After the Chamber of Deputies approved the Decree of Necessity and Urgency (DNU) with which the government of Javier Milei unilaterally approved the new debt with the International Monetary Fund (IMF), many questions have arisen and few things are certain.
Whether this new agreement will benefit Argentina is the main question. From there, other doubts have arisen and focus on the conditions the IMF will require from the Libertarian government to repay the new loan, which, as confirmed this Thursday by Economy Minister Luis Caputo, will be for USD 20 billion.
However, serious rumors of devaluation are also looming on the horizon. The fact that the blue dollar (unofficial currency swap) has broken through the 1,300 peso ceiling is one of the clearest signs.
To this end, two economists consulted by ARG Medios attempt to take a snapshot of the country’s economic and financial situation in the midst of a hectic election year.
Francisco Cantamutto, an economist at the Tricontinental Institute, believes the most problematic aspect of reaching a new agreement with the Fund is that it would be done “without any technical review” and would thus resemble a “political agreement”. This is similar to what happened in 2018, under the administration of Mauricio Macri.
“Although we don’t know the details, the IMF always calls for fiscal adjustment. This is true even if a fiscal surplus is achieved,” he says, explaining the example of when Néstor Kirchner’s government achieved a surplus, yet the Fund still demanded further adjustment.
On the other hand, Cantamutto maintains that if it is an extended facilities agreement, “structural reforms may be required.” There, the top priority is “pension reform and labor reform, in addition to pending privatizations of some assets.”
Those priorities of the Basic Law were ultimately subject to negotiation, and the government had to remove certain points. All of this “would have a high cost for Argentina” because “it will increase the debt at a higher rate,” explains the economist.
Meanwhile, Facundo Barrera – economist and researcher at CONICET – believes it’s important to emphasize why the government reached this state of desperation for fresh dollars, which led it to knock on the IMF’s doors again.
“We’ve been seeing the Central Bank sell reserves for several weeks. There are several reasons: on the one hand, there’s the shrinking dollar supply left by the trade surplus, that is, a greater amount of imports compared to exports,” Barrera explains. “On the other hand, there’s an expectation of devaluation. This means that local players – such as banks, large companies, and financial institutions – who had previously exchanged dollars for pesos to invest in bonds are now beginning to see that a devaluation would generate a cost if they continue holding onto pesos. Therefore, they’re exchanging them back into dollars. This puts pressure on reserves,” the professional explains.
This is something that his counterpart, Cantamutto, seems to agree with, when he considers that “the difficulty of the Argentine economy is not the generation of dollars, but rather “retaining the dollars generated”, a topic that is developed in greater depth in the book Exporting more is not enough, which the economist published together with Martín Schorr and Andrés Wainer.
Furthermore, for the expert, “neither imports nor money laundering have succeeded in retaining them,” so he is skeptical that a new agreement with the IMF could change the situation. “A new loan would not prevent a devaluation. If anything, it would allow it to be managed or delayed over time,” he believes.
Along these lines, Cantamutto adds that it’s important to emphasize that the new IMF loan “does not serve to clean up the Central Bank or reduce the country’s debt.”
A third economist completes the picture and has a similar view regarding the risk of further indebtedness for the country. But above all, on the terms that Javier Milei’s government is pursuing, with none other than the IMF.
“The agreement implies a devaluation that they’re going to call exchange rate liberalization. This will generate a correction in the official exchange rate. This will have consequences for inflation. Moreover, financial operations tied to carry trade are being dismantled, and the government, despite trying to sell an agreement that will generate solidity, will receive little real fresh money,” says Alexis Dritsos, an economist with the Socialist Party.
All of this, of course, leads to the question of the social costs that more debt and further adjustment could entail. For Dristos, if the analysis goes as planned, “it’s hard to believe that a run like the one that happened to Macri in 2018 won’t slip through the net.”
Meanwhile, Barrera maintains that “a devaluation would generate an acceleration in prices” and inflation – the only crux of the Libertarian administration’s economic achievements so far – would collapse.
None of the economists consulted by ARG Medios can accurately determine whether the agreement will succeed in stemming a financial earthquake before or after the legislative elections scheduled for October of this year. But all agree that the path of increased debt will lead to a new devaluation, which will have a direct impact on the working class.
This article was initially published in Spanish by ARG Medios.
