Milei 2025:

Economic Stabilization,
Political Strategy, and IMF
Negotiations in Argentina
International Financial Economics

Federica Eleuteri - 796491

Carla Pezzutti - 792751
Giorgia Bernardi - 804881
Gaetano Militello- 796611
 A Persistent Crisis Economy
1989: 1998-2001: 2003-2007: 2018: 2023:
Hyperinflation (3,000%) Deep Recession, IMF Kirchner boom fueled Macri’s IMF mega-loan Milei elected — proposes
under Alfonsín → collapse Loans, and Capital Flight by commodity exports ($57B) fails to stabilize austerity, shock therapy,
of public trust economy dollarization

1982: 1991: 2001-2002: 2008-2013: 2019-2023:

First sovereign default, Dollar-Peso convertibility end of 1:1 peg, $100 Rise of currency controls, Peso Collapse,
start of debt spiral introduced as a fix Billion Default and manipulated inflation data, Inflation>200% and
"Corralito" Banking Crisis isolation from markets Economic Decline

Argentina Real GDP Growth (YoY %) – 1982 to 2024

Argentina has experienced chronic
inflation, repeated debt defaults, currency
devaluations, and financial collapses over
the last 40 years.
It is a country where political populism,
fiscal mismanagement, and weak institutions
reinforce cycles of boom and bust.
Now, under President Javier Milei,
Argentina faces a new and uncertain chapter
— shaped by the legacy of decades of
macroeconomic instability.
Source: IMF
Challenges & Goals

MILEI’S REFORM IMF NEGOTIATIONS &

PESO COLLAPSE AGENDA (2025) OUTLOOK

Chronic fiscal deficits and money President Javier Milei is pursuing a Argentina is in talks with the IMF for debt
printing have fueled high inflation. shock stabilization plan. restructuring and new support.
The peso has sharply devalued, with Measures include austerity, The deal hinges on fiscal discipline and
the “blue dollar” rate diverging from the deregulation, and a push for reform progress.
official. dollarization. The 2025 midterms will be key to
Confidence in the currency and Reforms face political resistance and sustaining the reform path.
institutions has eroded. social unrest.
Inflation: A Structural Problem
Structural Inflation in Argentina: Structural Factors
from 1989 hyperinflation to 2024 peak Chronic fiscal deficits: Argentina faces persistent fiscal deficits.
Monetary financing by BCRA: the government often resorts to
Inflation in Argentina is chronic and structurally
money printing through the Central Bank to finance deficits,
embedded, driven by persistent fiscal and monetary increasing the money supply and fueling inflation.
imbalances over decades. FX & price controls, subsidies distort relative prices:
Inflation peaked near 3,000% in 1989. Though later government-imposed controls on foreign exchange and prices
reduced, it remained persistently high. distort market dynamics, causing inefficiencies and imbalances
Inflation re-emerged as a structural issue, reaching 289% between supply and demand.
in 2024. Weak policy credibility, inflation expectations de-anchored

1970-1990 2016-2024

https://data.worldbank.org/indicator/NY.GDP.DEFL.KD.ZG?end=1991&locations=AR&start=1970
The Peso’s Long Decline
USD/ARS Exchange Rate
The currency has lost over 99.9% of its value since Argentina
ended its 1:1 dollar peg in 2001.

Persistent inflation weakens the peso, driving demand for The blue dollar market reflects true inflation expectations
dollars as a safer store of value. and market sentiment, trading the peso far below the official
Surging dollar demand drains reserves, leading to capital rate.
controls and resulting in dollar shortages. Multiple FX rates (MEP and CCL) reflect a lack of confidence
in the peso and contribute to distortions in pricing,
investment, and trade.
What the Peso’s Decline Means for PPP
PPP Rate: The peso is undervalued based on the Big
Purchasing Power Parity compares the cost of a standard basket of
Mac Index.
goods (like a Big Mac) across countries. It estimates what the
Official Rate: The peso is devalued more than the Big
exchange rate should be to equalize purchasing power.
Mac Index suggests, reflecting inflation and
government policies.
Blue Dollar Rate: Strong demand for dollars in the
black market highlights distrust in the official rate and
economic instability.

“In January 2024, a Big Mac cost 3,150 pesos in Argentina and US$5.69 in the
United States. The implied exchange rate was 553.60 USD/ARS. The difference
between this and the market exchange rate, 821.44, suggests the Argentine
peso was 32.6% undervalued.” -The Economist, Jan 2024
Fiscal Deficits & Monetary Printing
Persistent Deficits and Reliance on Debt The Role of the Central Bank in Deficit Funding
Argentina has long run fiscal deficits of 5% to 8% of GDP, due When conventional financing runs out, the government often
to a persistent gap between spending and revenue. turns to the Central Bank (BCRA) to fund its deficit.
High spending on subsidies, public wages, and social In 2020–21, monetary transfers exceeded 10% of GDP,
programs drives much of the imbalance. marking one of the highest levels of money printing in
On the revenue side, low tax compliance, a narrow tax Argentina’s history.
base, and frequent recessions limit collections. This direct financing expands the money supply (M1 and
M2), fueling inflation and weakening the peso.
These structural weaknesses force the government to
rely on debt or money printing to finance deficits.

Trading Economics
Trading Economics

Over time, chronic deficits and money printing have undermined trust in the peso, driven
capital flight, and fueled persistent inflation, making it especially hard to control.
Argentina’s Public Debt Overview
Argentina Public Debt (2017- 2024) Debt Structure
As of 2024, Argentina’s public debt stands at approximately 91.5% of GDP By Creditor Residency
(~USD 553 billion), down from a peak of 155.4% in 2023 (~USD 1,003 billion). ~34% held by external creditors (multilaterals: IMF,
The ratio fluctuates due to: exchange rate shocks (60%+ of debt in foreign World Bank & IDB; private bondholders; bilateral
currency), high inflation (which inflates nominal GDP), debt restructuring lenders).
and rollovers. ~66% held by domestic creditors (local banks, insurers,
Given the persistently high debt burden, Argentina has undergone multiple and public entities like ANSES and BCRA).
debt defaults (9, most recent 2020)

“The heavy reliance on debt to support its

expenditure has made Argentina "one of the
countries in the world that is most
dependent on external financing", as even
former president Mauricio Macri admitted
in 2018.

Sources: IMF (2024), Argentina Ministry of Economy, ANSES-FGS, BCRA, Paris Club, World Bank, IDB.

Since joining the IMF in 1956, Argentina has signed 22 IMF

programs — one of the highest numbers in the world.
The country is currently repaying the largest loan ever
granted by the IMF ($57 billion in 2018 under Macri).
Sources: IMF, CountryEconomy.
Argentina’s Trade Balance Challenges
Trade Balance Trends Structural Pressures on the Current Account
Argentina’s exports—mainly soy, corn, lithium, and beef—
highlight its heavy reliance on commodity exports.
At the same time, imports of energy, machinery, and
technology reveal a structural dependence on foreign goods.

Trade balance is volatile, often fluctuating with global prices and

climate (e.g. energy import spikes, droughts).

High External Debt: ongoing debt payments cause large

primary income outflows, often turning trade surpluses into
current account deficits.
Exchange Rate Instability: currency swings and devaluations
distort trade, raise import costs, and fuel inflation.
Policy Uncertainty: frequent shifts in trade and currency
rules hurt predictability, investment, and long-term efficiency
 Argentina’s Economic Overhaul
Milei’s Economic Liberalization Plan
Implicit Dollarization Trends
A broad reform agenda is underway to reduce state intervention and boost private
Asset Regularization: CERA attracted $23.3B, raising dollar
investment. Driven by two key legislative initiatives:
deposits to $34.6B (by Oct 2024), expanding FX-based financing.
Ley Ómnibus: A sweeping bill laying the groundwork for market liberalization.
Currency Competition: 2025 plans enable transactions in any
Decreto de Desregulación de Economías: Aimed at minimizing state control and
currency chosen by the parties — signaling a shift toward dollar use
fostering market competition
as a stabilizing tool.
Exchange Market Reform: Gradual unification and liberalization
Together, these reforms initiated key structural shifts:
of the exchange rate expected to further expand foreign currency
Privatization & Deregulation: Deregulated sectors (energy, labor); plans to
usage.
privatize firms like Aerolíneas Argentinas
This cautious, phased shift leverages foreign
Spending Cuts & Fiscal Discipline: 28% drop in public spending (Jan–Nov 2024);
currency stability to complement peso-based policies
cuts to pensions, subsidies, and public wages
— pending broader macroeconomic stabilization.
Bureaucratic Simplification: Hundreds of regulations scrapped; streamlined
government procedures
Investment Promotion: Eased capital controls; legal reforms to attract foreign
investors
Public investment
25
20
Other 15 Retirement provisions
10
5
0

Regional transfers Welfare

State employees salaries

Key Currency & Monetary Strategies
Objective: To reach disinflation, exchange rate stability, and electoral success.
Possible risks
1. Gradual Adjustment of the Crawl Rate: The government is reducing the pace of currency depreciation
Overvaluation of the peso, which could
(the "crawl rate") to allow the exchange rate to adjust more flexibly, while avoiding abrupt devaluations.
harm exports and build pressure on
The exchange rate adjusts more freely, but in a gradual and controlled way
foreign reserves (and loss PPP)
Sudden shocks that could harm the economy are avoided
Inflation is kept more stable in the short term

2. Phased Removal of Currency Controls: The planned dismantling of the cepo cambiario (capital and
exchange restrictions) by 2026 — potentially sooner with IMF support. Higher volatility in the foreign
Restore full convertibility and market-driven FX flows exchange market and potential for
Attract foreign capital inflation rebound
Reinforce investor and business confidence

3. Strategic Engagement with the IMF: Ongoing negotiations with the IMF aim to reinforce the reform
agenda through financing, debt management, and institutional credibility. Loss of policy flexibility, growing
Government goals: Strengthen reserves, manage external obligations, and ensure macro stability political pressure, or credibility damage
ahead of the 2025 elections if targets are missed
IMF objectives: Support disinflation, exchange rate alignment, and debt sustainability
 Macroeconomic Progress Amid Peso Overvaluation
(Milei 2024)
Key Macroeconomic Outcomes (2024–2025) Peso Overvaluation
Fiscal Deficit: Eliminated, marking a significant achievement in Over the past year, inflation was 117 percent, yet the peso depreciated by
stabilizing public finances.​ less than 30 percent—leaving it at one of its strongest levels in decades.
Exchange Rate: Gap between official and parallel rates narrowed, The Argentine peso is too strong relative to what it should be, based on
indicating increased market confidence.​ inflation.
Public Support: Milei’s approval has held near 50%, despite poverty This overvaluation threatens Milei’s exchange rate-based stabilization
exceeding 50% and a non-agricultural GDP contraction of over 5% strategy, especially with the critical reserves condition.
Inflation: Reduced to moderate levels through 2024; annual rate at Argentina’s multilateral real exchange rate index fell sharply in 2024,
117%, with monthly figures showing a downward trend.​ signaling a significant loss of external competitiveness.

Sources: PIIE, INDEC Sources: PIIE, BCRA

Argentina’s Reserves Crisis: A Mounting Economic Risk
Current Challenge: Critically Low Reserves Rising External Needs and IMF Dependency
Reserves have fallen to US $22.8 billion, their lowest since Jan 2025. Argentina will need rising external financing to meet growing IMF
Argentina’s reserve shortages stem from longstanding issues with inflation, repayments and rebuild critically low reserves. A third IMF program
debt, trade imbalances, policy missteps, and a lack of trust in the peso. is essential—not only to refinance debt, but to secure fresh funds and
stabilize its external position.
External financing needs rise sharply from $13.5B in 2025 to over
$21B by 2029.
IMF debt service dominates future obligations, nearly doubling from
$3.5B in 2025 to $10.1B in 2029.

Total Reserves (Excluding Gold)

Source: IMF Via FRED

Crawl Rate Reduction: Limited reserves weaken the central bank’s ability
to manage the FX rate , risking devaluation and inflation if control is lost.
Currency Control Removal: Without buffers, lifting controls leaves the
peso exposed, raising the risk of a sharp drop, capital flight, and volatility.
IMF Deal Negotiation: Low reserves weaken Argentina’s credibility and Sources: PIIE, IMF Country Report No. 24/167, June 2024, page 50, table 7.

leverage, making it harder to secure favorable terms or timely funding.

IMF Pathways Ahead — Strategy, Politics & Risks
Milei is prioritizing disinflation and FX stability over reserves and overvaluation, despite urgent financing needs

Three Possible Paths in IMF Negotiations

Scenario Features Risks
-Avoid IMF conditonality (rates, FX) -Deepens vulnerability
1.Delay Deal
-Taps expensive market financing -No fresh IMF funds
(Wait until post-elections) -Reserves fall further -Risk of market distrust

2. Cosmetic Deal -IMF accepts Milei’s view on peso valuation -Builds up FX imbalance
(Upfront cash, soft -Trump-era rapport improve odds -Weakens position post-election
conditions)

3. Phased Deal (Underway) -Short SBA (2025): Covers debt, stabilizes flow -Eases near-term pressure
(2-step IMF program) -Full EFF (2026): Includes FX correction, policy -Balances political+fianncial goals
reforms

IMF DEAL Potential Ripple Effects

Short-term liquidity relief for imports and debt
$20 billion IMF agreement announced on March 27, 2025.
Deal expected to close within weeks; goal: boost reserves Improved confidence in peso and reduced blue dollar gap
to USD 50 billion Market signal for investment, risk premium drop
Argentina also seeking funds from multilateral Harsh IMF terms (austerity, public spending cuts)
institutions (e.g., World Bank)
Social unrest if poverty/unemployment worsens
Conclusions
Purchasing Power Parity (PPP) and the Argentine Reality

THEORY REALITY

Purchasing Power Parity compares the cost of a standard But in Argentina, the parallel "dólar blue" market creates
basket of goods (like a Big Mac) across countries. It distortions:
estimates what the exchange rate should be to equalize
The official exchange rate is set by the government and
purchasing power. The PPP theory states that:
does not reflect the real value of the peso
Relative PPP Due to persistent devaluation and high inflation, the
official rate becomes increasingly disconnected from the
Currency depreciation should match the inflation differential.
market's perception of the peso’s worth.
Absolute PPP The dólar blue (parallel market rate) has become the
main reference for most people, making the official rate
Exchange rates should adjust based on price levels.
irrelevant.
Prices, wages, and imported goods are often calculated
If PPP held true, the peso would depreciate exactly as predicted
by inflation differences, ensuring stable purchasing power based on the dólar blue.
across countries.
 Social Implications of Economic Reforms
Poverty and inequality: Argentina's economic
inequality is one of the highest in Latin America.
Austerity measures that affect the poor could exacerbate
these disparities.
Despite a drop to 34.9% poverty rate (Feb 2025),
social vulnerability remains high.
Cuts to subsidies and welfare risk deepening
hardship, especially for low-income groups.
Inequality remains severe — austerity policies
could widen the gap between rich and poor.

Job losses and unemployment: González-Rozada, Martín

Public sector downsizing: Over 40,000 civil service jobs eliminated, alongside the halving of ministries and deep cuts to public institutions
in education, healthcare, and science — disproportionately impacting poorer provinces.
Freezing of transfers: Federal payments to provinces were frozen, while nominal wages and pensions lagged behind inflation, eroding real
incomes.
Private sector vulnerability: Industries previously supported by state subsidies — especially energy, transport, and public works — face job
losses due to austerity and deregulation.
Lack of mitigation policies: No comprehensive retraining or transition programs have been announced, worsening the structural
employment gap, especially among youth and informal workers.
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Thank you