thirds majority in Congress -- thereby minimizing the risk of any IMF deal being held up by the legislature.
> Argentina’s previous IMF program, which was approved by the legislature, was signed in 2022 and expired at the end of 2024. The program provided $44 billion in gross financing, but it failed to help Argentina overcome its chronic macroeconomic imbalances.
Argentina is seeking to secure a new IMF deal as it faces significant external financing requirements and limited access to international capital markets. Argentina has large external debt repayments coming due starting in 2025, as well as substantial repayments of dollar-denominated domestic debt. Its central bank’s usable foreign currency reserves are also much smaller than the $28 billion foreign currency assets it has sitting on its balance sheet. The IMF estimates Argentina’s total external debt service stands at $12.8 billion, but this does not include the servicing of domestic dollar-denominated or -indexed debt, such as the liabilities of the central government vis-a-vis the central bank. Foreign currency bond repayments, meaning debt service excluding bilateral and multilateral creditors, will amount to $9 billion in 2025, in addition to another $5 billion in payments by Argentina’s provinces and the central bank. At the same time, the IMF wants to ensure that Buenos Aires can repay the large debts it owes to the institution. The Fund also wants to support the Milei government’s significant efforts to stabilize and reform the Argentinian economy, including a massive fiscal adjustment that has helped reduce inflation. However, the government’s exchange rate policy, which is aimed at limiting and reducing inflation until Argentina’s October legislative elections, has likely become a point of contention in negotiations on a new IMF program. A combination of continued elevated inflation and slow currency depreciation has translated into an overvalued exchange rate that limits Argentina’s ability to earn the foreign currency necessary to service its external debt. The IMF is skeptical that this approach is sustainable and will be reluctant to provide financing in the context of significant external financing requirements and significant concerns about the sustainability of the current exchange rate policy and large external financing needs without Argentina firmly committing to devaluing its currency and shifting toward more flexible exchange rate management. But the government remains reluctant to adjust the exchange rate for fear of increasing inflation before the elections. Nonetheless, Buenos Aires and the IMF will likely ultimately reach a compromise on the issue, as both sides are keen to reach an agreement.
> President Milei came to office in December 2023 and has since implemented a forceful fiscal adjustment and broader structural reforms. As a result of these policies, Argentina’s inflation rate fell from 26% month-on-month in December 2023 to 2.2% in January 2025. However, the government has allowed the real exchange rate to appreciate in the context of still-rising consumer prices (albeit at a much slower rate) and a slowly depreciating nominal exchange rate, as Buenos Aires tries to limit domestic price pressure and increase economic confidence ahead of the October elections.
> As of January 2025, the central bank’s gross foreign reserves stood at $23 billion, down from $38 billion in January 2023. However, net usable reserves were much lower, which is what puts the current exchange rate policy regime at risk, as a weak central bank balance sheet would lead to a substantial depreciation and reignite concerns about inflation, at least in the short term, while maintaining the current policy that translates into an overvalued exchange rate will not be sustainable in the longer term.
An agreement would greatly improve Argentina’s near- and medium-term external financing outlook and make it easier for Buenos Aires to lift capital controls. Milei’s decision to issue the decree indicates his administration may be close to reaching a new agreement with the Fund, which would make Argentina’s near- and medium-term financial risks much more manageable, even if the risk of a significant currency adjustment before the end of the year will remain high. While neither the exact loan amount nor the IMF’s demands regarding Argentina’s exchange rate policy are currently known, Reuters reported that the financing modalities of the new program involve a repayment period for IMF loans of 10 years, including a grace period of 4.5 years. This grace period would help Argentina reduce short-term external financing needs. Argentina’s treasury would then use any IMF disbursements before the end of the grace period to repay its dollar liabilities with the central bank, thus helping to strengthen the bank’s international liquidity position, which is highly desirable in case the IMF insists on exchange rate flexibility. A new IMF program would likely also unlock further funding from other international financial institutions, and would improve the prospect of Argentina tapping international bond markets or receiving more favorable conditions from international banks willing to refinance parts of Argentina’s external debt. Moreover, an IMF deal would open the door to the lifting of capital controls. The Milei administration remains keen on lifting these controls to attract moreforeign investment, but it is also mindful of the subsequent risk of greater capital outflows and theimpact this would have on the peso’s value andArgentina's confidence in the currency, thereby heightening inflationary pressures. A new IMF program would help mitigate these risks by shoring up investor confidence in the peso and ensuring Argentina’s central bank can prevent an overshooting of the exchange rate to the downside.
> Removing capital controls will require the Milei administration to devalue the Argentine peso; otherwise, an overvalued exchange would lead to massive foreign exchange losses and a sharp depreciation of the exchange rate once residents can freely sell pesos for U.S. dollars.
> Argentina owes the IMF $44 billion, which adds to the country’s external financing requirements in the context of limited international financial market access and low levels of central bank foreign exchange rate reserves. The grace period in the new program would help push out IMF loan amortization and, in turn, improve the country’s short- and medium-term external financial outlook.
> Any IMF loans that Argentina receives over the next 4.5 years will help improve Argentina’s international liquidity position and the central bank’s foreign exchange position. Refinancing IMF loans is also key to further adjusting Argentina’s foreign exchange and capital control policies.