Argentina to get $20 billion IMF loan

Argentina’s maverick pro-free market President Javier Milei went with hammer and tongs – in his own words a chainsaw – to set the sinking economy with its soaring inflation in order through the-now-familiar-remedies of reducing the size of the government, subsidies. He had pushed the economy to the brink of collapse in the opposite direction.

He needs a loan of $20 billion from the International Monetary Fund (IMF). And on Tuesday, the IMF team had agreed in principle to give the loan, and the final decision now rests with the executive board. Milei needs the IMF rescue package so that he can keep up the foreign exchange reserves and there is no default in paying the loans.

Meanwhile, the majority of Argentinians, mostly the poor and those who are nearly poor, are paying the price for Milei’s ruthless austerity measures. But the pop economist and television-presenter that he was before he plunged into politics more than two years ago will not be able to save the economy if he does not get the IMF loan.

The IMF loan of course comes with its own stringent conditions. Sometimes, the IMF loan and its repayment process in itself becomes a trigger for the collapse of the economy, and Argentinians remember well that this had what had happened with the IMF loan in 2001. Milei has however other worries. The $20 billion loan will be released in tranches and not at one go. He hopes that the first tranche will be substantially large enough to balance the tilt in the lopsided economy. Meanwhile, the country’s trade unions have gone on a general strike, and life had come to a standstill in Buenos Aires. Most of the people who have responded to the strike calls were pensioners.

One of Milei’s measures was his refusal to adjust the pension amount to the inflation rate. As a result what they get as pension remains woefully inadequate. This is the third general strike, and Milei does not seem to be unduly worried about its impact.

He is much more concerned about the size of the first tranche of the $20 billion loan from the IMF. If the IMF had refused, he would have had to borrow from another country. As a matter of fact, Milei, a great admirer of US President Donald Trump and an ardent fellow-free market advocate, was looking to Washington for the foreign bailout.

The IMF loan if managed prudently should help Argentina recover from the economic turmoil, but it does not seem to be the end of troubles. The loan can help Argentinian businesses to stabilise and increase their productivity. At the same time, the businesses and manufacturers need to create jobs and pay reasonable wages.

The austerity measures have helped in reducing inflation, but low inflation in itself is not much of a remedy. There is need for jobs, and if the production both on the front of primary goods and the manufactured goods is on a firm footing, this could lead to the hoped-for stability.

Many a time, the kind of shock treatment meted out by the likes of Milei to an economy that was caught in the inflation spiral is that it leads to other extreme fallout. The remedy of austerity measure has the likelihood of becoming worse than the uncontrolled inflation spree. So, Milei has the difficult task of piloting the economy through the phase of recovery. Milei has a good precedent in Brazil’s president from 1995 to 2003, a sociologist who guided a fragile Brazilian economy through a difficult period. Milei may have to up his sledgehammer free market methods and adopt more calibrated economic policies at home.