Buenos Aires: Argentina sealed an agreement of $ 20 billion and 48 months of prolonged funds with the international monetary fund on Friday and, in a major political decision before the agreement, unobstructed key parts of its currency controls and withdrew its grip on the peso.
The IMF will pay $ 12 billion next Tuesday, while $ 2 billion will be available by June.
The agreement is expected to help Argentina “catalyze additional multilateral and bilateral support, and a rapid reacting to international capital markets,” the IMF.
“The key pillars of the program include maintaining a strong tax anchor, in transition to a more robust monetary and FX regime, with greater exchange rate flexibility,” he added in a press release.
Earlier, the central bank of the South American nation announced that it would cancel a fixed currency ankle from Monday, leaving the Peso ARS = fluctuating freely in a moving strip between 1,000 and 1,400 pesos per dollar, against 1,074 at the fence.
Argentina will eliminate the main parts of the so-called “CEPO” capital controls which have limited access to foreign currencies, the central bank said in a statement.
Companies, from this year, will also be able to repatriate the country’s profits, a key demand from companies that could unlock more investment.
“Monday, we will be able to end the exchange restrictions that were imposed in 2019 and which limit the normal operation of the economy,” said the Ministry of the Economy, Luis Caputo at a press conference.
Libertarian president Javier Milei addressed the nation in a television speech on Friday evening and said that Argentina was “in a better position than ever to resist external turbulence”.
However, an IMF staff report on the $ 20 billion agreement warned that “downward risks remain high”, because the implementation of the program could be challenged by increasing global trade tensions and, at the national level, by volatility added by the next electoral cycle and fragile social conditions.
‘It’s a devaluation’
The new exchange rate system could allow the Peso to weaken almost a third if the currency had to strike the lowest edge of the band, although the central bank probably has tools to intervene. The group will extend 1% per month, said the bank.
The political decision was before the top of the final IMF in terms of the 23rd program in a long and marbled history between the cereal producer nation and the lender based in Washington.
The FMI agreement will be used to recapitalize the Central Bank of Argentina and the government expects them to help inaugurate a healthier currency, reduce inflation and allow tax reductions, said Caputo.
Other multi -year disbursements have also been announced, including $ 12 billion from the World Bank and $ 10 billion from the Inter -American Development Bank.
Argentina needs financial firepower to strengthen exhausted currency reserves that are in red on a net basis and have dropped in recent weeks, in the middle of sticky inflation and a country risk index that has started to increase.
Funds are also essential to unlock currency controls, which will likely encourage a period of volatility from the local market already aroused by the international tariff war between the United States and its business partners.
“This is a devaluation, which is rather against what the government would have intended to go calmly to the elections,” said economist Ricardo Delgado, referring to the legislative elections halfway through later in the year.
“It is a little surprising that at that time of global volatility, the controls were lifted,” he added.