MercoPress. South Atlantic News Agency

Argentina needs to solve its exchange rate problem, IMF spokeswoman says

Milei's government will need to evolve to keep its successful plan going, Kozack warned

International Monetary Fund (IMF) Spokeswoman Julie Kozack said that Argentina needed to lift the exchange rate ceiling if the government were to protect the country's Central Bank reserves. Kozack's remarks during a press conference came a day after Economy Minister Luis Toto Caputo announced that the South American nation was on course to dollarization.

Under President Javier Milei, the official quotation of the Argentine peso against the US dollar has been sliding at a monthly rate of 2%. But in recent days, the “blue” market retook a soaring pace after it became evident that the Libertarian administration would not have the provincial governors sign the so-called May Pact according to Milei's earlier plans despite a substantial inflationary drop.

The political delays have not derailed Milei, a graduate economist, from his roadmap. “Everyone is going to choose which currency they want to use,” the president explained. Hence, “the peso will be used less [and less],” he added. Then, “when it almost stops being used,” Argentina would move towards dollarization and eliminating the Central Bank so that corrupt politicians cannot steal again by issuing money,“ he stressed over lunch with local businessmen.

Kozack highlighted the latest achievements of Milei's administration particularly those regarding a fiscal surplus and a decrease in inflation but insisted that the Government should keep working on the matter in addition to pursuing structural and tax reforms: ”The exchange rate policy will need to become more flexible over time to ensure a greater improvement in the coverage of reserves,“ the spokeswoman underlined.

”These policy changes will be necessary as exchange controls are gradually lifted, depending on conditions, and as the authorities transition to a new monetary regime. In this case, that regime includes currency competition, in which the peso and other currencies, such as the dollar, can coexist and are freely usable. Other countries in the region, such as Uruguay and Peru, have systems like this,“ she went on.

Argentina passed an IMF review this week and is set to receive a US$ 800 million disbursement pending the Board's approval due next month. ”It was the first review of this program in which all the quantitative goals were met,“ Kozack reckoned but admitted that if these ”initial victories“ are to remain laudable, the Government's policies will need to improve the efficiency and progressivity of the tax system to ensure that social assistance is sufficient and well-targeted to protect the most vulnerable while ensuring that the burden of fiscal consolidation does not fall disproportionately on working families.

The IMF official also said that the Libertarian administration would have to ”unlock barriers“ hindering foreign companies from landing in the country ”to increase formal employment and attract private investment,” something for which Milei would still lack enough political muscle, as the imminent postponement of the May Pact seems to show.