Yellen says Argentina faces ‘tough transition,’ open to IMF’s ideas
FILE PHOTO: U.S. Treasury Secretary Janet Yellen testifies before a House Financial Services Committee hearing on the “Annual Report of the Financial Stability Oversight Council” on Capitol Hill in Washington, U.S., February 6, 2024. REUTERS/Amanda And
By Andrea Shalal
SAO PAULO (Reuters) – Argentina is talking to the International Monetary Fund (IMF) about a possible new financing program with different targets for the embattled economy, U.S. Treasury Secretary Janet Yellen said after meeting Economy Minister Luis Caputo.
The new government of libertarian President Javier Milei is willing to take “very promising” steps to deal with the South American’s economy’s underlying problems, Yellen told Reuters on Thursday after her first meeting with Caputo.
Milei has pledged to reverse the crisis in Argentina – where inflation is at 250% and a reported 57% of people live in poverty – with tough austerity measures, a message that has gone down well with markets and investors but created tension with unions and regional governors.
“They inherited an impossibly difficult situation, and I think the steps that they have announced that they are willing to take are very promising,” Yellen said on the sidelines of a Group of 20 meeting in Brazil. “It’s going to be a really tough transition as they try to get fiscal policy under control.”
Caputo on Thursday denied a media report that the government was negotiating a new IMF loan program at the moment but said the global lender was open to such discussions with its largest debtor.
A $44 billion loan program slid off track last year amid rising inflation and a deepening fiscal deficit. The two sides are discussing how to revamp the deal. A new deal would be a more significant step that would involve fresh funds to an economy with foreign currency reserves in the red and tight capital controls.
An IMF official, asking not to be named, said the lender was focused on supporting Argentine government policies that help restore macroeconomic stability, adding it would be “premature” for the two sides to discuss details about any new program.
Yellen said Caputo was “very open to the IMF’s ideas.”
“They are potentially talking about a new program and setting different targets. They’re working with the IMF and are going to continue to do so,” she said.
Yellen said Argentina’s long history of financial crises and debt defaults was a case study when she taught at the University of California, Berkeley, and most analysts viewed its failure to control budget deficits as its fundamental flaw.
“This is a country that used to be one of the richest in the world. For the last 100 years, they’ve apparently had dozens of financial crises and defaulted on their international debt nine times. They’ve suffered from high inflation, hyperinflation and every macroeconomic evil,” she said.
At their meeting Caputo told Yellen his government knew there were challenging times ahead but he felt confident its reforms would usher in an inflection point.
Yellen welcomed what she told Caputo were “important steps” by the Milei government to restore fiscal sustainability, adjust the exchange rate and fight inflation.
