‘It’s rare for a country to have the IMF as its biggest creditor. Argentina is in the strange position of relying on money lent by the fund to repay the fund itself.’

 —Associated Press, May 13, 2024

Talk about a vicious circle. The International Monetary Fund is poised to lend another $792 million to Argentina, hailing President Javier Milei’s progress in overhauling the country’s beleaguered economy. That’s the good news. What’s the money for, though? That’s the bad news. Argentina’s debt crisis is so precarious that the newly-lent liquide will be going right back to the IMF, to help defray the $44 billion that Buenos Aires owes the global lender. 

While the projected loan is a kind of endorsement of Mr. Milei’s stewardship, the IMF’s announcement also serves to underscore the challenges the chainsaw-wielding libertarian faces as he attempts to right Argentina’s economic course. At least Mr. Milei is faring better than his predecessors, who were prone to falling short of the IMF’s targets, and instead had “relied on central bank money printing to finance treasury spending,” as the AP puts it. 

That served only to dig deeper the hole of debt and inflation caused by decades of left-wing economic mismanagement. Argentina’s national debt today exceeds $400 billion, nearly two-thirds of the gross domestic product of about $640 billion. As a hangover from Mr. Milei’s predecessors, the IMF expects inflation to surge 249.8 percent in 2024 over last year. Mr. Milei can take some credit, though, for an expected single-digit monthly increase in April.

The IMF certainly took notice, praising Mr. Milei for what it calls “rapidly falling inflation,” as well as achieving Argentina’s “first quarterly fiscal surplus in 16 years.” The global lender touted Mr. Milei’s “decisive implementation” of his “stabilization plan” — in other words, austerity. His program for economic revival includes slashing subsidies and wages in the public sector, cutting thousands of government jobs, and freezing public works spending.  

The result, as the IMF puts it, is “faster-than-anticipated progress in restoring macroeconomic stability.” In layman’s terms, the IMF notes that Argentina’s debt repayment program is “back on track.” The global lender observed that Mr. Milei’s “reforms and deregulation” are anticipated to drive the country’s “projected economic recovery, as well as unlock bottlenecks to productivity, private investment, and formal employment.”

The economic forecast is not cloudless, though, including, the AP reports, Mr. Milei’s devaluation of the “nose diving peso” by more than 50 percent. That helped “stabilize” the currency, which Mr. Milei campaigned on replacing with the dollar, but has caused the “prices of basic goods to skyrocket,” the AP notes. The Wall Street Journal’s Mary Anastasia O’Grady points to Mr. Milei’s trouble on this head as a potential “Achilles’ Heel” in his reform agenda.

The new IMF loan is a reminder of what Ms. O’Grady calls the high “dollar value of Argentine debt,” which looms as a challenge for Buenos Aires to repay in full. Argentina has a decades-long record of trying — with various degrees of success — to get out from under this sovereign debt. At one point it tried to force creditors to take 30 cents on the dollar. A few tenacious investors like Paul Singer insisted on payment in full, eventually settling.

Efforts to hold debtor nations like Argentina accountable for their debts could be made more difficult, though, under a bill that’s being pushed by Albany Democrats. The measure would make it easier for countries to wriggle out of their sovereign debts if the money was borrowed under New York law, as are about half of such loans, per Axios. The law is designed to target what critics call “vulture funds” who demand full repayment from borrowers.

Such a measure could well enable Buenos Aires to evade full repayment of its national debt. Such a default, though, would come at the expense of Argentina’s creditors, not to mention the nation’s — and, we’d like to think, Mr. Milei’s — honor. Considering the mettle Mr. Milei has evinced in his tenure as president, and his aim to return Argentina to a role as a responsible member of the global economy, it is hard to imagine that he would seek the easy way out.