Argentina agrees with the IMF to release $2 billion

Argentina reached an agreement with International Monetary Fund staff on the first review of the country's $20 billion program, a vote of confidence in President Javier Milei ahead of the October midterm elections.

Pending approval by its Executive Board, the IMF is expected to disburse $2 billion to Argentina, according to a statement issued by the Washington-based lender. The Executive Board plans to meet before the end of July to vote on the first review, the IMF added.

As part of the agreement, IMF staff praised Argentina's "smooth" transition toward lifting many capital and foreign exchange controls, while noting that they reached an understanding with government officials on "continuing to improve the clarity and functioning of the monetary framework."

The country's dollar bonds rose across the curve on the news, with notes due in 2035 jumping nearly 0.6 cents on the dollar to trade above 65 cents, according to indicative pricing data compiled by Bloomberg.

This is the first revision of the program granted to Milei's libertarian government in April, which made available an unusually large amount of $12 billion in advance financing. Under the agreement, Argentina has significantly relaxed foreign exchange and capital controls, in place to varying degrees since 2019.

The peso now floats within a target range, and individuals can purchase dollars without restrictions, while companies can send this year's dividends abroad. However, companies are still restricted from purchasing dollars at the official exchange rate, while dividend payments from previous years remain stagnant in the country.

Until June, Argentina had struggled to accumulate foreign exchange reserves since the program began, as the government sought to prevent the peso from devaluing. It has relied primarily on bond sales and repurchase agreements with international banks to acquire reserves. In recent weeks, the Treasury has purchased dollars to contribute to the central bank's reserve accumulation thanks to its fiscal surplus.

The Argentine economy is expected to grow 5% this year after contractions over the past two years, according to the latest survey of central bank analysts. Monthly inflation in May fell to its lowest level since the pandemic, accelerating only slightly in June.

Economy Minister Luis Caputo hinted at possible changes to the agreement. The agency praised the program's performance and spoke of its commitment to "rebuilding reserves," despite the fact that, under the original agreement, Argentina fell short of the goal. The board will discuss the first review at the end of July, and is expected to take place this Thursday, the 31st, just before the agency goes on recess for summer vacation.