Argentina’s breakout moment

A new fund program creates an opportunity to deepen reforms

Argentina, the world’s most famous defaulter, has flipped the script.

With a staff level agreement announced earlier this week, Argentina is poised to win a $20 billion new program from the International Monetary Fund (IMF), which will help the government cement its program of revamping the country’s long-broken finances. This raises hope that Argentina will succeed in its quest, but the country’s inherited imbalances are so large that it needs to stick to its reform plan to avoid falling back into crisis, as it has so many times in the past.

Chainsaw reform

Defying skeptics, Argentina was the world’s leading reformer in 2024—a rare island of fiscal responsibility in a world awash in debt. Economist Javier Milei shocked the world by winning the presidency in November 2023 by promising to bring financial discipline and economic stability to the famously profligate Argentine state, explaining his platform to voters by waving a chainsaw from the roof of a car. International observers were shocked that Argentine voters didn’t vote for the candidate promising to protect government handouts but the one promising pain now, gain later. Experts quickly pronounced that Milei’s plan was “politically & socially impossible.” But they were proven wrong when Milei delivered an astounding 5% of GDP fiscal adjustment, retained broad support, and bond prices soared.

The significant change here is the behavior of Argentine voters.

Javier Milei explained that Argentina spent too much, printed too much money, which led to inflation and to external defaults. Milei said Argentines were responsible for their failures and the people voted for him—not for the opposition party who for decades has blamed foreigners and former dictators for the country’s ills.

Argentina’s new $20 billion program with the IMF—expected to be confirmed tomorrow—is a critical milestone in Argentina’s transition from defaulter to non-defaulter status.

The new program provides an important seal of approval, the IMF staff and its board lining up behind the country. The message of support for the Argentine people is simple and clear: the world supports you and wants to help you get the job done.

A new program

Financially, the program will help Argentina rebuild its foreign reserves.

The significance here is that while Argentina successfully balanced its peso accounts in 2024, its foreign reserves are depleted because of the government’s policy of honoring maturing debt. Argentina’s central bank made record dollar purchases from the private sector in 2024, but these funds were used to honor debt payments due to bilateral, multilateral, and private creditors. Now Argentina will gain a healthy reserve buffer. Moreover, later this year, the country should be able to re-access the international market to refinance maturing debt. Success in cementing Argentina’s non-defaulter status is near.

But Argentina is not out of woods.

Argentina needs to complete Milei’s structural reform agenda to achieve lasting success. Historically, the government used subsidies, regulations, protectionism, and devaluations to shield its inefficient industries from competition. It also used social payments to prop up household incomes to levels above that which could be sustained by the government considering the country’s relatively low productivity and the government’s correspondingly weak taxing power—the root cause of Argentina’s repeat debt crises. The converse is that by fixing its structural problems Argentina should achieve increasing productivity, increasing real incomes, increasing government revenues, and lasting financial stability.

Unity and purpose

There is no shortcut—Argentina must keep pushing if it is to avoid falling back into distress and hyperinflation once again.

• First, Argentines need to fully support the government as it completes its reform program, including the terms of its new IMF program. Yes, cuts in jobs, pensions, and transport and utility subsidies have been hard on households and businesses. Yes, the poverty rate initially shot up to above 50%. But inflation is way down, growth continues to beat expectations, and the poverty rate has now fallen to 38%, about the level it was when Milei took office. The program is working and the government deserves widespread support in making this final push.

• Second, the Argentine political system needs to get fully behind the reform program. Milei has relied on shortcuts to balance the budget, including many Presidential decrees, the Argentine equivalent to US executive orders. To provide indubitable evidence that Argentine has moved beyond serial-defaulter, repeat inflationary status, the Argentine congress needs to—and sooner rather than later—formalize the country’s reform program into law. The political system needs to make that happen, whether by consensus-building, coalition, or by election. The world is watching for evidence of motion, particularly with respect to the mid-term elections to be held in November.

• Third, Milei needs to rely more on his strong team of technocrats, checking in with them before he takes action. His master stroke in his first year was to appoint Harvard Professor Federico Sturzenegger to lead structural reforms and Macri’s finance stars Luis Caputo and Santiago Bausili to head the Ministry of Economy and the Central Bank. Yet in February, Milei embarrassingly tweeted support for a crypto scam that blew up in his face. Milei needs to double down at what he is good at: guiding sound economic policy from the top while relying on his lieutenants to carry out the program.

Argentina now has its best chance in many years to achieve lasting economic stability. The country is headed in the right direction, and it deserves the strong international support it is about to win. But Argentina’s people, its political system, and its president need to show unity and purpose if the country is to make a clean break from its chaotic financial past.

Gregory Makoff is the author of Default: The Landmark Court Battle over Argentina’s $100 Billion Debt Restructuring; Senior Fellow, Mossavar-Rahmani Center for Business and Government at the Harvard Kennedy School.

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