On Friday, representatives of the International Monetary Fund and Javier Milei’s far-right government met for the first time in Buenos Aires to renegotiate the terms of the Extended Fund Facility program signed in 2022 to resolve the matter of the $45 billion debt incurred in 2018. The last face-to-face meeting was in August, when then-economy minister and presidential candidate Sergio Massa managed to wrest an agreement from the IMF for temporary relief – one which Buenos Aires proceeded not to fulfill.
Now, however, the ones in charge of Argentina’s fortunes are advocates of fiscal discipline even stricter than traditionally prescribed by the Fund’s specialists. Two years ago, the IMF was calling for lowering the deficit to 0.9 percent of GDP, but Milei has already approved a shock economic plan to bring it down to zero. The government is preparing to submit a request for a waiver on the payment of the installments for 2024, estimated at $7.3 billion. In return, it is offering a cut in public sector wages and pensions, already frozen by ministerial order so as to lessen the impact on spending due to inflation, estimated at around 200 percent for this year. It is also planning to eliminate subsidies for energy consumption, a plan already announced in December by Economy Minister Luis Caputo, to enact a devaluation of the peso against the dollar, which has already begun, and to deregulate the currency market. Both the government and opposition agree that these measures will hit the country’s poor and middle class hard.
At the grassroots level, the situation is increasingly alarming. According to a survey by the Instituto de Investigación Social, Económica y Política Ciudadana (ISEPCI) released on Thursday, in the working-class neighborhoods on the outskirts of Buenos Aires, there has been an increase of 48.8% in the reference prices of primary goods since Milei’s advent to power. The liberalization of fuel prices also brought a 27 percent increase at gas stations as of Wednesday morning, the first new price increase of 2024. The government also decided not to renew the VAT refund plan for taxpayers with low to medium wages launched by the previous government, which ended January 1. This situation has led many Argentines to resume the protests against the government, with nightly cacerolazos returning to several cities this week, and the General Confederation of Labor (CGT) calling for a general strike on January 24.
Argentine unions have already achieved a small but significant victory this week: the Court of Appeals ruled in favor of the appeal filed by the CGT against one of the chapters of the Emergency Decree issued by the president on December 20 which reforms current labor legislation to facilitate layoffs and reduce social security contributions and severance payments. The government will now file a new appeal with the Supreme Court.
The other front on which Milei’s “chainsaw plan” is starting to face serious difficulties is the legislative one: his libertarians and their allies have failed to put together the required majority to pass the first of 11 urgent bills sent by the government last week, and it appears unlikely that they will succeed in time for the extraordinary sessions scheduled for January 31. It looks like the resistance to the new government’s reforms is starting to take shape in the January heatwave, and this is one of the main concerns of the Fund officials who arrived in Buenos Aires today. Although Milei’s plan goes far beyond the ambitions of the creditors, the lack of popular support and the strong opposition to the austerity the government has announced could derail the latest in an endless series of “rescue programs” for the Argentine economy.
