Argentina’s USD20b Staff-Level Agreement with the IMF
Marina Gruzer | 1 May 2025
Summary
Since 2023, Argentina has made notable progress in reducing inflation and the fiscal deficit, prompting the IMF to approve a USD 20b 48-month Extended Fund Facility. An immediate USD 12 billion disbursement, along with support from the World Bank and IDB, provides critical short-term relief for foreign reserves and economic pressure.
However, Milei’s austerity-driven reforms—such as deep public sector cuts, reduced subsidies, and slashed public investment—have increased unemployment and poverty to 53%. These conditions and President Javier Milei’s weak legislative position pose major social and economic risks.
While the IMF-backed program aims to enhance Argentina’s long-term competitiveness and market orientation, reliance on a volatile peso and exposure to external shocks—especially in the context of US-China trade tensions—may erode investor confidence and escalate local market instability.
Since Argentina’s President Javier Milei assumed office in December 2023, the country has undergone radical economic reform. Following Milei’s ambitious policies to regain control over the fiscal deficit, reduce inflation and stabilise the exchange rate, the IMF Executive Board approved a 48-month Extended Fund Facility (EFF) arrangement totaling an estimated USD 20b. Inflation fell to 117.8% from 211.4% a year after Milei assumed presidency. However, Argentina’s strict austerity measures also render the country vulnerable to external shocks, with public confidence in the peso remaining low. Within Milei’s first year in office, 30,000 government jobs were eliminated through budget cuts, funding for universities and public works was reduced and poverty surged to nearly 53% ’ compared to 42% in the year prior. While the immediate USD 12b IMF disbursement may alleviate short-term foreign currency reserve and default risk pressure, Argentina’s long-term reliance on the US dollar and political obstacles will make it difficult to overcome broader economic fragility.
The USD 12b disbursement is a key short-term implication that will aid Argentina in its structural reform to facilitate an open market-oriented economy and flexible exchange rate via continued deregulation initiatives. Furthermore, it has catalysed other planned disbursements, including USD 12b from the World Bank and USD 10b from the Inter-American Development Bank. This support is crucial to Argentina’s efforts to overcome falling foreign currency reserves and reduce default risks. The external debt in Argentina was 43.6% of GDP in 2024, higher than Latin America’s average of 35%, with USD 40b owed to the IMF as of April 2025. In terms of foreign exchange reserves, Argentina’s reserves fell to USD 22.75b in January from USD 24.38b in December of 2024. However, the IMF program’s support for Argentine central bank exchange rate flexibility, which now allows the peso to fluctuate freely between 1,000 and 1,400 pesos per dollar, risks worsening currency devaluation and inflation.
Furthermore, the risks arising from the programme’s implementation will likely be elevated by the country’s fragile social conditions, such as the high levels of poverty. This can be seen in the general strikes, affecting sectors such as transport, carried out by labour unions advocating for low-income workers across the country since the introduction of Milei’s strict austerity measures. Furthermore, large-scale weekly protests, in response to the government’s pension cuts, have turned increasingly violent. Additionally, the weak congressional representation of Milei’s La Libertad Avanza (LLA) coalition party and the political obstacles posed by the upcoming midterm elections are likely to make the implementation of successful policies more challenging. Currently, the LLA holds 38 seats out of 257 in the Chamber of Deputies and 7 out of 72 seats in the Senate. Consequently, not only will inflation risks likely be intensified by existing economic fragility, but the political limitations could also make policy implementation and any contingency planning intended to limit those risks less effective.
Vox España, CC-BY 1.0
Forecast
Short-term (Now - 3 months)
The fresh support from the IMF and other organisations has a realistic possibility to bolster the economy and alleviate some of the deregulation reform risks and economic pressure. However, a floating exchange rate likely risks greater peso devaluation and limited FDI confidence.
Medium-term (3-12 months)
With the peso’s future remaining uncertain, even with new FX flexibility, local market volatility is highly likely, especially in light of the upcoming midterm elections.
Long-term (>1 year)
Argentina remains highly exposed to external shocks including global trade fluctuations and continued capital outflows, foreign investor confidence is highly unlikely to improve significantly.
