MercoPress. South Atlantic News Agency

IMF warns Milei about increasing poverty amid exchange rate controls

Milei hopes things will get better after Trump's inauguration

Despite approving Argentine President Javier Milei's management in a broad way, the International Monetary Fund suggested the South American country should pay more attention to exchange rate arrears and the increasing poverty.

The IMF urged Argentina to get rid of the exchange rate stocks and implement social policies to garner further support for its economic program. The IMF thus warned the Libertarian administration that it must improve the Argentine Central Bank's (BCRA) reserves by eliminating foreign exchange controls, among other measures.

High-quality fiscal measures formed a considerable part of the initial fiscal recovery, which was achieved through deep spending cuts, including public investment and wages, as well as temporary or one-off revenue measures that caused distortions or tax amnesty, the IMF said in a report.

Given the greater macroeconomic stability, government policies should address tariffs and services, pensions, wages, taxation, and fiscal relations with the provinces, the IMF also pointed out in a document released on the same day (Saturday) that IMF Managing Director Kristalina Georgieva praised Milei's fiscal adjustment plan, which she dubbed “the most impressive case in recent history.”

The IMF was nevertheless concerned about poverty standing at 52.9% in the first semester of 2024, the highest rate since 2003, while indigence rose to 18.1%. Updated data are expected next March for the second half of 2024. After all, Milei's policies will need social acceptance, the IMF warned.

Last Thursday, Argentina paid US$ 4.341 billion in bond maturities, leaving BCRA reserves at US$ 30.904 billion. Extensive exchange controls could hinder the continued accumulation of reserves, the Fund noted.

Hence, Argentina will need a “credible” exit strategy from the stocks and greater currency exchange flexibility to accumulate reserves steadily. According to Milei, “a definitive solution to the problem of the BCRA's stocks is being worked on, which may be either through a new program with the IMF or an agreement with private parties.” He also underlined that “all Argentines will be able to use the currency they want in their daily transactions,” except “for the payment of taxes, which for the time being will continue to be in pesos.”

As he had proposed days before at the Mercosur Summit, Milei pointed out that his administration is moving forward with a proposal to eliminate tariff barriers that hinder trade within the bloc, but that they will also seek to reduce the common external tariff.

“Our objective is that each country can trade freely with whomever it wants. In that line, our first objective is also to promote during the next year a free trade agreement with the United States, the agreement that should have happened 19 years ago,” he said.

According to Buenos Aires media, Milei is now heavily reliant on new understandings with US President-elect Donald Trump. Significant improvements are expected after his Jan. 20 inauguration.