The International Monetary Fund has issued a stark warning about Argentina's financial stability, describing the country's international reserves as remaining at "critically low" levels despite substantial economic improvements under President Javier Milei's administration.

"The economic fundamentals have improved substantially since the end of 2023, but net international reserves remain critically low," the fund stated in its latest External Sector Report titled "Global Imbalances in a Changing World."

The assessment carries particular weight as it coincides with ongoing discussions between the IMF and Argentine authorities regarding the first technical review of a landmark $20bn Extended Fund Facility programme implemented in April.

As the IMF commenced its first review of the programme, Argentina remained confident of receiving an upcoming $2bn disbursement from the global lender despite missing reserve targets.

The IMF outlined several policy recommendations to address Argentina's precarious situation, including sustained fiscal programme implementation, a more robust monetary and exchange rate regime, and measures to rebuild international reserves. The organisation voiced the need to "maintain a solid trade balance, attract foreign direct investment, regain market access, and safeguard external sustainability."

Specifically, the Washington-based lender advocated for "a more flexible exchange rate, along with a gradual easing of remaining foreign exchange restrictions" and reforms toward "a more open and market-oriented economy."

This assessment presents a significant challenge for Milei's administration, which has made considerable progress in fiscal consolidation but continues to struggle with foreign currency shortages. The IMF's emphasis on structural reforms and exchange rate flexibility places pressure on Buenos Aires to comply with the crucial IMF programme.

This warning comes amid broader questions about whether Argentina can finally break its historical cycle of economic crisis and recovery. As detailed in our previous analysis of Milei's radical economic overhaul, the libertarian president has achieved remarkable fiscal consolidation – including a five percentage point GDP turnaround in just two months – while bringing inflation down from over 200% to 43.5%.

However, the reserve accumulation challenge highlighted by the IMF reflects deeper tensions in the programme design, particularly around exchange rate policy and the government's reluctance to allow genuine currency flexibility ahead of October's crucial midterm elections. The success of Argentina's 23rd IMF agreement since 1958 may ultimately depend on whether Milei can navigate these political and economic pressures while maintaining the structural reforms needed to attract long-term foreign investment.