Wall Street predicts the IMF may provide Argentina with up to $20 billion, aiding President Milei’s austerity efforts. Banks foresee disbursements between $5 billion and $10 billion in 2025. Investors are focused on the government’s planned use of funds and the dismantling of fiscal controls. Negotiations for this third IMF program are nearing completion, essential for stabilizing Argentina’s economy.
Wall Street anticipates that the International Monetary Fund (IMF) will extend a loan to Argentina, potentially as high as $20 billion, supporting President Javier Milei’s austerity measures. Financial institutions such as UBS, Morgan Stanley, and Bank of America estimate disbursements could range from $5 billion to $10 billion for the year 2025. Notably, Argentina is not obligated to repay the principal on its prior IMF loan until next year, which could enhance the central bank’s reserves, facilitating the lifting of currency and capital controls.
Investors are closely monitoring the Milei administration’s strategies for utilizing these funds and the timeline for dismantling existing controls. President Milei has expressed intentions to use the IMF financing to reduce the treasury’s debt to the central bank, aiming to bolster the monetary authority’s financial health. Alejo Czerwonko of UBS remarked, “There is potential for positive surprises in the deal’s magnitude and timing of disbursements,” indicating expectations for significant funding support during Milei’s term.
Negotiations for the new IMF program are reportedly in the final stages, with Milei recently indicating a forthcoming request for IMF assistance during a congressional address. This forthcoming program would initiate Argentina’s third engagement with the IMF since 2018, following two previous agreements that failed to stabilize the country’s volatile economy. Despite its underperformance in emerging markets this year, Argentina’s sovereign bonds experienced a rally after Milei’s remarks to Congress, with benchmark notes due in 2035 trading around 65 cents on the dollar.
Analysts from Bank of America suggest that the market may be undervaluing the likelihood of Argentina committing to further fiscal consolidation as part of its agreement with the IMF. The existing $44 billion aid program will conclude at the end of 2024, with principal repayments to the IMF starting in September 2026. Thus, the Milei administration is motivated to finalize a new IMF agreement promptly. Following the decision to discontinue finalizing the previous administration’s deal, the IMF indicated in December that discussions on new funding were underway, essential for Argentina’s reintegration into international capital markets after a sovereign debt default in 2020, the ninth in its history.
In summary, Wall Street projects that a new IMF loan for Argentina could reach $20 billion, reaffirming support for President Milei’s stringent economic reforms. Investors are keenly observing how these funds will be allocated, particularly regarding debt reduction. The upcoming negotiations with the IMF aim to address Argentina’s economic instability, paving the way for the country to re-enter international financial markets, emphasizing the importance of fiscal discipline and economic recovery strategies.
Original Source: www.bnnbloomberg.ca
