Argentina and the IMF: Can This Marriage Be Saved?

[Silvia]

How can all of you Milei fans be so sure he is doing the correct things? He is doing the same disastrous things that the same exact team did before. Borrow borrow borrow billions. He said it was wrong to interfere with exchange rate floating free. He said he was against state intervention and they keep doing it. How will this not blow up like before?

He risks the country's gold sending it outside of Argentina. How stupid can he be? Now we probably lose that gold. Everyone said it was mistake for Macri to borrow billions from IMF. How is it right now? I want to understand why you think it good now?

Argentina already at negative net reserve and now it get worse. I confused. Why you happy for this?

I am against what the government is doing going more into debt. I can't figure out what the government is going to do with this $10+ billion it is trying to get. I understand Milei is limited in what he can do but I don't understand why this time it will work when last time it did not.

It seems obvious they will use the money to continue to control the peso. I thought this was not allowed with IMF but now it seems they will let him. Caputo had to quit before when he had the same position. IMF said not to manipulate the peso but he is still doing it.

I can't understand why so many are so happy with Milei when he is making the same mistakes as before. It should be against the Libertarian philosophy.

 

[Problema]

I am against what the government is doing going more into debt. I can't figure out what the government is going to do with this $10+ billion it is trying to get. I understand Milei is limited in what he can do but I don't understand why this time it will work when last time it did not.

It seems obvious they will use the money to continue to control the peso. I thought this was not allowed with IMF but now it seems they will let him. Caputo had to quit before when he had the same position. IMF said not to manipulate the peso but he is still doing it.

I can't understand why so many are so happy with Milei when he is making the same mistakes as before. It should be against the Libertarian philosophy.

I just can't understand why they need more loans to get out of the cepo? Milei complained before about these IMF loans. Now he is saying he needs it to get rid of currency controls. It's not necessary to borrow billions more. Just let the exchange rate float and the market will be freed. It is nonsense to take on more debt.

There is no solid theoretical basis for taking on debt to finance the exchange rate lag. Reserves are only useful against speculative attacks (like Soros against the UK) never if there is a tendency to adjust the dollar. But Milei issues debt just as Massa issued pesos to finance his campaign.

So much for this old quote from Milei in 2019.

 

[Larry]

IMF would be crazy to keep giving more billions without requiring them to stop the currency manipulation program.

Broken promises.

 

[Finance Prof]

I have mixed feelings on taking on more debt. The government has made good progress on cutting back on spending and I would hate to see them change things just because they have this cash.

Milei is stuck between a rock and a hard place. The wealthy in Argentina control the power and they have successfully fought meaningful tax reforms for many decades. The caste still control the power with Milei. The most damaging tax for everyday locals is the VAT/IVA which is a major pain for people as it's on almost everything. Depending on tax collection from this and export taxes is not ideal.

There are a big % of people working under the table in black and pay no taxes at all. Although corporate income taxes are high not a big % comes from this. Same on personal income taxes. The caste and wealthy have figured out how to pay very little taxes while blue collar people pay the most via iva on everything.

The system needs to be changed but the wealthy control all the power and always control the Presidents.

 

[Avocado]

Negotiations with IMF have stalled. It funny for a libertarian that Milei control the exchange rate. Probably big sticking point with IMF. I for one am glad the IMF is walking away. I do not want to see my country go more into debt. Ironic that the same people that helped get Argentina into problems with IMF are back trying to do the same thing again. They couldn't fix things before and I do not think they will fix things now.

Sturzenegger and Caputo had to quit before and probably this time too. If things were ok then the government no need to keep currency restrictions in place. Caputo want to keep cepo.

Bye bye IMF.

https://www.iprofesional.com/economia/421567-de-que-se-trata-banda-flotacion-dolar-y-por-que-genera-temor

 

[James Bond]

Negotiations with IMF have stalled. It funny for a libertarian that Milei control the exchange rate. Probably big sticking point with IMF. I for one am glad the IMF is walking away. I do not want to see my country go more into debt. Ironic that the same people that helped get Argentina into problems with IMF are back trying to do the same thing again. They couldn't fix things before and I do not think they will fix things now.

Sturzenegger and Caputo had to quit before and probably this time too. If things were ok then the government no need to keep currency restrictions in place. Caputo want to keep cepo.

Bye bye IMF.

https://www.iprofesional.com/economia/421567-de-que-se-trata-banda-flotacion-dolar-y-por-que-genera-temor

This is partly why we left. I think things will take a long time to get fixed. Inflation is slowing down but my guess is without the constant government interference with floating exchange rate the blue would go way up. And once that happens inflation will go back up. There is a reason the IMF doesn't want to give more money. Why give more billions to just have Argentina burn it in currency interventions and manipulation?

People can blame all the Peronist leadership for past problems but Caputo and Sturzenegger can share in blame from last time.

 

[David]

This is partly why we left. I think things will take a long time to get fixed. Inflation is slowing down but my guess is without the constant government interference with floating exchange rate the blue would go way up. And once that happens inflation will go back up. There is a reason the IMF doesn't want to give more money. Why give more billions to just have Argentina burn it in currency interventions and manipulation?

People can blame all the Peronist leadership for past problems but Caputo and Sturzenegger can share in blame from last time.

I don't think enough people give Macri crap for borrowing all of that cash from the IMF to service Argentina's foreign and domestic debt obligations. He couldn't eliminate fiscal deficits and couldn't contain inflation. He didn't take austerity far enough like Milei is doing. Too scared.

Alberto Fernandez didn't pay any of that $44 Billion back to the IMF. He went back on Macri's austerity measures making the fiscal deficits worse and inflation skyrocketed.

Milei is doing a good job with austerity measures and actually got a fiscal surplus for the first time in over a decade but they have yet to pay back the IMF loans and now wants $10 billion more. Inflation is only lowered because they are using cash to intervene and maintain an artificially high peso. He will probably blow all of the $10 billion defending this artificial peg. Is it really lowering inflation if it would skyrocket again once they remove currency controls?

Despite the varying economic strategies employed by these administrations—ranging from austerity and fiscal discipline to currency pegs—Argentina's fundamental economic issues remain unresolved. A key indicator of this ongoing struggle is the country's negative net foreign reserves.

The market's perception of Argentina's economic model is likely to remain skeptical. The country's history of debt problems, persistent inflation, and repeated currency crises make it challenging for investors to believe that a new economic approach will suddenly clear away the long-standing issues of debt overhang and economic instability.

 

[Larry]

I don't think enough people give Macri crap for borrowing all of that cash from the IMF to service Argentina's foreign and domestic debt obligations. He couldn't eliminate fiscal deficits and couldn't contain inflation. He didn't take austerity far enough like Milei is doing. Too scared.

Alberto Fernandez didn't pay any of that $44 Billion back to the IMF. He went back on Macri's austerity measures making the fiscal deficits worse and inflation skyrocketed.

Milei is doing a good job with austerity measures and actually got a fiscal surplus for the first time in over a decade but they have yet to pay back the IMF loans and now wants $10 billion more. Inflation is only lowered because they are using cash to intervene and maintain an artificially high peso. He will probably blow all of the $10 billion defending this artificial peg. Is it really lowering inflation if it would skyrocket again once they remove currency controls?

Despite the varying economic strategies employed by these administrations—ranging from austerity and fiscal discipline to currency pegs—Argentina's fundamental economic issues remain unresolved. A key indicator of this ongoing struggle is the country's negative net foreign reserves.

The market's perception of Argentina's economic model is likely to remain skeptical. The country's history of debt problems, persistent inflation, and repeated currency crises make it challenging for investors to believe that a new economic approach will suddenly clear away the long-standing issues of debt overhang and economic instability.

Agree! Milei isn't performing any miracles. He was against intervening in the market. He was against it and not sure why he is letting Caputo run the show but he needs to just let the chips fall where they may with the exchange rate. There is only so long people will wait and people are hitting their limit. For the first time I am talking to some friends that supported Milei now admit that they do not think that turn things around.

We shall see with the election in October. The government canm't achieve positive net reserves no matter what they do. Without the IMF billions it will be interesting to see how things play out.

 

[Jenn]

Negotiations with IMF have stalled. It funny for a libertarian that Milei control the exchange rate. Probably big sticking point with IMF. I for one am glad the IMF is walking away. I do not want to see my country go more into debt. Ironic that the same people that helped get Argentina into problems with IMF are back trying to do the same thing again. They couldn't fix things before and I do not think they will fix things now.

Sturzenegger and Caputo had to quit before and probably this time too. If things were ok then the government no need to keep currency restrictions in place. Caputo want to keep cepo.

Bye bye IMF.

https://www.iprofesional.com/economia/421567-de-que-se-trata-banda-flotacion-dolar-y-por-que-genera-temor

Thanks for that article. I was going to say it seems crazy that the IMF would give them more money just to intervene more in the market. I can't understand how anyone can support this? Everyone knows the real exchange rate is not real so I don't get why they just allow this. It doesn't make sense to me.

 

[CraigM]

Agree! Milei isn't performing any miracles. He was against intervening in the market. He was against it and not sure why he is letting Caputo run the show but he needs to just let the chips fall where they may with the exchange rate. There is only so long people will wait and people are hitting their limit. For the first time I am talking to some friends that supported Milei now admit that they do not think that turn things around.

We shall see with the election in October. The government canm't achieve positive net reserves no matter what they do. Without the IMF billions it will be interesting to see how things play out.

With all due respect, I think you're being too hard on them. Argentina has been digging a giant economic hole for decades. The government has had little or no access to outside capital markets for a long time now after burning companies and investors so many times. They are finally making meaningful reforms for the first time and it's working, but you can't fix this overnight. They need to buy time and IMF money is part of that. Who else will lend them that much money on those terms?

 

[Betsy Ross]

With all due respect, I think you're being too hard on them. Argentina has been digging a giant economic hole for decades. The government has had little or no access to outside capital markets for a long time now after burning companies and investors so many times. They are finally making meaningful reforms for the first time and it's working, but you can't fix this overnight. They need to buy time and IMF money is part of that. Who else will lend them that much money on those terms?

It's funny because many of the people complaining now kept their mouths shut while Peronists burned the country to the ground. And now they expect Milei to fix all of this mess in a short amount of time. Funny how that works.

 

[Larry]

With all due respect, I think you're being too hard on them. Argentina has been digging a giant economic hole for decades. The government has had little or no access to outside capital markets for a long time now after burning companies and investors so many times. They are finally making meaningful reforms for the first time and it's working, but you can't fix this overnight. They need to buy time and IMF money is part of that. Who else will lend them that much money on those terms?

But part of the giant economic hole was caused by Macri and his failed policies. Now look at what Caputo and Milei are doing. They are following the same failed plans that Caputo had before. They want to borrow another 11 billion loan. Why do you think the IMF walked away from the table? It is because they will waste it on bicycle financing supporting the peso instead of letting it float. That is what Argentina would use the money for and it did not work before and it won't work now.

 

[Wally]

It's funny because many of the people complaining now kept their mouths shut while Peronists burned the country to the ground. And now they expect Milei to fix all of this mess in a short amount of time. Funny how that works.

That's how these Peronists are. Funny how that works out. They didn't seem to have a problem when they were destroying the country. Also never forget that these SOBs locked us up in our own houses for almost 2 years in the brutal covid lockdowns. May they rot in hell.

 

[CraigM]

But part of the giant economic hole was caused by Macri and his failed policies. Now look at what Caputo and Milei are doing. They are following the same failed plans that Caputo had before. They want to borrow another 11 billion loan. Why do you think the IMF walked away from the table? It is because they will waste it on bicycle financing supporting the peso instead of letting it float. That is what Argentina would use the money for and it did not work before and it won't work now.

We'll have to agree to disagree, Larry. The IMF is a "lender of last resort" i.e. the last place in the world you can get access to capital on reasonable terms, and Argentina is by far its biggest borrower. Nobody else comes close. Think about the hundreds of poor desperate countries around the world that have needed IMF money, and there's Argentina with almost 30% of the entire pot and needing more. Peronists are the world's poster child for mismanagement. My limited understanding of Macri's policies is that they would have worked in any functioning economy that simply hit a pothole, but not Argentina and its giant crater.

Argentina needs a ton of money in the next few years and what Milei is doing is necessary to both limit the amount they need and appeal to every possible source of it, including the IMF. If he was dictator for the next ten years I would feel good about Argentina's future, but it's a democracy and deeply socialist and probably always will be.

 

[daveholman]

One HUGE difference between the current administration and previous ones, that often gets overlooked is Milei has quit printing money. THE cause of inflation is too many pesos chasing too few goods. If they continue that path, the next step is to increase the supply of goods, which requires the foreign investment Argentina is now seeing. When the supply of goods is greater than the supply of money, the peso can be floated without kicking off another round of high inflation.*

*that's the theory, anyway. It's never been tried in Argentina.

 

[Wally]

We'll have to agree to disagree, Larry. The IMF is a "lender of last resort" i.e. the last place in the world you can get access to capital on reasonable terms, and Argentina is by far its biggest borrower. Nobody else comes close. Think about the hundreds of poor desperate countries around the world that have needed IMF money, and there's Argentina with almost 30% of the entire pot and needing more. Peronists are the world's poster child for mismanagement. My limited understanding of Macri's policies is that they would have worked in any functioning economy that simply hit a pothole, but not Argentina and its giant crater.

Argentina needs a ton of money in the next few years and what Milei is doing is necessary to both limit the amount they need and appeal to every possible source of it, including the IMF. If he was dictator for the next ten years I would feel good about Argentina's future, but it's a democracy and deeply socialist and probably always will be.

Absolutely correct. Don't mind Larry. He said nothing while these past Presidents were destroying Argentina. Truth of it is most expats only care if the situation is good for them but don't really care about Argentina and long term. Only what the blue dollar gets them.

One HUGE difference between the current administration and previous ones, that often gets overlooked is Milei has quit printing money. THE cause of inflation is too many pesos chasing too few goods. If they continue that path, the next step is to increase the supply of goods, which requires the foreign investment Argentina is now seeing. When the supply of goods is greater than the supply of money, the peso can be floated without kicking off another round of high inflation.*

*that's the theory, anyway. It's never been tried in Argentina.

Exactly! Milei is not Macri. Macri did not cut the spending. That is a big difference.

 

[Johnny]

One HUGE difference between the current administration and previous ones, that often gets overlooked is Milei has quit printing money. THE cause of inflation is too many pesos chasing too few goods. If they continue that path, the next step is to increase the supply of goods, which requires the foreign investment Argentina is now seeing. When the supply of goods is greater than the supply of money, the peso can be floated without kicking off another round of high inflation.*

*that's the theory, anyway. It's never been tried in Argentina.

I agree. People keep trying to compare Milei to Macri but Macri couldn't cut spending like Milei is. I worry about the mountain of debt Argentina still has.

 

[daveholman]

I agree. People keep trying to compare Milei to Macri but Macri couldn't cut spending like Milei is. I worry about the mountain of debt Argentina still has.

And taking on more debt seems...not ideal. OTOH, if the new loans are to get a lower interest rate/shorter payoff, it might be feasible. I'm still not clear on Milei's end game with the IMF

 

[Jenn]

And taking on more debt seems...not ideal. OTOH, if the new loans are to get a lower interest rate/shorter payoff, it might be feasible. I'm still not clear on Milei's end game with the IMF

I thought Milei hated and criticized the IMF loans before he took office? It seems like Caputo is running the show. Are most people in Argentina for or against the IMF loans? Online it seems like it's mixed with a lot of people against taking on more debt.

 

[Larry]

We'll have to agree to disagree, Larry. The IMF is a "lender of last resort" i.e. the last place in the world you can get access to capital on reasonable terms, and Argentina is by far its biggest borrower. Nobody else comes close. Think about the hundreds of poor desperate countries around the world that have needed IMF money, and there's Argentina with almost 30% of the entire pot and needing more. Peronists are the world's poster child for mismanagement. My limited understanding of Macri's policies is that they would have worked in any functioning economy that simply hit a pothole, but not Argentina and its giant crater.

Argentina needs a ton of money in the next few years and what Milei is doing is necessary to both limit the amount they need and appeal to every possible source of it, including the IMF. If he was dictator for the next ten years I would feel good about Argentina's future, but it's a democracy and deeply socialist and probably always will be.

The problem is that if Argentina gets its hands on billions more they will just waste it meddling with the currency. Do you believe that is a good use of the funds @CraigM?

Luckily it sounds like the IMF won't give more money if Argentina does not agree to lift the cepo.

Javier Milei’s quest to defuse Argentina’s currency control bomb

Libertarian president aims to secure IMF deal to help prepare for end of fixed exchange rate

www.ft.com