Argentina's latest $20bn International Monetary Fund agreement – its 23rd since 1958 – has been greeted with cautious optimism by economists and investors who have watched the crisis-prone country stumble through decades of failed programmes. The deal, announced in April, has handed President Javier Milei a significant victory, though critical questions remain about whether the country can finally break its cycle of boom and bust.

When the libertarian maverick took office in December 2023, Argentina was mired in economic crisis, with inflation surpassing 200%, capital controls stifling investment, poverty rates approaching 40%, a messy exchange rate regime and combined fiscal deficits equivalent to 15% of GDP. The central bank was effectively bankrupt, public debt was spiralling and the economy was shrinking.

After more than a year of radical overhaul, annual inflation has fallen to 43.5% as of May, and many indicators are on the mend. Milei, who claims to draw inspiration from the Austrian school of economics with its emphasis on market freedom and scepticism of state intervention, won the election on bold promises to shut the central bank and dollarise the economy – pledges analysts now consider unlikely to materialise.

His flagship approach is poles apart from the Peronist governments that ruled Argentina almost continuously from 2003 to 2023, save for Mauricio Macri's centre-right presidency between 2015 and 2019. The leftist populist movement embodied by former presidents Néstor and Cristina Kirchner splurged on welfare programmes, increased public benefits, resorted to the printing press to cover deficits and pursued a reckless agenda of nationalisations.

This wild pendulum swing in fiscal policy has played out repeatedly in Argentina's fraught relationship with the IMF, which stretches back decades and saw mixed results across administrations of all political stripes. Fernando de la Rúa's $40bn "blindaje" package in 2000 failed to prevent economic collapse and prompted his resignation the following year. Néstor Kirchner took the opposite approach, fully repaying Argentina's $9.8bn IMF debt in 2006 to end the fund’s influence over policy, whilst his successor and wife Cristina Fernández-Kirchner avoided new programmes entirely.

Macri's record-breaking $57bn standby agreement in 2018 – by far the largest IMF bailout in history – proved spectacularly counterproductive, becoming both politically toxic and economically ineffective, leaving his Peronist successor Alberto Fernández with the unenviable task of renegotiating a $44bn deal in 2022 marred by persistent inflation and missed targets.

Given this dismal track record, what gives analysts reason to believe Milei's fiscal discipline and newfound accord with the Fund might finally break the pattern?

According to Professor Diego Crochi, a macroeconomics expert at Universidad Católica Argentina (UCA) in Buenos Aires, the key difference is one of timing and preparation. Most crucially, unlike previous administrations that started negotiating with the IMF whilst still grappling with fiscal chaos, Milei's government completed the most painful adjustments before approaching the Fund.

"During [former president Mauricio] Macri's administration, the government didn't make the fiscal adjustment this current government is making," Crochi told bnl IntelliNews. "You put the macro stabilisation first. You keep the capital controls first. And then once the economy is recovering, you are doing this IMF deal."

The scale of that adjustment has been remarkable. Milei achieved a fiscal turnaround of five percentage points of GDP in just two months – a feat Crochi describes as previously unthinkable in Argentina. More surprisingly, this was accomplished "without any major social disturbance", defying expectations in a country where austerity measures typically trigger widespread protests.

A different kind of IMF deal?

This represents a fundamental departure from Argentina's historical approach to the Washington-based lender. Previous programmes, including Macri's failed $57bn bailout in 2018, were designed to prop up governments still struggling with basic macroeconomic stability. Milei's administration, by contrast, approached the IMF having already achieved fiscal balance and begun dismantling the interventionist apparatus inherited from the previous Peronist government.

"They said, 'OK, we did all the adjustments you want. So now what we need is to deal with these capital outflows remaining from the previous administration,'" Crochi recounts. "So I need the dollars to improve the central bank balance sheet so I don't have extra pressure on the exchange rate."

The $12bn front-loaded disbursement – larger than many expected – signals the IMF's confidence in Milei's initial reforms whilst providing crucial ammunition for the next phase of liberalisation. The timing proved fortuitous, as global financial markets have grown increasingly volatile amid escalating trade tensions between the United States and China.

"Argentina has shown that this time is different. This time there is a determination to steer the economy solidly," said IMF Director Kristalina Georgieva while announcing the deal, throwing her weight behind the libertarian president’s massive economic endeavour.

But the programme's success hinges on a delicate balancing act. The fund has made clear its expectation that Argentina must allow its exchange rate to find market levels, ending years of artificial currency manipulation that has distorted the entire economy.

The currency trap

Herein lies the programme's central tension. Whilst Argentina has technically adopted a floating exchange rate regime within a band of ARS1,000 to 1,400 per dollar, Crochi argues the government continues to resist genuine price discovery. "Technically, we have a floating exchange rate, but they are doing things to not let it freely float," he says, "That's the main issue."

The government has been selling dollar futures for December 2025 – around $1bn worth – whilst creating incentives for banks and other institutions to sell dollars in the spot market and purchase peso-denominated fixed-term deposits. This creates what Crochi describes as an effective US dollar interest rate of around 18%, providing strong incentives to avoid the official exchange rate.

"So you have a lot of incentives right now to sell in the spot and to buy futures and local currency-denominated instruments," he explains.

This strategy reflects Milei’s obsession with maintaining the dramatic disinflation achieved over the past year. Quarterly inflation has plummeted from 52% in early 2024 to 8.7% in the first quarter of this year, with projections suggesting annual inflation could end 2025 at just 22% – the lowest in years.

But Crochi warns this approach, which Milei touts as economic orthodoxy, paves the way for fundamental contradictions. "When you have a fiscal adjustment of five points of GDP, theory tells you that you need a real depreciation of your currency, and that's not happening," he says. "So we are having a worse situation in terms of the trade balance, and we are seeing the economy needing more dollars to cope with this deficit."

Electoral arithmetic and Cristina’s shadow

The reluctance to allow much-needed currency adjustment stems largely from electoral calculations. October's midterm elections represent what Crochi views as "the first electoral test for the government" and effectively a referendum on whether Kirchnerism – the interventionist populist movement associated with former presidents Néstor and Cristina Kirchner – remains a viable political alternative.

"The idea here in Argentina is they want to know if Kirchnerism is dead or not – if they have a chance to regain power in 2027," Crochi explains. "That's the main question, and I hear that question from a lot of international investors."

Recent developments have amplified this anxiety. Argentina's Supreme Court recently upheld the corruption conviction of ex-president Cristina Fernández de Kirchner, confirming a six-year prison sentence and a lifetime ban from holding public office. But with her party now scrambling to find a successor, any proxy of the controversial yet still popular former leader could prove a formidable opponent should Milei's “shock therapy” falter at some point.

The Peronists retain approximately 30% of the electorate as their "hard core", but the crucial swing voters in the middle class will determine whether Milei's reforms can achieve the political sustainability necessary for long-term success. And a significant exchange rate movement before the vote could potentially trigger higher inflation, undermining one of Milei’s signature achievements. Thus “the government is unlikely to let the FX float before the mid-term election,” Crochi says.

"If you have lower interest rates, if you have free capital mobility, agents want to dollarise portfolios previous to elections," he warns. "So that's the main risk we are seeing right now."

The fund seems to be well aware of the risk. During the IMF spring meetings, Georgieva said that “The country is going to go to elections, as you know, in October. And it is very important that they do not derail the will for change. So far, we do not see that. We do not see that risk materialising, but I would urge Argentina to stay the course.”

This political uncertainty helps explain the continued wariness among international investors, despite the government's market-friendly reforms. Foreign direct investment actually declined between April and May, even as the IMF deal was being finalised.

"When I talk to mining companies, for example, they have business plans spanning 30 years," Crochi notes. "They don't care if Milei is going to last four years, and then we go back to capital controls. It's a long-term game."

The investment dilemma

The pattern of policy reversals has haunted Argentina for decades, creating what Crochi describes as a recurring cycle between intervention and liberalisation. "Since the 1970s, from interventionism to free capital markets to interventionism again to free capital markets again; we are going back and forth a lot of times," he observes.

Unsurprisingly, this history weighs heavily on business decisions. Mining companies in Los Andes and other major projects are "waiting to see if this time is really lasting", whilst the currently overvalued peso makes Argentina less attractive for export-oriented investments.

Even Milei's Large Investment Regime (RIGI), designed to attract mining and energy companies and embraced by mining majors such as Rio Tinto and McEwen, has yet to generate the expected capital flows. "There were projects, but not as the government thought," Crochi explains, "Companies want to know if this is going to last."

The government has sought to address these concerns through various mechanisms, including eliminating the "dollar blend" rule that previously forced exporters to sell a portion of their proceeds at artificial rates. Under the new system, all export dollars must be liquidated in the official market, which should help the central bank accumulate reserves.

But significant restrictions remain in place. For instance, while companies can repatriate dividends generated from 2025 onwards, profits from previous years remain subject to controls, Crochi explains.

Reserve accumulation challenge

Perhaps the most significant near-term challenge facing the programme, though, is Argentina's commitment to accumulate $4bn in international reserves by year-end. Crochi considers this target "quite optimistic" under current conditions, noting that the central bank has struggled to purchase dollars in the official market.

"The main performance criteria for the deal is you have to build up international reserves, and the Central Bank is not buying dollars," he warns, "We are not meeting the June target, so probably it's going to be difficult to meet the end-of-year deadline."

The reserve problem reflects broader tensions in the programme design. Argentina needs to build reserves to regain credibility on the global stage and eventually return to private capital markets – something analysts predict will happen in 2026. But doing so requires either allowing the peso to weaken, which could trigger inflation, or finding alternative sources of dollar inflows.

The government has explored various creative mechanisms, including BOPREAL (Bonds for the Reconstruction of a Free Argentina) bonds denominated in US dollars that were issued to clear import payment backlogs. However, these instruments, which are supposed to pay profits and dividends to non-resident shareholders, trade at exchange rates of around ARS1,400 per dollar, making them unattractive for most market participants.

International support has helped fill some gaps. Just as the IMF confirmed the new programme, the World Bank and Inter-American Development Bank provided an additional $22bn in financing, whilst Argentina has renewed a $5bn currency swap with the People's Bank of China, despite Milei’s initially vocal anti-Beijing rhetoric. The government also hopes to secure $2bn in repurchase agreements with international banks.

Social policy and political sustainability

One factor supporting the programme's political sustainability has been Milei's approach to social policy. Contrary to typical austerity programmes, the government has actually doubled social assistance in real terms whilst cutting other expenditures.

"The government's one expenditure item that they did not cut – they doubled it in real terms – was social assistance," Crochi explains. "They are targeting fiscal expenditure towards the poorer."

This strategy, combined with lower inflation, has helped prevent the kind of massive social unrest that typically accompanies such dramatic fiscal adjustments. "With lower inflation as we have right now, poor people do not lose purchasing power," Crochi notes. "They don't know how to cover inflation risk, so if you have low inflation, they are in a better position than they were before."

Still, the government's gradual reduction of social benefits and subsidies – particularly for food, energy and public transport – imposed hardship on the population and prompted protests from pensioners and student groups. But Crochi argues the scale of unrest has been remarkably contained. "For Argentina, this is nearly nothing," he says.

The government's communication strategy has also proved effective. Milei campaigned explicitly on a platform of fiscal austerity, making his subsequent actions less surprising to voters and warning that “things would get worse before they got better.”

Structural reform agenda

Beyond immediate macroeconomic stabilisation, lasting success requires deeper structural reforms that go well beyond IMF conditionality. Milei has outlined an ambitious agenda including labour market liberalisation, pension system overhaul and a comprehensive tax restructuring that would fundamentally reshape Argentina's stiff fiscal federalism.

Perhaps most significantly, the government aims to reform the "coparticipación" law that governs revenue distribution between provinces and the national treasury – a change Crochi describes as potentially "quite impressive" if successfully implemented through Congress.

The libertarian leader’s approach to competitiveness also represents a philosophical departure from traditional Argentine practice. "When questioned about competitiveness, he says 'we don't want to gain competitiveness through devaluation. We want to gain it through structural reforms,'" Crochi explains.

This emphasis on supply-side reforms rather than currency depreciation aligns with classical liberal economic theory, but implementing such changes requires congressional majorities that Milei’s La Libertad Avanza right-wing party currently lacks. Success in October's elections could provide just the political capital needed to push through more controversial reforms.

Meanwhile, provincial governments have already begun adapting to the new fiscal reality. When Milei cut discretionary transfers to provinces – one of his first acts as president in early 2024 – most regional administrations were forced to implement their own austerity measures. "Most of the provinces budged because it was just not on the table not to adjust," Crochi notes, "So we’ve seen some sort of implementation of Milei-like policies in some provinces, even though they are Peronist."

International context

Argentina's foreign policy alignment under Milei, which has shifted heavily towards the US and away from the Global South by ditching an invitation to join BRICS, adds another layer of complexity to the reform programme. Despite fiery campaign rhetoric about distancing from China, trade with Beijing has actually expanded under Milei's administration. "If you look at the trade balance with China, it's increasing – like 100% in quantities," Crochi observes, though he stresses this reflects economic pragmatism rather than geopolitical preference.

The currency swap renewal with China proved particularly important for reserve accumulation, despite potential tensions with the Trump administration's preference for reduced Chinese engagement in Latin America. Treasury Secretary Scott Bessent's visit to Buenos Aires in April provided reassurance about continued US support for the IMF programme, which could not have been approved without Washington’s backing, given its de facto veto power within the fund.

Milei has also expressed interest in eventually negotiating a free trade agreement with the United States and potentially exiting Mercosur if deemed incompatible by Washington. This comes just as the South American trade bloc prepares to finalise a major deal with the European Union, while Trump simultaneously moves toward increasingly protectionist policies. Yet these controversial proposals, which could even more radically reshape Argentina's economic geography, remain subject to Milei’s whims, congressional approval and national political developments.

Market response and investor sentiment

Financial markets have responded enthusiastically to the IMF agreement and currency control liberalisation. Country risk spreads fell nearly 200 basis points following the announcement, whilst the peso has shown remarkable stability within its new trading band.

However, this market optimism reflects short-term positioning rather than fundamental confidence in long-term stability. "You just have to think that stock markets in the US also crashed, emerging markets crashed [following the introduction of aggressive tariff policies by US President Donald Trump, subsequently partially rolled back]," Crochi notes, "When you talk to international investors, they say there are a lot of countries with good prospects. So they, at least for financial flows, are still preferring other countries to Argentina."

The key test will come if and when the peso approaches the weaker edge of its trading band. Market participants will closely watch whether the government defends the currency through reserve sales – potentially undermining the programme's credibility – or allows depreciation that could reignite inflation concerns and risk a political blowback.

The verdict and road ahead

For now, Crochi remains tentatively positive about Argentina's prospects, though he stresses the critical need for exchange rate flexibility. "[The IMF deal is] an excellent programme the government is doing and it's giving great results. However, they do need an extra step and let the real exchange rate float to show the economy what the price system has to do."

The timeline for meaningful change remains extended. Crochi estimates that substantial foreign investment flows could take "two to three years" to materialise, even under optimistic scenarios. "I'm not betting on having large FDI flows, at least in the short term," he says.

The stakes now could hardly be higher. After decades of economic mismanagement and botched reform attempts, Argentina has secured what may be its last opportunity to achieve lasting macroeconomic stability. A win would vindicate Milei's radical approach and potentially provide a template for other crisis-prone emerging markets. Failure would likely condemn Argentina to yet another lost decade.

Perhaps most crucially, the programme's ultimate success depends on demonstrating that market-oriented reforms can deliver sustained prosperity, breaking the historical pattern that has seen Argentina lurch between liberalisation and state intervention for over half a century.

"The question is, are we going to go back to these kinds of policies?" Crochi reflects. "We don't know right now. It's impossible to tell. But this time has to be different – for Argentina's sake and for the sake of long-term investors who need to know if these changes are going to last."

Only the next few months, and above all October's elections, will determine whether the country can finally escape the economic curse that has defined it for decades.