Market News

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

Pending approval by its executive board, the IMF would disburse $2 billion to Argentina, according to a statement from the Washington lender Thursday evening. 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 how “smoothly” Argentina’s transition to lifting many capital and currency controls has gone, while noting they reached an understanding with government officials on “continuing to enhance the clarity and functioning of the monetary framework,” among other goals.

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

This marks the first review under the program granted to Milei’s libertarian government in April, which made available an unusually large $12 billion chunk of the financing upfront. Under the agreement, Argentina has significantly relaxed currency and capital controls, which have been in place to varying degrees since 2019.

The peso now floats in a target band and individuals can buy dollars without restrictions, while companies are allowed to send dividends earned this year abroad. However, companies are still restricted from buying dollars at the official exchange rate, while dividend payments from previous years remain trapped in the country.

Through June, Argentina had struggled to build up foreign currency reserves since the start of the program as the government sought to prevent the peso from devaluing. It has mainly used bond sales and repurchase agreement with international banks to acquire reserves. In recent weeks, the Treasury has bought dollars to help build up central bank reserves due to its fiscal surplus.

Argentina’s economy is expected to grow 5% this year after contractions the past two years, according to the central bank’s most recent survey of analysts. Monthly inflation in May cooled to its lowest level since the pandemic, only mildly accelerating in June.

(Updates with dollar bond moves in fourth paragraph.)