Argentina approves plan to receive $4.7B in economic aid from IMF

Jan. 11 (UPI) -- The International Monetary Fund reached a tentative agreement with Argentina to provide $4.7 billion to help the South American nation climb out of a stubborn financial crisis.

A team from the IMF visited Buenos Aires on Wednesday for a seventh review of Argentina's finances in the organization's first meeting with new Argentine President Javier Milei, a far-right populist whose administration took the helm just one month ago.

The sides agreed to improve a set of plans to stabilize the country's economy following earlier efforts that went off course as the previous government, led by Alberto Fernandez, struggled to implement effective policies to deal with high inflation and massive national debt.

Milei is in the process of simplifying the country's economic structure in an effort to fix pricing issues, manage deficits, and strengthen the central bank, while increasing support for vulnerable populations.

During the meeting, Milei's administration "reached understandings" with IMF officials on a set of economic policies that can restore stability in Argentina and put the economy "back on track."

The agreement is contingent on the ongoing and sustainable execution of the new policies and will be presented for approval by the IMF Executive Board in the coming weeks.

When the review concludes, Argentina will gain access to approximately $4.7 billion in aid to shore up the economy.

The funds are intended to support Milei's policy efforts to boost fiscal stability, restore confidence, and keep the economy afloat amid a deeply challenging post-pandemic recovery.

Under the newest economic plan, the government aims to secure a 2% GDP primary surplus this year through a combination of revenue and expenditure measures, with temporary support from increased trade-related taxes and gains in agriculture production.

The plan also includes expenditure cuts, targeting administrative costs, subsidies, and infrastructure spending.

Previously, the Fernandez government relied too much on the central bank for funding, weakening the country's economic standing on the world stage as it passed on costs to importers.

The haphazard arrangement contributed to a major decline in real wages, while 45% or the population was estimated to be living in poverty.

"The new administration inherited an exceptionally challenging economic and social situation, with rising macroeconomic imbalances primarily reflecting inconsistent and expansionary policies, especially during the final quarters of last year," the IMF said.

The statement from the global economic watchdog called attention to 12.8% inflation in Argentina in November amid depleted reserves and an overvalued currency with an enormous federal exchange rate.

Despite the rocky climb to stability, recent actions have prevented the crisis from worsening.

Notably, the central bank made foreign purchases totaling more than $3.6 billion in the past month, while a number of Argentine corporations had gained access to international markets.

However, the removal of price controls and other inflationary adjustments were expected to initially cause inflation to rise some, and cause a noticeable contraction in economic activity.

But as newly implemented policies restore credibility, inflation should taper down, coupled with improved supply and demand, as well as enhanced salaries, while policymakers were prepared to adjust the plan as necessary to achieve Milei's objectives.