The year 2024 was transformative for both President Javier Milei and Argentina. After just one year in office, Milei has achieved significant milestones: eliminating the fiscal deficit, bringing inflation to moderate levels, reducing the gap between the official and the parallel exchange rate (a free but illiquid market), and implementing the most ambitious liberalization and deregulation program Argentina has seen this century.
As 2025 begins, Milei’s administration faces two pivotal challenges that will determine the sustainability of his stabilization program.
The upcoming mid-term elections in October will be a test of his political strength, so the first challenge is securing a strong performance in these elections. A good result would not only strengthen governance but also solidify positive economic expectations, paving the way for the continuation of Milei’s economic reforms should he be reelected.
The second challenge lies in addressing the overvaluation of the Argentine peso. Over the past year, inflation was 117 percent, yet the peso depreciated by less than 30 percent, leaving it at one of its strongest levels in decades. This overvaluation poses a significant risk to Milei’s exchange rate-based stabilization program, especially given the central bank’s negative net reserves and the slow accumulation of international reserves.
Regarding the IMF Program, not signing a new agreement would put Argentina in a very delicate financing situation as its debt service to the IMF and other IFIs in 2025 is close to US$8 billion, which market participants would be unlikely to lend to Argentina to pay the international organizations.
January 28, 2025
SOURCE: MERCOPRESS
Milei’s 2025 challenges: Between Argentina’s mid-term elections and the IMF