The International Monetary Fund has signalled cautious backing for Argentina's recent foreign exchange market interventions whilst urging greater transparency in currency management, as President Javier Milei's government faces mounting political pressure ahead of October's midterm elections.

Speaking at the Fund's regular press briefing in Washington on September 11, IMF spokesperson Julie Kozack confirmed to bne Intellinews that staff had been informed of "recent spot market interventions by the Treasury", which Argentine authorities characterised as a temporary response to heightened market volatility.

The acknowledgement comes after Finance Secretary Pablo Quirno announced direct government participation in the FX market on September 2 to address currency pressures that saw the peso decline as much as 2.8% in early trading. The interventions, partly aimed at meeting the $20bn IMF programme's reserve accumulation goals, mark a departure from the banded floating exchange rate regime introduced in April.

"We have continued to emphasise the importance of a transparent, consistent, and predictable monetary and FX framework to help manage market volatility," Kozack said, stopping short of explicitly endorsing the Treasury's actions whilst avoiding direct criticism.

The Fund's carefully calibrated response reflects the delicate balance it must strike with Buenos Aires following the libertarian government's crushing defeat in the September 7 Buenos Aires provincial elections, where Milei's La Libertad Avanza party secured just 34% of votes against 47% for the centre-left Peronist opposition.

The president himself had raised the stakes by framing the contest as a "life-or-death battle" against the opposition, lending the local vote the air of a plebiscite on his administration. Milei later acknowledged the "clear defeat" and admitted to making unspecified "political mistakes" that "we will accept, process and correct". However, he remained defiant, declaring he would not "retreat by a single millimetre in government policy.”

Despite the electoral setback, Kozack pointed to Argentina's economic achievements, noting that the government had delivered primary surpluses through August consistent with programme targets and achieved monthly inflation below 2% for four consecutive months.

"We support the authorities' continued adherence to the fiscal anchor and their comprehensive deregulation agenda," she said, though acknowledging that reserve buffers were "taking longer to rebuild" than anticipated.

The spokesperson revealed that Managing Director Kristalina Georgieva had spoken with Economy Minister Luis Caputo earlier this week to discuss programme implementation, with Caputo expected to attend the Fund's annual meetings in October.

Reserve accumulation remains a persistent challenge for the South American country, with net international reserves still at what the IMF describes as "critically low" levels despite July's approval of the first review, which released $2bn and brought total disbursements to $14bn.

Since assuming office in December 2023, Milei has pursued an aggressive austerity agenda, cutting public expenditure dramatically, axing tens of thousands of public sector positions, and implementing sweeping deregulation. Yet economic gains have proved elusive for many Argentinians. "The economy has not advanced sufficiently, inflation has not been brought down in any significant way, and wages have been practically frozen," Juan Gabriel Tokatlian, professor of international relations at Universidad Torcuato Di Tella in Buenos Aires, told The Guardian.

When asked whether the lender would advance the remaining $6bn if Argentina fails to meet reserve targets by year-end, Kozack declined to speculate but stressed the importance of continued efforts "to rebuild reserves, to strengthen confidence in the peso, reduce spreads, and secure timely access to international capital markets".

The Fund's stance suggests it remains willing to show flexibility on technical targets as Milei's government implements painful structural reforms. Yet, questions persist about the sustainability of this approach if October's congressional elections further erode the administration's political capital.

The October 26 midterms will see half the lower house and a third of the senate up for renewal, potentially dealing a more serious blow to Milei's reform agenda as the opposition rallies behind Buenos Aires governor Axel Kicillof, a Peronist rising star whose statist economic views are diametrically opposed to the president's.

Several reporters at the briefing pressed the IMF spokesperson on concerns about waning political support for cost-cutting reforms. Although she avoided direct commentary on electoral implications, her repeated emphasis on the authorities' need to maintain “commitment” and “continued adherence” to the programme suggested awareness of the political headwinds facing the reform agenda.

And even if the Treasury's market interventions received tacit IMF approval, they betray the government's anxiety about maintaining financial stability during a critical electoral period. With Buenos Aires Province representing nearly 40% of Argentina's population, last week’s result serves as an ominous preview of potential losses in October's nationwide contest.

For now, the Fund appears willing to tolerate tactical adjustments to Argentina's exchange rate framework, provided the broader reform trajectory remains intact. But as one reporter noted in questioning whether a potential government defeat might "further complicate the economic programme", the sustainability of this forbearance may ultimately depend on the libertarian leader's ability to stem his political decline whilst maintaining the fiscal discipline that has won international backing.

The Argentine peso closed at AR$1,425 on September 9 after the “Black Monday's” volatility a day prior, with sovereign bonds recovering from their steepest falls since April. Whether these interventions prove a temporary stabilisation measure or mark the beginning of a more interventionist approach will likely depend on the October electoral outcome – a reality the IMF, despite its public support, clearly recognises.

"Here in Argentina [investors] want to know if Kirchnerism is dead or not – if they have a chance to regain power in 2027," Professor Diego Crochi, a macroeconomics expert at Universidad Católica Argentina (UCA), told bne Intellinews. 

October's midterm elections, Crochi argued, represent "the first real electoral test for the government" and effectively a referendum on whether Kirchnerism – the interventionist, Peronist populist movement associated with former presidents Néstor and Cristina Kirchner – remains a viable political alternative.