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Economists sound the alarm as a new deal takes shape

A little over a year into office, Javier Milei’s accomplishments in stabilizing Argentina’s economy have been impressive. Balancing the budget and deregulating the economy have driven positive change, and GDP is now expected to grow by 5% in 2025. Yet, Argentina’s troubles are far from over. Among the most pressing issues are debt repayment and the rapid overvaluation of the peso, leading to concerns about the country’s competitiveness.

When Milei took office in December 2023, Argentina owed over $400 billion. Of that, $44.5 billion—more than 10% of all outstanding debt—is due to the International Monetary Fund, making Argentina by far the largest debtor. While the center-right Macri administration requested these funds in 2018, left-wing President Alberto Fernández struck a deal in 2022 that pushed back payments to the current administration. This year, $6 billion out of $18.5 billion due in debt repayments is owed to the IMF, potentially pressuring Milei into further public spending cuts after having already slashed the budget by an unprecedented 30% in his first year.

Negotiations between Argentina and the IMF on yet another restructuring appear to be in their final stages, with the government aiming to finalize a deal by April. Although IMF Director Kristalina Georgieva has praised “Argentina’s remarkable transformation” under Milei, the agreement has taken almost 15 months to materialize. Finance Minister Luis Caputo has denied rumors that the IMF demanded a devaluation of the peso (i.e., an official lowering of the country’s currency exchange rate) as a condition for unlocking new funds, but speculation about the peso’s overvaluation continues to grow among economists.

Indeed, some believe that the IMF might want Argentina to devalue its currency before lending it more money, given the country’s “dirty float” approach to its exchange rate and also its long history of squandering loaned resources. In Argentina’s typically inflationary environment, newly printed money tends to drive the peso’s value down as people rush to exchange local currency for dollars. However, governments can sell Central Bank reserves in foreign currency to slow this depreciation. In the past, they have repeatedly received IMF dollars only to sell them below their market value. In doing so, governments have artificially propped up the peso and boosted local purchasing power. Milei himself tweeted in 2023 that a future administration (which ultimately was his own) should revise any agreements with the IMF if the organization continued lending money to the Fernández government, which used funds to manipulate the exchange rate.

For a long time, libertarians in Argentina have criticized the IMF, the World Bank, and similar organizations for enabling interventionist policies and corruption. Alberto Benegas Lynch, Jr., a libertarian icon frequently quoted by the President, has written extensively on the IMF’s harmful influence—not just in Argentina, but also in Mexico, Indonesia, and Turkey, among other countries. Too often, IMF loans allow governments to postpone necessary reforms and end up with more interventionist states. So why would this time be any different?

On March 8, President Milei published an op-ed in La Nación defending the new IMF deal. He argued that Argentine politicians had robbed citizens of $110 billion over 25 years by having the Central Bank lend money to the Treasury without repayment. He proposed that any new IMF funds be used to cancel part of this debt. In his view, this approach would leave Argentina’s total debt level unchanged.

Will the IMF accept Milei’s argument and become Argentina’s friend once again? It seems likely. As its biggest debtor, the country has become “too big to fail.” Moreover, Milei shows no inclination to use IMF funds to raise public spending, and the organization has already lent money to governments that barely worked to cut spending (Macri) or even expanded it (Fernández). Given Argentina’s track record, concerns that a deal would enable the Milei administration to manipulate the exchange rate are justified. But whether such manipulation will be possible depends on the final terms of the agreement.

If Argentina and the IMF reach a deal, would that mean that the role of the country’s crisis should be overlooked? Of course not. It has been decades since Henry Hazlitt proposed ending the IMF, but that does not mean that libertarians should abandon this cause. While the IMF may act as Argentina’s short-term friend, in the long run, it remains a source of trouble.

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