## 1argea2025003-source-pdf

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### Executive summary — recent developments and program performance
- Program start: "appropriately tight fiscal and monetary policies" supported transition to a more flexible exchange rate regime and easing of most FX restrictions.
- Exchange rate and FX markets:
  - Official exchange rate fluctuated around the midpoint of a widening band.
  - Gaps between the official and parallel exchange rates largely eliminated.
  - Average daily FX volumes at the MULC surged from US$1.2 billion before the program to around US$2 billion since.
- Inflation and expectations:
  - Monthly headline inflation: rose to 3.7 percent in March and declined to 1.6 percent in June.
  - Annual inflation has fallen to around 40 percent.
  - Core inflation: 1.7 percent m/m in June.
  - Breakeven monthly inflation still below 2 percent for the remainder of the year.
- Economic activity:
  - Economy expanded by 5.8 percent y/y in Q1:2025.
  - Capacity utilization around 60 percent.
  - Recovery uneven: agriculture, energy, and mining lead; construction and manufacturing lag.
- Reserves and market access:
  - NIR increased by about US$4 billion between program approval on April 11 and June 30, before payments to bondholders for US$4.2 billion in early July.
  - Sovereign spreads tightened to the 700-750 bps range since program inception.
  - Argentina re-entered international capital markets, issuing peso-denominated sovereign bonds (subscribed in U.S. dollars) in late May and early June.
- Program performance:
  - Primary fiscal surplus target for end-May met with a margin; no central bank monetary financing.
  - Mid-June quantitative target for NIR accumulation missed; corrective measures include debt placements and FX block purchases reaching around US$5 billion since end-May.
  - Structural benchmarks: progress continues toward completion.

### Outlook and near-term projections
- Macroeconomic projections:
  - Economy projected to expand by 5.5 percent in 2025.
  - End-of-period inflation projected to fall to around 20–25 percent.
  - Current account deficit expected to widen to 1.7 percent of GDP in 2025 (from 0.4 percent projected at program approval).
- Financing of external deficit:
  - Higher external deficit being financed via stronger portfolio inflows and earlier-than-anticipated market access.
- Medium term:
  - Convergence toward potential growth; inflation narrowing; current account gradually returning to near balance under tight macroeconomic policies.
  - Reserve accumulation supported by sustained market access and rise in private capital inflows, including FDI, as reforms take hold.
- Risks:
  - Skewed to the downside: heightened trade and geopolitical tensions, challenges implementing reforms, political uncertainties ahead of mid-term legislative elections.
  - Recent legislative proposals worth about 1½ percent of GDP (pensions, disability benefits, transfers to provinces) that the President has declared intention to veto.

### Policy understandings — monetary, FX, fiscal, and financing
- Overarching stance:
  - Tight and appropriately balanced macroeconomic policies essential to anchor disinflation, improve reserve buffers, and sustain market access.
- Monetary and FX policy:
  - Exchange rate will continue to move flexibly within the band.
  - FX purchases should proceed to rebuild reserves consistent with agreed targets.
  - Monetary conditions to remain tight to support re-monetization and disinflation.
  - BCRA stopped formally setting a monetary policy rate; LeFis phased out and replaced by short-term Treasury bills (LECAPs).
  - BCRA’s net open position in the NDF market has risen to around US$5 billion.
- Fiscal policy:
  - Achieving a primary surplus of 1.6 percent of GDP necessary to manage demand and preserve the fiscal anchor.
  - 2026 draft budget to aim for a more ambitious fiscal stance.
  - Prompt advancement of planned tax reform vital to improve efficiency and equity.
- Financing policy:
  - Focus on catalyzing official creditor support, durably accessing international capital markets, and improving public sector debt profile while pursuing good faith efforts on litigation.
- Structural policy:
  - Steadfast implementation of ambitious structural reform agenda to improve state efficiency and foster a more market-based economy; policies to contain dislocation costs.

### Fiscal anchor and fiscal performance (details)
- Fiscal outcomes to May/June:
  - Central government cumulative cash primary surplus of about 0.8 percent of GDP through May.
  - Overperformed May indicative target by about 0.1 percent of GDP; consistent with overall cash surplus of 0.3 percent of GDP.
  - Cumulative primary surplus exceeded program target by 0.1 percent of GDP.
  - Cumulative primary surplus of 0.9 percent of GDP through June.
- Revenue and spending:
  - Strong revenue buoyancy: up 10 percent y/y cumulatively in real terms after excluding impuesto pais.
  - Real primary spending up around 6 percent y/y after contracting 28 percent in 2024; elsewhere reported as up 5 percent y/y through June.
  - Taxes related to economic activity up 11 percent y/y in real terms through June.
- Note on interest treatment:
  - Authorities’ reported cash interest payments exclude capitalized interest; including capitalized interest payments to the private sector above the line would imply a cash overall deficit of about 1.2 percent of GDP.
- Fiscal commitments and reforms:
  - Near-term target: primary surplus of 1.6 percent of GDP for remainder of the year; additional 0.3 percentage points of GDP introduced in April.
  - Draft 2026 budget to be presented by end-September 2025 and approved by end-December.
  - Revenue reforms: initial proposals by end-December 2025 (structural benchmark).
  - Close remaining extra-budgetary trust funds (29 out of 32 closed since program approval).

### Reserves, external sector, and FX regime
- Recent reserve dynamics and external flows:
  - Cumulative goods trade surplus (accruals) H1:2025 narrowed to around US$5 billion (down by US$6 billion y/y).
  - Export volumes grew by around 4 percent y/y.
  - Goods import volumes surged by over 40 percent y/y; outbound tourism jumped by 50 percent through June.
  - Cumulative current account deficit estimated at US$8 billion through end-June.
  - NIR increased by around US$2 billion between program approval and end-July (from -US$8.2 billion to -US$6.4 billion), despite FX payments.
  - Net international reserves at negative US$4.7 billion as of June 13 (short of program floor -US$1.1 billion).
  - NIR later reported around US$-6 billion, a shortfall of about US$2 billion relative to original program target.
- Reserve accumulation operations:
  - BCRA and international banks new repo for US$2 billion.
  - Treasury peso bonds subscribed in U.S. dollars totaling US$1.5 billion (US$1 billion at 31.7 percent and US$0.5 billion at 28.5 percent).
  - Block FX purchases and repo agreements and bond issuances brought reserve accumulation efforts to US$4.9 billion since program start; Treasury bought US$1.2 billion during July via block purchases.
  - Since end-May approximately US$5 billion secured through Treasury FX operations, sovereign peso bond issuances subscribed in dollars, and a Central Bank repo facility; these purchases did not translate into higher net reserves because proceeds used to service external debt obligations.
- FX regime changes and access:
  - On April 11, 2025 reforms eliminated most restrictions for individuals and eased access for firms (e.g., removal of monthly US$200 cap; elimination of 30 percent withholding tax on most purchases of foreign currency).
  - Repatriation: repeal of the "dollar blend" and requirement that 100% of repatriated FX proceeds be settled in the MULC.
  - Nonresident investors permitted in local security markets without minimum holding period; cross-market restrictions removed.
  - BOPREAL issuance for about US$830 million to resolve legacy intra-company debt and dividends.
  - Parking periods and conditions for legacy debt repayments remain; many legacy outflows remain subject to restrictions.
- Policy guidance:
  - Exchange rate to float within widening bands; adopt a more regular FX purchase schedule to rebuild reserves.
  - Limit NDF interventions to temporary, disorderly market conditions.
  - Gradual easing of remaining FX restrictions as conditions permit.

### Banking sector, credit, and market development
- Credit and banking metrics:
  - Credit rose by around 15 percent in real terms since program approval.
  - Credit to private sector around 14 percent of GDP.
  - Banks holding 37 percent of peso deposits and 62 percent (or 58 percent in other summary) of FX deposits.
  - Capital adequacy ratios around 29–30 percent of risk-weighted assets.
  - Non-performing loans have risen under higher real interest rates, albeit from low levels.
- Domestic debt management and market access:
  - Since program approval Treasury refinanced about 90 percent of maturing liabilities.
  - Average maturity of domestic debt about 25 months.
  - Share of indexed debt in primary auctions declined from 95 to 10 percent.
  - Non-resident investors returned after seven years; Bonte issuances (peso-denominated, subscribed in U.S. dollars) totaled US$1.5 billion in May–June.
  - Government peso cash deposits around ARS 20 trillion as of early July.
  - BCRA profits to the Treasury about ARS12 trillion from valuation improvements.

### Debt sustainability, DSA and key projections
- Staff assessment:
  - DS A Summary Assessment: Sustainable but not with high probability; overall final assessment: High.
  - Public debt trajectory: gross public debt expected to fall from around 85 percent of GDP in 2024 to approximately 55 percent by 2030.
  - Projected increase in the interest bill requires primary surplus of about 2½ percent of GDP from 2027 onward.
- Key numeric anchors and projections:
  - Gross federal debt (US$ bn): 367.9 (2023), 478.7 (2024), 467.5 (2025), 471.6 (2026).
  - Gross federal debt (percent of GDP): 154.6 (2023), 84.7 (2024), 71.5 (2025), 68.0 (2026).
  - IMF exposure: IMF: 40.6 (2023), 40.6 (2024), 54.7 (2025), 55.5 (2026) (US$ bn).
  - Public debt (percent of GDP) trajectory: 2024: 84.7; 2025: 71.5; 2026: 68.0; 2027: 64.7; 2028: 62.6; 2029: 58.7; 2030: 55.2; 2034: 41.4; 2035: 37.8.
  - Real GDP growth (percent) memo: 2024: -1.3; 2025: 5.5; 2026: 4.5; 2027: 4.0; 2028–2035: around 3.0 annually.
  - Inflation (GDP deflator; percent) memo: 2024: 206.0; 2025: 39.0; 2026: 12.9; 2027: 8.5; 2028–2035: 7.5 each year.
  - Gross financing needs (GFN) (percent of GDP): 2024: 19.4; 2025: 18.9; 2026: 11.9; 2027: 15.4; 2028: 11.5; 2029: 14.9; 2030: 10.7.
  - Memo: Real GDP projected to grow at about 3 percent annually from 2030 onward (potential growth).
- Risk analysis and stress testing:
  - SRDSF: DS A summary "Sustainable but not with high probability"; medium-term risks assessed as moderate; long-term risk high.
  - GFN financeability and fanchart show moderate to high risks; contingency planning recommended.
  - Contingent liability shock scenario: one-off materialization of 6 percent of GDP.

### Structural reforms, governance, and safeguards
- Structural agenda:
  - Tax reform proposal being prepared with World Bank and IADB support; initial proposals by end-December 2025.
  - Pension reform proposal to be presented to Congress during 2026 (end-December 2026 SB).
  - Close remaining extra-budgetary trust funds (end-December 2025 SB).
  - Privatization and asset sales to support reserve accumulation; privatization of AySA announced on July 18.
  - RIGI regime to encourage FDI; priority public infrastructure projects and PPPs to be advanced.
- Governance and AML/CFT:
  - Safeguard assessment of the BCRA substantially completed; recommendations to enhance central bank autonomy and transition to IFRS.
  - Technical assistance to implement FATF recommendations; FATF-related SBs: end-November 2025.
  - Centralized beneficial ownership registry established; further verification mechanisms to be developed.

### Risks, contingency planning and program requests
- Risks highlighted:
  - External: trade tensions, geopolitical uncertainties, tighter global financial conditions.
  - Domestic: political uncertainty and spending pressures ahead of mid-term elections.
  - Financing: overreliance on short-term portfolio inflows could result in sudden stop.
  - Structural: risk of Dutch disease and competitiveness erosion if policy mix becomes unbalanced.
- Contingency principles:
  - Activate agreed contingency plans if shocks emerge; decisive policy response; exchange rate as shock absorber; allow market rates to rise; tighten fiscal policies as needed.
- Program adjustments and requests:
  - Waiver requested for nonobservance of the NIR PC for the June 13 test date; corrective actions and multipronged FX purchase strategy launched.
  - NIR target modification: by end-2025, NIR to increase by about US$5.5 billion relative to program start (from -US$8.2 billion to -US$2.6 billion); catch-up to original program targets by end-2027.
  - Rephasing of remaining reviews: seven additional semi-annual reviews envisaged (instead of eight at program approval); performance criteria for remaining semi-annual reviews based on end-December and end-June targets.

### Key operational and reporting metrics (selected)
- Net Domestic Assets (NDA): exceeded the mid-June indicative program ceiling by approximately ARS 4.8 trillion due to NIR shortfalls.
- NIR movements: -US$8.2 billion at program start, -US$6.4 billion end-July, -US$4.7 billion on June 13 test date, "around US$-6 billion" later.
- Reserves accumulation efforts: roughly US$4.9 billion since program start (block purchases, repo, bond issuances).
- Treasury FX obligations between August 2025 and January 2026 estimated at US$10 billion.
- Treasury peso bonds (Bonte): US$1.5 billion issued in May–June (first US$1 billion at annual peso effective rate of 31.7 percent with a European put; second US$0.5 billion at 28.5 percent).
- Program exchange rates (as of Jan 31, 2025):
  - Argentine Pesos per US dollar: 1,053.50
  - Argentine Pesos per SDR: 1,373.58
  - Argentine Pesos per Euro: 1,097.43
  - Argentine Pesos per Canadian dollar: 731.24
  - Argentine Pesos per British pound: 1,311.71
  - Argentine Pesos per Renminbi: 145.42
  - Gold price (US$/ounce): 2,808.08

*Source: Extracted content from 1argea2025003-source-pdf*

### EXECUTIVE SUMMARY

### EXECUTIVE SUMMARY

### Recent Developments
- The new Fund-supported program has had a strong start: appropriately tight fiscal and monetary policies underpinned the smooth transition toward a more flexible exchange rate regime and the easing of most foreign exchange (FX) restrictions.
- Exchange rate and FX markets:
  - The official exchange rate has fluctuated around the midpoint of a widening band.
  - Gaps between the official and parallel exchange rates have largely been eliminated.
  - Average daily FX volumes at the MULC surged from US$1.2 billion before the program to around US$2 billion since.
- Inflation and expectations:
  - Monthly headline inflation temporarily rose to 3.7 percent in March and declined to 1.6 percent in June.
  - Annual inflation has fallen to around 40 percent.
  - Core inflation decreased to 1.7 percent m/m in June.
  - Breakeven monthly inflation is still below 2 percent for the remainder of the year.
- Economic activity:
  - The economy expanded by 5.8 percent y/y in Q1:2025.
  - Capacity utilization is around 60 percent.
  - Recovery has been uneven: agriculture, energy, and mining lead; construction and manufacturing lag.
- Reserves and market access:
  - Reserve buffers are taking longer to rebuild amid a widening current account deficit and sharp easing of import restrictions.
  - Net international reserves (NIR) increased by about US$4 billion between the program’s approval on April 11 and June 30, before payments to bondholders for US$4.2 billion in early July.
  - Sovereign spreads tightened since program inception, sitting in the 700-750 bps range.
  - Argentina re-entered international capital markets, issuing peso-denominated sovereign bonds (subscribed in U.S. dollars) in late May and early June.

### Program Performance
- Overall assessment:
  - Program performance has been generally positive.
  - The primary fiscal surplus target for end-May was met with a margin.
  - There was no central bank monetary financing.
  - Social programs continued to provide adequate coverage.
- Reserve shortfall and corrective actions:
  - The mid-June quantitative target for NIR accumulation was missed, reflecting heavy reserve losses in the weeks ahead of program approval, limited return of outflows after program approval, and the authorities’ preference for greater price discovery and continued disinflation during the early FX regime transition.
  - Corrective measures underway include debt placements and FX block purchases reaching around US$5 billion since end-May.
  - Additional FX purchases are underway and envisaged for the remainder of the year to strengthen buffers while preserving exchange rate flexibility.
- Structural benchmarks:
  - Progress continues toward completing the structural benchmarks.

### Outlook and Risks
- Near-term projections:
  - The economy is projected to expand by 5.5 percent in 2025.
  - End-of-period inflation is projected to fall to around 20–25 percent.
  - The current account deficit is expected to widen to 1.7 percent of GDP in 2025 (from 0.4 percent projected at program approval), driven by stronger-than-anticipated domestic demand and temporary effects of rapid easing of import restrictions.
- Financing of external deficit:
  - The higher external deficit is being financed via stronger portfolio inflows.
  - Earlier-than-anticipated market access has helped with reserve accumulation.
- Medium term:
  - Beyond 2025, the economy is projected to converge toward potential growth, with inflation further narrowing and the current account gradually returning to near balance over the medium term under tight and well-balanced macroeconomic policies.
  - Reserve accumulation would be supported by sustained market access and a rise in private capital inflows, including foreign direct investment, as reforms take hold.
- Risks:
  - Risks remain skewed to the downside, driven by heightened trade and geopolitical tensions and challenges in implementing the ambitious reform program, including ahead of the mid-term legislative elections.
  - Political uncertainties and spending pressures have risen ahead of the October mid-term legislative elections, with recent legislative proposals worth about 1½ percent of GDP (pensions, disability benefits, transfers to provinces) that the President has declared intention to veto.

### Policy Understandings
- Overarching stance:
  - Tight and appropriately balanced macroeconomic policies remain essential to anchor disinflation, improve reserve buffers, and facilitate sustained access to international capital markets at more favorable terms.
- Monetary and FX policy:
  - The exchange rate will continue to move flexibly within the band.
  - FX purchases should proceed to rebuild reserves consistent with the agreed targets.
  - Monetary conditions will remain tight to support re-monetization and disinflation.
  - Further refinements in the monetary framework and operations are expected to enhance liquidity management and mitigate interest rate volatility.
  - Greater clarity about the monetary and FX regime over the medium-term remains necessary.
  - The BCRA has stopped formally setting a monetary policy rate; overnight Treasury Liquidity Bills (LeFis) have been phased out and replaced by short-term Treasury bills (LECAPs).
  - The BCRA’s net open position in the NDF market has risen to around US$5 billion.
- Fiscal policy:
  - Achieving a primary surplus of 1.6 percent of GDP is necessary to manage demand and preserve the fiscal anchor.
  - The 2026 draft budget will aim for a more ambitious fiscal stance to support disinflation and lessen the burden on monetary policy.
  - Prompt advancement of planned tax reform is vital to improve efficiency and equity of the tax system and enhance competitiveness.
- Financing policies:
  - The financing strategy will focus on catalyzing further support from official creditors, durably accessing international capital markets, and improving the public sector’s debt profile, while good faith efforts proceed in resolving international litigation cases.
- Structural policies:
  - Steadfast implementation of the authorities’ ambitious structural reform agenda is essential to improve state efficiency and foster a more market-based economy with more flexible product and labor markets.
  - Policies will be pursued to contain possible dislocation costs from these reforms.

### Program Requests and Commitments
- Adjustments and waivers:
  - Quantitative targets for NIR and NDA have been adjusted given delays in NIR accumulation.
  - The authorities are requesting waivers of non-observance based on corrective actions, including a commitment to return NIR to the original program targets by end-2027.
- Review rephasing:
  - Authorities request a minor rephasing of the remaining reviews to better align reviews with year-end structural benchmarks and targets and to allow sufficient time for implementing the multipronged strategy to rebuild reserves.
  - Accordingly, performance criteria for all remaining semi-annual reviews would be based on end-December and end-June targets, with seven additional semi-annual reviews envisaged (instead of eight at program approval).

*Source: EXECUTIVE SUMMARY, 1argea2025003-source-pdf*

### 8.      The commitment to the fiscal anchor remains

### 8.      The commitment to the fiscal anchor remains intact

### Fiscal performance and composition
- Central government cumulative cash primary surplus of about 0.8 percent of GDP through May (largely unchanged relative to 2024).
- Overperformed the program’s indicative target for May by about 0.1 percent of GDP; consistent with an overall cash surplus of 0.3 percent of GDP.
- Fiscal underpinnings:
  - Strong revenue buoyancy: up 10 percent y/y cumulatively in real terms after excluding impuesto pais.
  - Continued efforts to reduce subsidies and contain wage and capital spending.
  - Real primary spending is up around 6 percent y/y, after contracting 28 percent in 2024.
- Note on interest treatment: Calculated based on authorities’ reported cash interest payments, which exclude capitalized interest payments recorded below the line. Including all capitalized interest payments to the private sector above the line would imply a cash overall deficit of about 1.2 percent of GDP.

### Domestic debt refinancing and debt management
- Since program approval in April, the Treasury has refinanced about 90 percent of its maturing liabilities.
- Portion not rolled over has facilitated increased credit to the private sector supporting gradual re-monetization.
- Issuances of international peso-denominated sovereign bonds subscribed in US dollars aimed at refinancing Treasury FX obligations; these reduced FX exposure without increasing overall indebtedness to private creditors.
- Policy measures improving predictability and liquidity management:
  - Publication of an annual borrowing plan.
  - Regular inclusion of short-term LECAPs in bi-weekly auctions.
  - Treasury playing a more prominent role in liquidity management.

### External sector — current account and trade
- Cumulative goods trade surplus (accruals basis) during H1:2025 narrowed to around US$5 billion (down by US$6 billion y/y).
- Export volumes: grew by around 4 percent y/y (buoyant agricultural and energy exports; recent improvements in energy capacity).
- Goods import volumes: surged by over 40 percent year-on-year; largest increases in capital goods and durable consumer goods following easing of import restrictions and effective price declines for these items.
- Outbound tourism: jumped by 50 percent through June; services deficit estimated to have achieved record levels in H1:2025.
- Cumulative current account deficit estimated to have reached US$8 billion through end-June, as narrowed goods surplus was more than offset by deficits in services and income account (the latter reflecting large public sector interest payments).
- Signs of moderation in import dynamics since May; REER has depreciated by nearly 15 percent since mid-April.

### Financial account, reserve developments, and external financing
- Financial account strengthened more recently, supporting reserve accumulation via increased portfolio inflows from public sector and domestic corporate debt issuances.
- Key operations:
  - BCRA and international banks agreement on a new repo for US$2 billion.
  - Treasury placed peso bonds subscribed in U.S. dollars totaling US$1.5 billion (first issuance: US$1 billion 5-year bond at annual peso effective interest rate of 31.7 percent with a European put; second reopening US$0.5 billion at annual interest rate of 28.5 percent).
- Net International Reserves (NIR) increased by around US$2 billion between program approval and end-July (from -US$8.2 billion to -US$6.4 billion), despite FX payments to bondholders.
- Foreign direct investment remains weak as investors possibly await October mid-term elections.
- Private corporate FX loans and bond issuances rose from US$3.2 billion in H2:2024 to US$5.8 billion during H1:2025.
- Increase in private outflows following easing of FX restrictions was largely offset by higher exports measured in cash terms from the elimination of the export blend and a rise in export financing.

### Easing FX restrictions and mobilizing U.S. dollars
- Nonresident investors now permitted to participate in local security markets without a minimum holding period and without cross-market restrictions between official and parallel FX markets.
- BCRA issued new FX-denominated bonds (BOPREALs) for about US$830 million to facilitate orderly resolution of legacy intra-company debt and dividend obligations.
- Efforts to encourage formalization of undeclared U.S. dollar assets, including simplification of the tax regime for self-employed workers affecting about 500,000 taxpayers.
- BCRA offered US$3 billion in three-year US-dollar denominated bonds (subscribed in pesos), carrying a 3 percent interest rate, targeted at companies with outstanding intra-company debt before December 13, 2023, and/or unpaid dividends accumulated before end-2024.

### Banking sector and private credit
- Credit rose by around 15 percent in real terms since program approval, with banks shifting portfolios away from the sovereign.
- Credit growth broadly balanced between peso- and FX-denominated lending; subject to strict regulatory limits to contain currency mismatches.
- Banks’ liquidity and capitalization:
  - Banks holding 37 percent of peso deposits and 62 percent of FX deposits.
  - Capital adequacy ratios at around 30 percent of risk-weighted assets.
- Under higher real interest rates, credit growth starting to moderate and non-performing loans (NPLs) have risen, albeit from low levels.

### Deregulatory and liberalization measures
- Import restrictions eased and taxes lowered on electronics, used capital goods, and vehicles to improve affordability of equipment and machinery.
- Export taxes on industrial goods reduced; export tax cuts extended for key agricultural products (excluding soy and maize).
- New regulations to liberalize product markets (e.g., pharmaceuticals) and streamline public bureaucracy.
- PriceStat indicator: relative price of a basket of food, gas, and electronic goods in Argentina has fallen sharply and is now 1 percent cheaper than in the United States.

### Program implementation, targets, and corrective actions
- Performance highlights to mid-2025:
  - Primary fiscal balance indicative target for end-May met; cumulative primary surplus exceeded program target by 0.1 percent of GDP.
  - Domestic arrears remained well below the program ceiling; no central bank financing.
  - Social spending coverage maintained at around 98 percent of the basic consumption basket (program floor 95 percent).
- Reserves and corrective actions:
  - NIR reached -US$4.7 billion as of the June 13 test date, below the program floor of -US$1.1 billion.
  - Shortfall partly reflected unanticipated NIR declines (~US$1.5 billion) preceding program approval.
  - Corrective actions: bond issuances and block FX purchases increased NIR by about US$2 billion since early June; NIR projected to strengthen further through end-July and remainder of year.
  - Reserve accumulation to be supported by privatization and sales of assets and concessions and continued official creditor support (e.g., privatization of AySA announced on July 18).
- Monetary base and NDA:
  - Net Domestic Assets (NDA) of the BCRA exceeded the mid-June indicative program ceiling by approximately ARS 4.8 trillion, due to shortfalls in NIR accumulation.
  - Understandings reached to ensure increases in base money validated by corresponding reserve purchases so NDA remains below program ceiling.
  - Re-monetization to be facilitated by disinflation and tight monetary conditions.

### Structural benchmarks and reforms
- Progress on H2:2025 structural benchmarks:
  - Tax reform proposal being prepared with support from the World Bank and IADB to improve efficiency and equity.
  - Preparation of the draft 2026 budget advancing; to include comprehensive risk assessment and a medium-term fiscal framework.
  - Closing all but one extra-budgetary trust funds (seven additional fiduciary funds closed since program approval; total closed 29 out of 32).
  - Safeguard assessment of the BCRA substantially completed.
  - Technical assistance ongoing to implement FATF recommendations to enhance the AML/CFT framework.

### Macro outlook and key risks
- Baseline assumes gradual disinflation and recovery with stronger capital inflows financing lower current account balances and programmed reserve accumulation.
- Real GDP:
  - Growth in 2025 unchanged at 5½ percent.
  - Momentum expected to moderate during remainder of 2025; converge to around 3 percent over the medium term.
- Inflation:
  - Projected to fall to around 20-25 percent by end-2025 (compared to 18-23 at program approval).
  - Projected to reach single digits by late 2026, assuming tight and appropriately balanced macroeconomic policies.
- Fiscal:
  - Baseline assumes a primary surplus of 1.6 percent of GDP in 2025 (compared to 1.3 percent at program approval).
  - Primary surplus projected to rise to around 2½ percent of GDP over the medium term.
  - Continued stringent expenditure discipline and fiscal reforms needed (taxation, revenue sharing, pensions).
- Public debt and sovereign risk:
  - Public debt remains sustainable over the medium term under the baseline, although not with high probability.
  - Sovereign risk remains elevated due to fragile reserve position, sizable gross financing needs, and still-limited access to international capital markets.
- External:
  - Current account projected to shift from a surplus of 1 percent of GDP in 2024 to a deficit of 1.7 percent of GDP in 2025 (compared to deficit of 0.4 percent at program approval), driven by strong import growth and easing FX/import restrictions.
  - Expected that stronger capital inflows will more than offset the current account deficit, enabling further NIR accumulation.
  - Argentina’s net international investment position projected to remain positive, with composition changes: reductions in public FX indebtedness matched by a reduction in net foreign asset position of the private sector (asset repatriation and FDI).
- Policy contingency:
  - Sustainability of the balance of payments contingent on tight and appropriately balanced policies and successful implementation of the reserve accumulation strategy, consistent with gradual convergence of the REER toward its medium-term equilibrium.

*Source: 8. The commitment to the fiscal anchor remains intact (Excerpt).*

### 18.      As downside risks continue to be elevated, contingency plans remain imperative.

### 18.      As downside risks continue to be elevated, contingency plans remain imperative.

### Downside risks and contingency planning
- External risks: lingering trade tensions and geopolitical uncertainties could weigh on Argentina’s outlook via softer commodity prices and tighter global financial conditions; further U.S. dollar weakness may help buffer these effects.
- Potential upside: progress in reaching a tariff deal with the United States (where negotiations continue) could provide some upside, including via trade diversion (Box 2).
- Domestic risks: possible volatility in advance of the mid-term elections could test Argentina’s still-nascent external buffers.
- Financing risk: overreliance on short-term portfolio inflows to finance the current account could result in a sudden stop that could derail stabilization gains.
- Structural risk: over time, a shift to an unbalanced policy mix could adversely affect competitiveness in key industries (through Dutch disease effects), weighing on employment and growth, and social sustainability of reform efforts.
- Contingency response principles:
  - Activate agreed contingency plans if shocks emerge.
  - Decisive policy response to mitigate impacts.
  - Exchange rate to continue serving as a shock absorber.
  - Allow market interest rates to rise as needed to support peso demand and debt refinancing, and limit pass-through from exchange rate movements to consumer prices.
  - Tighten fiscal policies as needed through actions under the executive’s purview to alleviate trade-offs between inflation stabilization, reserve accumulation, and external stability.
  - Programmed easing of remaining FX restrictions is intended to preserve stability and support competitiveness and could be further extended.

### Policy understandings — overview
- Emphasis on rebuilding external buffers to mitigate rising risks and safeguarding sustainability of the balance of payments, including through Argentina’s stable access to international capital markets.

### A. Fiscal Policy
- Near-term target:
  - For the remainder of this year, achieving a primary surplus of 1.6 percent of GDP remains the agreed priority.
  - An additional effort of 0.3 percentage points of GDP, introduced in April to support the transition to the new exchange regime, is in train (MEFP ¶15).
- Measures to deliver the higher surplus:
  - Tighter expenditure controls and efficiency gains in social programs enabled by enhanced eligibility controls for disability pensions and the Universal Child Allowance (AUH), facilitated by integration of various social datasets into a single social registry (end-December 2025 SB).
  - Continued spending discipline to resist new unfunded spending initiatives, especially as overall primary spending is already projected to rise by 7 percent in real terms this year.
  - Any tax reduction conditional on offsetting permanent revenue gains or expenditure cuts to preserve the fiscal anchor.
- Medium-term plans:
  - Continue fiscal consolidation underpinned by high-quality structural measures to improve efficiency of tax and spending systems.
  - Draft 2026 budget slated to be presented to Congress by end-September (end-September 2025 SB) and approved by end-December.
  - Budget to be aligned with the overall balance fiscal anchor and consistent with projected rise in interest costs as Argentina re-accesses international capital markets and eases FX restrictions.
- Revenue reforms:
  - Simplify and improve equity and efficiency of the tax system by streamlining VAT tax expenditures, normalizing excises, and reducing distortive trade and financial transaction taxes (MEFP ¶17, second bullet).
  - Initial proposals to be presented by end-December 2025 (structural benchmark) so they can go into effect next year.
  - Strengthen revenue administration with focus on implementing compliance risk management (CRM) in line with the 2024 Tax Administration Diagnostic Assessment Tool (TADAT) and simplifying tax filing for self-employed workers.
- Spending reforms:
  - Reduce energy subsidies and bring electricity and gas tariffs even closer to cost recovery while improving service quality and electricity market efficiency.
  - Strengthen competition in the wholesale electricity market to alleviate payment-chain pressures (end-November 2025 SB) and avoid arrears between electricity distributors and CAMMESA.
  - Develop comprehensive pension reform to simplify the fragmented system and improve proportionality between contributions and benefits; reform proposal to be presented to Congress during the course of 2026 (end-December 2026 SB).
- Public financial management reforms:
  - Close remaining extra-budgetary trust funds (end-December 2025 SBs).
  - Enhance cash management by expanding coverage of the integrated system of financial information to include other government bodies and agencies (end-December 2025 SB).
  - Assess implications of ongoing public sector efficiency reforms for the wage bill and social spending.
  - Improve efficiency of state-owned enterprises (SOEs) and develop a transparent privatization program (mid-November 2025 SB), with technical and financial support from the IADB envisaged.
- Fiscal frameworks:
  - Draft 2026 budget to include a comprehensive fiscal risk assessment and a medium-term fiscal framework (end-September 2025 SB).
  - Additional reforms required to (i) reform the revenue-sharing framework to better align fiscal incentives between federal and provincial governments and reduce high budget rigidities; and (ii) strengthen credibility of the fiscal anchor by initially enshrining the zero-overall fiscal deficit rule into the Fiscal Responsibility Law (end-December 2026, SB), with possible future countercyclical features and additional debt anchors.

### B. Financing Policy
- Importance: Well-designed and executed debt management strategy vital for international market access and debt sustainability.
- Domestic financing strategy:
  - Improve maturity profile and structure of debt instruments to reduce domestic financing risks as disinflation advances (MEFP ¶18).
  - Re-entry of non-residents into peso debt market should broaden investor base and deepen domestic capital markets; Treasury must ensure sufficiently attractive interest rates to refinance peso obligations estimated at about US$39 billion for the remainder of 2025.
  - Ongoing fiscal surpluses and adequate roll over of upcoming peso debt obligations will build Treasury peso deposits (at the BCRA and Banco Nación) and support debt placements.
  - Use of central bank profit transfers to the Treasury primarily calibrated to first rebuild buffers and strengthen the BCRA’s balance sheet.
  - BCRA interventions in secondary bond markets to remain temporary and limited exclusively to conduct of monetary policy and instances of market dislocations.
- External financing strategy with private creditors:
  - Following a successful and earlier-than-anticipated re-entry into international capital markets, authorities will seek to raise additional financing, including through planned regular auctions of peso-denominated bonds subscribed in US dollars, depending on market conditions.
  - These operations aim to facilitate management of large FX debt service payments—Treasury and BCRA FX obligations between August 2025 and January 2026 are estimated at US$10 billion—while not adding to FX-denominated debt (MEFP ¶19).
  - Care needed to avoid building vulnerabilities given still-high spreads, including bunching of maturities from excessive reliance on 2027 put options.
  - Authorities continue efforts to resolve outstanding litigation cases and reach agreements on obligations with finalized judgments (see ¶34).
- External financing strategy with official and other commercial creditors:
  - Budget support from other IFIs, primarily the World Bank and the IADB, now projected to reach US$5.8 billion by end-December, roughly US$600 million above the original program baseline (MEFP ¶20).
  - Combined with project loans, overall contributions would be around US$7 billion this year, implying net financing from other IFIs of about US$2.5 billion, compared to US$2 billion projected at program approval.
  - The People’s Bank of China (PBOC) agreed to refinance for 12 months (through end-June 2026) the US$5 billion drawn portion of the swap.
  - China Development Bank has agreed to resume commercial financing of the hydro-dam project in line with implementation progress.

### C. Monetary and Exchange Rate Policies
- Objectives: exchange rate flexibility and reserve accumulation remain paramount.
  - Exchange rate to continue fluctuating within widening exchange rate bands.
  - FX sales to be eschewed within the band; opportunistic FX purchases to continue to rebuild reserve buffers, consistent with rise in demand for pesos.
  - Reserve accumulation strategy underpinned by sustained re-access to international capital markets and maintenance of sufficiently tight policies supported by improved policy frameworks.
  - FX purchases within the band essential to facilitate reduction in sovereign spreads and strengthen buffers (see Box 3).
  - Critical to meet revised reserve accumulation targets through balanced implementation of the multipronged approach (see ¶15).
  - Central bank expected to play a more active role in reserve accumulation, including purchasing FX through a predictable schedule (as done in Chile, Colombia, and Mexico).
- Monetary framework and disinflation:
  - Disinflation supported by tight monetary conditions under enhanced monetary targeting framework.
  - Short-term interest rates to be endogenously determined to achieve re-monetization objectives.
  - Assumed evolution of base money (and private transactional M2) consistent with NIR accumulation goals and tight NDA ceiling established under program.
  - Negative liquidity shocks to be sterilized through open-market operations, with interest rates rising as needed to ensure disinflation.
  - Interventions in the NDF markets to remain temporary and limited to situations of disorderly market conditions.
  - Continued refinements to monetary targeting framework drawing from international experience (see Box 4) essential to anchor inflation expectations; greater clarity about the monetary and FX regime over the medium-term remains necessary.
- Banking liquidity and interest rate transmission reforms:
  - Decisions welcomed to (i) eliminate the daily reserve requirement minimum; (ii) streamline and unify reserve requirements for banks and non-bank financial institutions (mutual funds); and (iii) repurchase remaining central bank put options on government debt to eradicate a potential source of monetary expansion (MEFP ¶22).
  - Following elimination of the LeFis, reforms to facilitate development of interbank markets will be deepened, including harmonizing settlement times for short-term money market instruments.
  - BCRA to remain active in repos and open-market operations using portfolio of short-term marketable Treasury securities.
  - Treasury to consider temporarily increasing frequency of its primary auctions to support orderly functioning of short-term money market.
- Easing of remaining FX restrictions:
  - Carefully calibrated and extendable if needed; removal conditional on continued progress rebuilding reserves and alignment with program objectives.
  - Prudential regulation to remain agile to mitigate risks of short-term volatile inflows and potential FX mismatches.
  - Bank oversight enhanced in light of rising NPLs.
  - Recent measures encouraging use of U.S. dollars held outside formal financial system to be fully consistent with AML/CFT standards and sound taxation and revenue administration practices (see ¶27).

### D. Structural Policies
- Objective: create a more open and market-based economy to support stabilization and sustainably raise living standards.
- Market reforms:
  - Implement structural reform agenda to enhance product and labor market flexibility, reduce barriers to entry, encourage competition, and support formal employment (MEFP ¶25).
  - Complementary comprehensive tax reform and active labor market policies to facilitate worker mobility toward higher productivity sectors.
  - Additional trade restrictions to be lifted carefully, with emphasis on reducing still-high export taxes as fiscal conditions permit.
  - Council for implementation of the “Pacto de Mayo” agreement to play key role in advancing reforms.
- Investment reforms:
  - Boost FDI by securing effective, transparent, and evenhanded implementation of the RIGI regime (MEFP ¶25) to provide tax and regulatory predictability and encourage development of strategic sectors like energy, mining, agro-industry, and knowledge economy.
  - Complement with timely completion of priority public infrastructure projects (e.g., second phase of gas pipelines) and engagement with private sector and provinces to address infrastructure gaps.
  - Prioritize structuring road, waterways, and port concessions through well-designed PPPs that incorporate robust risk-sharing mechanisms aligned with best practices.
- State deregulation reforms:
  - Reduce state footprint by streamlining unnecessary functions and institutional structures while safeguarding provision of key public goods and services.
  - Continue public financial management enhancements, including developing a timebound and transparent privatization and asset sales program.
  - Agenda guided by “Pacto de Mayo” principles, with efforts to align incentives to reduce bureaucracy and improve subnational state efficiency.
- Governance:
  - Strengthen governance frameworks by increasing efficiency and transparency of public procurement and enhancing competition and antitrust regulations.
  - Implement FATF mutual evaluation report recommendations (MEFP ¶26) to mitigate cross-border money laundering risks and promote risk-based AML/CFT approach (end-November 2025 SB).

*Source: https://www.imf.org/-/media/files/publications/cr/2025/english/1argea2025003-source-pdf.pdf*

### 28.       The attached Letter of Intent (LOI) and Memorandum of Economic and Financial

### 1argea2025003-source-pdf - 28. The attached Letter of Intent (LOI) and Memorandum of Economic and Financial Policies (MEFP)

### Program documents and structure
- The LOI and MEFP describe the authorities’ progress and set out their commitments.
- The Technical Memorandum of Understanding (TMU) clarifies program definitions and the various quarterly targets.
- Program expiration date remains unchanged, implying six additional semi-annual reviews (instead of seven at program approval) after the second review, with performance criteria for subsequent semi-annual reviews based on end-December and end-June targets and availability dates reset to end-January and end-July, respectively.

### Program rephasing and timelines
- Authorities request a slight rephasing of remaining program reviews to better align structural benchmarks and targets with year-end outcomes and to allow sufficient time to implement the reserve rebuilding strategy.
- The proposed rephasing results in a slightly larger, evenly distributed purchase in each review (see Table 13 referenced).

### Quantitative targets, reserve dynamics, and adjustors
- Waiver request:
  - Waiver of nonobservance for the PC on NIR accumulation for the June 13 test date, based on corrective actions and launch of a multipronged FX purchase strategy to rebuild reserves in line with program commitments.
- NIR target modification (2025–2026):
  - By end-2025, NIR would increase by about US$5.5 billion relative to the start of the program (from -US$8.2 billion to -US$2.6 billion), remaining generally unchanged compared to end-2024 levels.
  - Reserve accumulation will accelerate further starting in 2026 and is expected to catch up to original program targets by end 2027.
  - Reserves are expected to reach the end program objective of about 100 percent of the ARA metric supported by continued market access and higher private inflows.
- Indicative and instrument changes:
  - The indicative NDA ceiling for end-December 2025 is being revised to reflect changes in the NIR targets.
  - Revisions reflect updated nominality and applicable adjustors for updated projections on official budget support disbursements.
  - New PCs proposed for all relevant indicators for December 2025 and June 2026 (previously ITs) and new ITs set for March 2026.
- Expected NIR dynamics under EFF (table reproduced as presented):
  - Approval 1st Review Diff
  - 2025Q4 2.4 -2.6 -5.0
  - 2026Q1 0.9 -3.1 -4.0
  - 2026Q2 5.1 1.6 -3.5
  - 2026Q4 10.4 8.4 -2.0
  - 2027Q4 22.9 22.9 0.0
  - Note: "1/ At current rates. Subject to adjustors as defined in Technical Memorandum of Understanding."

### Financing assurances and official financing
- Firm financing assurances from official creditors over the next 12 months with good prospects for remainder of the program.
- Net financing from MDBs (including the World Bank and IADB) projected at about US$2.5 billion this year (about US$500 million higher than assumption at program approval).
- Staff assesses firm financing commitments from China are in place for the activated portion of the PBOC swap line (about US$ 5 billion), given the master agreement and clarifications provided by the PBoC, with good prospects for renewal.

### Capacity to repay Fund obligations
- Argentina’s capacity to repay Fund obligations remains subject to exceptional risks and hinges on strong policy implementation to improve reserve coverage and sustain market access on more favorable terms by repayment time.
- Obligations to the Fund are projected to peak at 9 percent of exports and 15 percent of central bank reserves and are expected to persist at high levels for several years after program end.
- The strict implementation of the reserve purchase plan is critical to reduce risks and strengthen balance-of-payments sustainability.

### Jurisdictional issues and arrears policy
- Following the new FX and monetary regime, several exchange restrictions and one MCP remain subject to Fund approval under Article VIII, Sections 2(a) and 3; authorities request Board approval to maintain these temporarily and eliminate them gradually as conditions allow.
- Staff supports the temporary maintenance as conditions for approval are met (temporary, for balance of payments reasons, non-discriminatory, and MCP does not give unfair competitive advantage).
- Arrears and good faith efforts under Lending into Arrears policy:
  - London GDP-warrant case: final judgment delivered October 2024 for about €1.3 billion; negotiations underway on a repayment plan.
  - External private creditors and legacy 2001 default claims: about US$2.4 billion being monitored.
  - Mobil Exploration: negotiations underway on principal claims of US$196 million.
  - Two external arrears claims under litigation: Bpifrance Assurance Export (appeal filed December 2, 2022) and Titan Consortium I, LLC (legacy claim under litigation on statute of limitations grounds).
- Staff judges adequate safeguards remain in place for use of Fund resources and that reform efforts are not undermined by creditor-debtor developments.

### Statistical and safeguards developments
- Statistics:
  - INDEC is expected to release by end-2025 the updated Consumer Price Index (CPI) based on the 2017-18 household expenditure survey to better reflect structural changes and improve data quality; precise timing to be discussed in next review.
- Safeguards Assessment preliminary observations:
  - Positive developments: recognition of government assets at fair value in BCRA financial statements, establishment of an Audit Committee, termination of monetary financing.
  - Remaining recommendations: draft legal reforms to enhance central bank autonomy, improve financial statement reporting transparency with gradual full transition to IFRS, continue strengthening BCRA’s reserve position and balance sheet.
  - Ahead of next review and Article IV, staff will engage with authorities to develop a roadmap for implementing remaining recommendations, potentially integrated as conditionality in future reviews.

### Exceptional access assessment (four criteria)
- Staff assesses Argentina continues to satisfy the four criteria for exceptional access, contingent on continued strong implementation of program policies.
- Criterion 1 (exceptional BOP pressures): judged met. Exceptional pressures on financial account driven by large public sector FX debt service; Fund exposure above normal access limits required during 2025 and beyond with international support.
- Criterion 2 (debt sustainability analysis): judged met. Staff baseline: public debt sustainable in medium term but not with high probability; adequate safeguards and availability of restructurable FX private sector debt after program completion could improve sustainability if adverse shocks materialize.
- Criterion 3 (prospects of regaining market access): judged met.
  - Argentina regained access after a seven-year gap with a peso-denominated sovereign bond under local law to non-residents in late-May.
  - A second repo agreement to boost near-term BCRA liquidity finalized; work advancing to refinance portion of FX bondholder obligations due in 2026.
  - Credit rating upgrade: Moody’s from Caa3 to Caa1.
  - Sovereign spreads narrowed but remain elevated amid low FX reserve buffers and political uncertainties.
  - Strict sustained implementation, including reserve accumulation plan, essential to reduce sovereign risk and sustain access.
- Criterion 4 (policy program prospective success): judged met.
  - Corrective measures to address reserve shortfalls demonstrate commitment.
  - Success hinges on unwavering commitment to fiscal anchor; fiscal performance faces challenge from costly spending initiatives proposed and approved by Congress.
  - President Milei’s intention to legally challenge (including vetoes) and implement contingency plans mitigates risks.
  - Need for deeper collaboration with Congress on taxation, pensions, and labor market reforms.
  - Importance of broad social and political support; establishment of the Mayo Council (representatives from congress, provincial governments, businesses and labor unions) is an important step.
  - Emphasis on ensuring adequate social assistance and fair distribution of adjustment costs, with greater emphasis on policies to facilitate job creation.

### Enterprise risks and near-term vulnerabilities
- Enterprise risks remain elevated amid complex external and domestic backdrop despite mitigating factors from the new monetary/FX regime, fiscal discipline, and earlier-than-anticipated market re-access.
- Reserve buffers expected to remain relatively low in the near term—below 60 percent of the ARA metric—limiting shock absorption capacity.
- Risks of policy slippages from over-prioritization of short-term disinflation gains or intensifying spending pressures ahead of mid-term elections.
- Mitigating factors: early market access, commitment to fiscal anchor, contingency plans, and commitments to accelerate reserve purchases after this year.
- The proposed slight rephasing of the program provides additional safeguards aligned with modestly backloaded reserve accumulation.

### Staff appraisal and policy recommendations
- Overall assessment:
  - The new phase of stabilization and growth program is off to a positive start but challenges remain.
  - Transition to a more flexible exchange rate and easing of most FX controls proceeded smoothly; official exchange rate fluctuated around the band’s midpoint.
  - Inflation and FX gaps have declined significantly; sovereign spreads narrowed; earlier-than-expected return to international capital markets achieved.
  - Continued economic growth and enhanced social assistance supported a sharp reduction in poverty.
  - Sustaining gains requires continued policies to safeguard macro stability, rebuild reserves, and strengthen fiscal and external sustainability.
- Fiscal policy:
  - Commitment to fiscal balance must remain the key policy anchor.
  - Fiscal overperformance to date is commendable; spending discipline needed to meet primary surplus objective of 1.6 percent of GDP for 2025.
  - Beyond 2025, further consolidation needed to support internal and external balances, lessen burden on monetary policy, and reduce sovereign spreads.
  - Important actions: introduce a medium-term fiscal framework in the 2026 budget, integrate fiscal risk assessment into budget process, improve tax efficiency and equity (tax reform plan by end year important), strengthen revenue sharing and fiscal discipline across government levels, and enhance pension system sustainability.
  - These complex reforms would benefit from early preparation and consultation, including with international development partners.
- Debt and market access:
  - Maintain progress on enhancing debt profile and re-accessing markets: extend maturities, reduce reliance on inflation- and FX-linked securities, expand investor base, and create buffers to reduce peso-debt refinancing risks.
  - Sustain market access on better terms to refinance large FX obligations and reduce exposure to senior creditors without increasing overall indebtedness.
  - Continue good faith negotiations to resolve litigation payment schedules and engage claimants on pending cases.
- Monetary and FX policy:
  - Monetary conditions should remain appropriately tight to support disinflation and the new exchange rate band system.
  - New monetary targeting framework where interest rates are endogenously determined has appropriately supported disinflation and remonetization.
  - Continue efforts to improve interest rate transmission, develop interbank markets, and have the central bank play a more active role in liquidity management in coordination with the Treasury to mitigate excessive interest rate volatility.
  - Refinements to the monetary targeting framework should continue; greater clarity needed about monetary and FX regime over the medium term.
  - Consider reforms to strengthen BCRA’s autonomy and mandate in line with safeguards assessment recommendations.
  - Release an updated CPI as early as possible to better reflect structural cost changes and enhance data quality.

*Source: Extracted content from 1argea2025003-source-pdf - 28.*

### 43.      Exchange rate flexibility is another key policy anchor, and rebuilding reserves buffers a

### Exchange rate flexibility is another key policy anchor, and rebuilding reserves buffers a key priority

### Exchange rate policy and reserve accumulation
- Transition to a more flexible exchange rate is welcomed and is "already helping Argentina navigate a more challenging external backdrop."
- Rebuilding reserve buffers is a key priority to better manage shocks and support sustainability of Argentina’s balance of payments, including avoiding overreliance on volatile short-term inflows.
- Central bank role:
  - The central bank should play a more active role in reserve accumulation, with consideration given to having a more regular FX purchase schedule.
  - Done properly, a regular FX purchase schedule will enhance price discovery.
  - Interventions in the NDF market should be temporary and limited to situations of disorderly market conditions and should not substitute for other monetary policy tools in the management of liquidity and interest rate volatility.
- FX restrictions:
  - A further easing of the pending FX restrictions and controls should proceed gradually and as conditions permit.

### Policy recommendations (exchange rate / reserves)
- Adopt a more regular FX purchase schedule for reserve accumulation.
- Limit NDF market interventions to temporary, disorderly conditions and avoid substituting for monetary policy tools.
- Gradually ease remaining FX restrictions and controls as conditions permit.

---

### Reforms to create a more open and market-based economy
- Early efforts noted: streamlining bureaucracy, rationalizing redundant public employment, and improving state efficiency.
- Continued reform priorities:
  - Address market distortions and entry barriers.
  - Improve labor flexibility, support formal job creation, and encourage mobility toward more competitive sectors.
  - Build on actions to significantly ease import restrictions by emphasizing reduction of distortive export taxes, as fiscal conditions permit.
  - Encourage foreign direct investment through consistent implementation of the RIGI regime to unlock potential in key sectors and contribute to balance of payments sustainability.

---

### Risks, contingency planning, and social support
- Elevated risks cited: a further rise in trade and geopolitical tensions and uncertainties ahead of the elections.
- Need for early implementation of agreed contingency plans to shield the economy from shocks.
- Fiscal stance and social protection:
  - Staff endorses the additional fiscal adjustment programmed for this year.
  - Ensure all spending initiatives are fully funded before taking effect.
  - Continue efforts to secure well-targeted social assistance and policies to encourage employment to build social and political support.
- Institutional/consensus-building:
  - Staff welcomes the creation of a new Mayo Council, while noting further efforts are needed to build consensus for fundamental reforms.

---

### IMF program review and related requests
- Staff supports authorities' request for completion of the First Review under the Extended Arrangement.
- Given delays, staff supports rephasing the remainder of scheduled reviews and purchases.
- Staff supports requests for waivers of non-observance and for modification of performance criteria, given program performance so far and new policy commitments.
- Staff recommends completion of the financing assurances review, given Argentina’s ongoing good faith efforts to resolve external arrears.
- Staff supports approval of the remaining exchange restrictions and MCP (Annex II) on grounds that they are temporary, maintained for balance of payments reasons, do not discriminate among members, and do not give Argentina unfair competitive advantage.

---

### Box 1 — Trade Developments in Argentina During S1:2025

### Key trade developments and statistics (January–June 2025)
- Nonenergy exports:
  - Export volumes have risen by 4 percent, supported by improved macroeconomic stability, lower export taxes, and reduced barriers to imported inputs.
  - Agricultural exports: driven by an above-average wheat harvest (offsetting weaker maize harvesting due to heavy rains) and a pick-up in liquidation before expiration of export tax incentives for soybean and maize.
  - Manufacturing exports: benefited from a 40 percent year-on-year rise in mining (mainly gold), and moderate growth in transport equipment, machinery, and chemicals.
- Nonenergy imports:
  - Import volumes jumped 44 percent y/y (14 percent relative to Sep–Dec 2024) due to stronger domestic demand and sweeping liberalization, including removal of Impuesto PAIS and many import restrictions.
  - Imports by category:
    - Capital goods rose 71 percent.
    - Spare parts rose 47 percent.
    - Durable consumption goods more than doubled in value.
  - Some increases possibly due to front-loading given devaluation fears, with Q1:2025 imports "10–15 percent above trend."
  - In June, import volumes were down 3 percent m/m despite seasonal uptrend, possibly reflecting weaker domestic demand and moderate REER depreciation since program approval.
- Energy trade:
  - Energy exports rose 11 percent y/y despite lower oil prices.
  - Oldeval pipeline expansion in April doubled oil export capacity; energy exports expected to accelerate in H2.
  - Energy import prices and volumes fell, taking the energy trade balance to its highest level in at least 15 years.
- Services trade:
  - Services (cash) trade deficit rose to 1 percent of GDP through June 2025 (from 0.3 percent a year earlier).
  - Record outbound travel services of 0.7 percent of GDP as inbound visits dropped by an estimated 15 percent y/y.
  - Other services posted a small surplus driven by exports of IT, consulting, and other business services.

### Notes on price effects and measurement
- Prices of intermediate goods and spare parts imports fell by 4 and 10 percent y/y, largely reflecting lower trade barriers.
- Removing trade restrictions caused imports to grow much faster than GDP—"over three times the usual rate."
- Q1:2025 imports were estimated 10–15 percent above trend based on a regression of imports on real GDP and REER with seasonal adjustments and an annual trend.

---

### Box 2 — Assessing Possible Impact of Recent Global Trade Tensions on Argentina

### Trade channel and estimated impacts
- The U.S. is Argentina’s third most important export destination, representing around 8 percent of all Argentine goods exports, or about 1 percent of GDP.
- Argentina has been running a small goods trade deficit with the U.S., averaging 0.2 percent of GDP.
- Since early April, most goods exports from Argentina to the U.S. have been subject to a tariff of 10 percent.
- Energy and gold imports (about US$3bn) are exempt.
- Steel and aluminum (about US$0.6bn) have been subject to a 25 percent tariff since mid-March.
- Staff analysis suggests the direct impact would be small, with Argentine exports to the U.S. declining by only US$ 0.3-0.5 billion per year.
- Potential offsets: trade diversion from partners hit by steeper tariffs could benefit Argentina; retaliatory tariffs on U.S. goods could increase demand for Argentine agricultural products.

### Financial and macro channels
- Financial risks: sovereign and corporate bond spreads have recovered somewhat since the escalation of trade tensions, but risks persist given weak reserve buffers.
- A risk-off environment could slow or reverse portfolio investment inflows, weigh on domestic FX deposits and credit growth, and limit government access to international capital markets.
- If these risks materialize, activity could decline and inflation could rise (on account of FX pressures) across the projection horizon; some effects could be mitigated if associated with weakness in the U.S. dollar.

### Global growth and commodity price channel
- Global growth for 2025 has been revised down by 0.3 ppts relative to the January WEO forecast.
- An even sharper slowdown could decrease demand for Argentine exports and lower commodity prices, potentially weighing on export values in 2025 and 2026 and limiting reserve rebuilding.
- Conversely, trade diversion could increase price premiums on some exports (such as soy), cushioning global demand shocks.

### Policy response guidance
- The flexible exchange rate framework should serve as a key shock absorber.
- Combined with tighter fiscal and monetary policies, flexibility could improve the current account and avoid further reserve drains.
- Consider a more decisive reduction in export taxes to boost competitiveness, provided offsetting fiscal measures are identified.

---

### Box 3 — Understanding Drivers of Argentina's Sovereign Spreads

### Summary of drivers and recent dynamics
- The sharp compression in spreads during 2024 was largely driven by domestic factors: stronger fiscal anchor under the Milei administration, current account moving to a surplus, and reserves rapid recovery from end-2023 lows.
- A tax amnesty on undeclared assets in H2:2024 bolstered FX inflows and local demand for sovereign bonds.
- Spreads rose during January–April 2025 reflecting global trade policy uncertainties and were amplified by reserve losses and exchange rate regime uncertainties ahead of program approval.
- Following program approval, spreads compressed sharply (initially by over 200 bps) as markets welcomed the program, its immediate transition to a more flexible FX regime, and easing of most FX controls.
- Market access: successful issuances of $1.5 billion in peso-denominated bonds subscribed in U.S. dollars facilitated faster-than-anticipated market access.

### Policy implications to deepen market access
- Deepening market access will require sustained improvements in macroeconomic fundamentals.
- Continued adherence to the fiscal anchor and gradual reduction in debt are critical.
- Negative net reserves remain a key vulnerability; sovereign risk is highly sensitive to short-term reserve fluctuations.
- A credible and balanced reserve accumulation—driven by the current account and private capital inflows—would bolster market sentiment, especially given Argentina’s elevated FX debt, low export capacity, and shock-prone capital inflows.

### Empirical and contextual notes
- Argentina observed the largest improvement in the overall fiscal balance across all EMs in 2024; the increase in the current account balance was the second largest.
- A simple regression model suggests at least ⅔ of the improvement in 2024 was associated with Argentina’s improved domestic macroeconomic policies.
- The initial compression of spreads was strongest at shorter maturities, indicating effectiveness in addressing near-term liquidity risks.
- Argentina’s reserve coverage along most metrics is lower than in most EMs (below the 10th percentile), including countries with floating ER regimes and fiscal surpluses.

*International Monetary Fund — Argentina country team (extracted from the source PDF).*

### Box 4. Monetary-Targeting Frameworks. Key Features, Challenges and Evolutions

### Box 4. Monetary-Targeting Frameworks. Key Features, Challenges and Evolutions

### Rationale and key features of Monetary-Targeting Frameworks (MTFs)
- Using money as a nominal anchor offers a combination of monetary policy autonomy and operational simplicity, making it a suitable option for central banks (CBs) seeking to build credibility.
- Unlike exchange rate anchors, which constrain monetary independence and expose the economy to external shocks, money growth targets are domestically oriented and are relatively easier to implement than inflation targets.
- Operational targets under the CB’s direct control—such as base money or NDA—can be used to enhance transparency, credibility and accountability.
- MTFs are based on an estimated medium-term relationship between monetary aggregates and nominal (or potential) economic growth, with the link between money growth and inflation tending to strengthen as inflation rises.1

### Effectiveness and historical use
- MTFs can be particularly effective initially in high-inflation environments: imposing strict limits on money supply growth—effectively increasing the cost of money—can help contain inflationary pressures.
- This dynamic contributed to the popularity of MTFs in advanced economies during the 1970s and explains their continued relevance in many emerging economies during the 1990s as well as more recently, especially in countries with fiscal dominance.2
- During 2011-17, over 80 percent of IMF-supported programs included monetary conditionality on either the NDA or base (or reserve) money, which were associated with reductions in inflation comparable to those achieved under alternative monetary frameworks.3

### Main challenges and operational responses
- The unstable relationship between monetary aggregate growth and inflation remains a key challenge for MTFs.4
- Common mitigation strategies include:
  - Targeting broad money aggregates, which tend to have a more stable relationship with inflation.
  - Adopting shorter operational horizons to allow for more frequent adjustments in response to changing monetary conditions.
- Specific risks and contexts:
  - In high-inflation environments, velocity tends to be elevated, and money growth targets can face risks from faster-than-anticipated re-monetization (with targets being missed despite improving inflation outcomes).
  - In highly dollarized/euroized economies (example: Türkiye in 2001), base money can grow more slowly with limited inflationary effects, owing to substitution of foreign currency for domestic monetary instruments.
  - MTFs can generate difficult-to-manage high interest rates volatility (quantities are a given and the price of money is the variable of adjustment), illustrated by the Uruguay example (change to M1 as policy instrument and change to interest rate as policy instrument noted in the text chart).

### Evolution of frameworks as inflation declines
- As MTFs succeed in reducing high inflation, they have often evolved gradually to place greater emphasis on inflation itself rather than strictly on money supply targets.
- As inflation declines and becomes more predictable, inflation can gradually become a more viable and credible policy objective, allowing the policy interest rate to assume a more central role.
- Transitional approaches documented in practice:
  - Inflation goals could initially be presented as forecasts, as in Chile in the 1990s.
  - Inflation targets were gradually integrated into monetary targeting strategies, as done by Germany in the 1980s.
  - The central bank’s policy response could reflect broader macroeconomic conditions, including growth and exchange rate dynamics, allowing a more flexible and forward-looking approach to monetary policy.
- While high financial dollarization presents unique challenges, the transition away from strict money targets can be successfully implemented (examples: Peru and Uruguay).5

### Empirical and programmatic evidence cited
- MTFs were widely used in past high-inflation episodes (1970s in advanced economies; 1990s in many emerging economies).
- During 2011-17, over 80 percent of IMF-supported programs included monetary conditionality on NDA or base (or reserve) money, associated with reductions in inflation comparable to those under alternative frameworks.3
- A common finding is that the relationship between money growth and inflation has weakened since the 1990s, largely on account of rising money demand shocks that have lessened the effectiveness of money targets in guiding price stability.4

*Source: Box 4. Monetary-Targeting Frameworks. Key Features, Challenges and Evolutions (from the supplied IMF content).*

### Annex I. Application of the Sovereign Risk and Debt Sustainability

### Annex I. Application of the Sovereign Risk and Debt Sustainability Framework

### Summary assessment
- Overall final assessment: High
- Near term: 1/n.a.n.a.
- Medium term: Moderate / Moderate
- Long term: High
- DS A Summary Assessment: Sustainable but not with high probability
- Commentary: The SRDSF tools indicate that debt is sustainable but not with high probability, and overall risks of sovereign stress are high. Staff assesses medium-term risks as moderate, in line with the mechanical risk signal. The 10-year fanchart analysis points to debt sustainability albeit with substantial risks, including potential renewed sovereign stress as Argentina needs steady access to international debt markets and external buffers are likely to remain limited.
- Note: The near-term assessment is not applicable in cases where there is a disbursing IMF arrangement.

### Debt stabilization and baseline projections
- Debt trajectory and drivers:
  - The debt-to-GDP ratio has been on a downward path since early 2024, driven by strict fiscal discipline and the unwinding of the REER overshooting in December 2023.
  - Debt-to-GDP ratio expected to continue to decline over the medium term amid implementation of sound economic policies.
  - Substantial uncertainty around the baseline debt trajectory; ambitious fiscal consolidation, improvements in the debt profile, and buildup of Treasury cash buffers should help contain financing risks.
- Staff medium-term assessment and prerequisites:
  - Assessment predicated on successful implementation of the program to address imbalances and structural challenges.
  - Sustaining the strong fiscal anchor will require further increases in the primary surplus.
  - Consistent implementation of the new FX and monetary policy regime is essential to establish internal and external balances and boost reserve buffers.
- Key projections and numeric anchors:
  - Gross public debt expected to fall from around 85 percent of GDP in 2024 to approximately 55 percent by 2030.
  - Projected increase in the interest bill will require a stronger primary surplus of about 2½ percent of GDP from 2027 onward to broadly maintain overall balance.
  - Real GDP projected to grow at around 3 percent annually from 2030 onward—compared to an average of zero percent over the past decade.
  - Treasury debt held by the official and private sector—excluding intra-public sector holdings—falling from around 50 percent of GDP in 2024 to around 30 percent of GDP by 2030.

### Debt composition, financing operations, and domestic debt management
- IMF purchases and debt composition:
  - Purchases from the Fund under the EFF: initial US$12 billion disbursement.
  - Treasury used Fund disbursement to repurchase non-marketable FX bonds (Letras Intransferibles) held by the BCRA at “market” value.
  - Initial repurchased Letras had a face value of US$13.6 billion with maturities in 2025, 2026, and 2029.
  - Stock of Letras declined to 13 percent of total BCRA assets (2.2 percent of GDP) from 20 percent (3.0 percent of GDP) before program approval.
  - While gross Treasury debt declined marginally due to the initial operation, consolidated public sector debt will increase by the amount of Fund disbursements, net of amortization payments (which start in September 2026).
- Domestic issuance and rollover:
  - Treasury issuances mainly fixed-rate instruments (around 90 percent of total issuances).
  - Rollover rates fell from an average of almost 150 percent during 2024:H2 to below 100 percent in February-June 2025.
  - Maturities at issuance declined from an average of 255 days in 2024:H2 to 104 days in February-March 2025.
  - Real interest rates increased above 10 percent y/y to support transition to new FX and monetary policy regime.
  - Government peso cash deposits around ARS 20 trillion at the BCRA and Banco Nacion as of early July.
  - BCRA profits to the Treasury of about ARS12 trillion from valuation improvements in government securities.
- FX financing strategy and market access:
  - Bonte bond issuances (peso-denominated under domestic law subscribed in U.S. dollars): US$1.5 billion in May and June marking return to international capital markets.
  - Bonte issuances used to refinance maturing government securities and did not lead to a positive net issuance (no increase in public indebtedness).
  - Bonte issuance, BCRA repo agreement, and FX block purchases covered FX debt payments on July 9th of US$4.2 billion.
  - Continued tight macroeconomic policies and reserve rebuilding expected to reduce spreads and facilitate favorable market access, enabling refinancing of large FX obligations without increasing public external indebtedness.

### Table highlights (public sector debt, 2023–26)
- Selected entries from table (values preserved exactly as in source):
  - 1. Gross federal debt (DSA perimeter) (1=2+3): 367.9 (2023), 478.7 (2024), 467.5 (2025), 471.6 (2026) — (in US$ billion)
  - Corresponding percent of GDP: 154.6 (2023), 84.7 (2024), 71.5 (2025), 68.0 (2026)
  - 2. Federal debt (excl. intra-public sector holdings): 220.0 (2023), 288.6 (2024), 269.4 (2025), 270.5 (2026)
  - 2a. FX debt: 173.8 (2023), 173.1 (2024), 185.6 (2025), 189.4 (2026)
  - IMF: 40.6 (2023), 40.6 (2024), 54.7 (2025), 55.5 (2026)
  - 2b. LC debt: 46.2 (2023), 115.3 (2024), 83.8 (2025), 81.1 (2026)
  - 3. Intra-public sector Treasury debt 2/: 147.9 (2023), 190.1 (2024), 198.1 (2025), 201.1 (2026)
  - 4. BCRA liabilities 3/: 43.5 (2023), 12.3 (2024), 14.8 (2025), 12.8 (2026)
  - 5. Treasury Deposits at the BCRA: 1.2 (2023), 11.9 (2024), 26.5 (2025), 26.5 (2026)
  - 6. Net consolidated public sector debt (6=2+4-5): 262.2 (2023), 289.0 (2024), 257.6 (2025), 256.8 (2026)
  - 6b. Net consolidated LC debt (6b=2b+4b-5): 80.3 (2023), 103.5 (2024), 57.4 (2025), 54.7 (2026)

### Medium-term risk analysis
- GFN Financeability Module:
  - Continues to point to moderate risk.
  - Baseline GFNs projected to remain high and average around 13 percent of GDP over the 2025–30 period (around 8 percent of GDP for debt held by the private and official sector).
- Sources of vulnerability:
  - Residual underlying vulnerabilities from long history of economic mismanagement and defaults.
  - Share of indexed debt projected to fall only gradually; maturity on peso debt to be extended slowly as disinflation proceeds.
  - Banking system remains small with assets of about 35 percent of GDP; exposure of domestic banking sector to consolidated public sector fell to around 28 percent of all assets by April 2025 from over 50 percent at end-2023.
  - Shallow financial markets and high financial dollarization complicate absorption of GFNs.
- Mitigating factors:
  - Availability of Treasury peso deposits at commercial banks and the BCRA.
  - Large share of debt held by other public sector entities (not subject to rollover risks).
  - Large share of FX debt from IFIs with more favorable terms and conditions.
- Recommended medium-term policy actions (textual prescriptions preserved):
  - Reduce refinancing vulnerabilities through sustained fiscal efforts, agile debt management, and a consistent and predictable reserve accumulation strategy to ensure steady access to international capital markets at more favorable terms.
  - Avoid excessive reliance on volatile short-term inflows.
  - Improve competitiveness and encourage FDI, leveraging Argentina’s energy and mining potential.
- Debt fanchart and contingency analysis:
  - Debt fanchart module shows moderate risk of sovereign stress; probability of debt stabilization under the baseline continues to be high (at around 99 percent) but remains subject to substantial uncertainty as proxied by the fanchart width.
  - Contingent liability shock scenario simulates a one-off debt materialization of 6 percent of GDP (equivalent to total provincial debt and combined potential compensation payments from ongoing sovereign debt litigation cases).
  - Staff advises maintaining non-bailout approach on provincial debts and resolving pending litigation cases, including good faith efforts to secure an early agreement on repayment terms for the London judgment (EUR 1.6 billion, already included in staff’s debt stock).
  - Agile policymaking will be necessary if contingent liabilities materialize.

### Longer-term risk analysis
- Long-term fanchart:
  - A long-term fanchart analysis points to debt sustainability albeit with substantial risks.
  - Probability of debt stabilization in a fan chart ending in 2034 is close to 98 percent.
- Longer-term vulnerabilities and requirements:
  - Argentina will need to continue refinancing maturing obligations from the 2020 debt restructuring and managing repurchases to the Fund, including those arising from the current program.
  - Capacity to repay will depend on resolute program implementation to strengthen reserve coverage and sustained access to international capital markets at more favorable terms.
- Latent structural vulnerabilities noted:
  - Low and undiversified export base, thin domestic capital markets, high shares of foreign currency and non-resident debt, and contingent liabilities from provincial finances.
  - Structural reforms to deepen domestic capital markets and boost growth and exports are essential to mobilize domestic saving and strengthen reserves.

### Risks and contingency considerations
- Overall risks to the updated baseline described as exceptionally high, particularly given a still fragile reserve position.
- Continued implementation of the authorities' reserve accumulation plan is essential to lower spreads, refinance large upcoming FX debt payments, and rebuild external buffers.
- Failure to adhere to the fiscal anchor would imply greater financing pressures and higher gross financing needs over the medium to long term.
- Contingency planning and agile policy making are indispensable; additional macroeconomic policy adjustments may be required.

*Source: Fund staff.*

### 11.      While debt (and debt service) held by the official and private sectors is projected to

### 1argea2025003-source-pdf - 11.      While debt (and debt service) held by the official and private sectors is projected to

### Debt Outlook and Buffers
- Federal debt (excluding debt held by the BCRA and FGS) would fall below 40 percent of GDP.
- GFNs (for public debt not in the hands of other public entities) between 2025–2032 are projected to be around 8 percent of GDP.
- Key policy priorities:
  - Improve the maturity and structure of the peso debt as exchange rate restrictions and controls have been fully lifted.
  - Accumulate international reserves to ensure a further reduction in sovereign spreads and pave the way to sustained access to international capital markets, including to gradually reduce Argentina’s large exposure to the Fund and other senior official creditors.

### SRDSF Key Macroeconomic and Financing Assumptions
- Fiscal and structural program design:
  - Commitment to a strong fiscal anchor (of a zero overall deficit), elimination of monetary financing, and elimination of FX and relative price distortions.
  - Successful implementation requires sustaining fiscal consolidation and increasing the pace of reserve accumulation.
- Macroeconomic assumptions:
  - Real GDP: contracted by about 1.3 percent in 2024; expected to expand by 5.5 percent in 2025; growth gradually converging toward potential (of about 3 percent) over the medium term.
  - Potential growth: about 3 percent.
  - REER: projected to gradually converge to a level consistent with fundamentals over the medium term.
  - Inflation (eop): peaked at about 211 percent y/y in 2023; around 118 percent in 2024; projected to reach 20-25 percent by end-2025; annual inflation expected to reach single digits by end-2026.
  - Primary fiscal surplus: projected to reach 1.6 percent of GDP in 2025 (compared to 1.8 percent of GDP in 2024); projected to converge to a steady-state level of 2.5 percent of GDP.
  - Gross international reserves: assumed to recover from 22 percent of the ARA metric at end-2024 to around 100 percent by 2030.
- Financing assumptions — External official financing:
  - Gross external official financing (excluding the Fund) expected to reach about US$7.0 billion in 2025 (up from US$6.7 billion at program approval).
  - Large contributions from the World Bank and IDB (of around US$2.5 billion each).
  - Positive net financing after accounting for interest payments of about US$2 billion.
  - Annual official net financing (before interest payments) expected to average around 0.3 percent of GDP over the forecast period.
  - Projected repayments to the Paris Club reflect the October 2022 joint declaration, stretching out to 2028.
  - Central bank’s bilateral FX swap from the PBoC drawn in 2023 not included in public debt as it does not cross the de-minimis threshold of 1 percent of GDP.
  - The activated PBOC swap for US$5 billion is assumed to be refinanced through end-June 2026.
  - Central bank’s repo agreement with international banks (totaling US$3 billion) and FX bonds BOPREALs (about US$11 billion excluding the ones used as repo collaterals) were not included.
  - The activated PBOC swap is assumed to be refinanced in 2025.
- Financing assumptions — External private sector financing:
  - Debt service on FX-denominated debt to foreign private creditors assumed to follow the 2020 restructuring schedule.
  - Issuance of peso-denominated bonds (Bontes) subscribed in US dollars under domestic law of about US$3 billion in 2025 (including the issuances of US$1.5 billion in May-June), with about two-thirds being held by foreign investors.
  - Argentina assumed to issue FX sovereign bonds modestly in 2026 and beyond at spreads between 400–500 basis points.
  - No foreign-financed debt buyback assumed.
  - Exposure to the Fund is assumed to gradually fall over the medium term.
- Financing assumptions — Domestic market financing:
  - Gradual increase in long-term fixed-rate debt issuance assumed; estimated minimum of 18–24 months to entrench the disinflation process.
  - Real interest rates expected to converge to around 4.5 percent over the projection period, consistent with an open capital account and assumed reduction in sovereign risk premium.
  - Note on repos: First repo agreed between the BCRA and international banks in January 2025 of US$1 billion payable over 28 months with a spread of 475bps collateralized by roughly US$2 billion of central bank FX debt (BOPREAL); expanded in June with a second tranche of US$2 billion with a spread of 450 bps.

### Debt Structure and Coverage
- Coverage in the DSA: gross federal (central government) debt held by the private, official and public sectors.
  - Excludes GDP warrants, debt of the provinces or municipalities, or debt of the central bank.
  - Central bank bilateral FX swaps not included as amount is lower than de-minimis threshold of 1 percent of GDP.
  - Central bank repo agreements with international banks and FX bonds (BOPREALs) not included given authorities’ reserve accumulation plan.
- Subsector inclusion (baseline):
  - Budgetary central government: Yes
  - Extra budgetary funds (EBFs): No
  - Social security funds (SSFs): No
  - State governments: No
  - Local governments: No
  - Public nonfinancial corporations: No
  - Central bank: No
  - Other public financial corporations: No
- Commentary on instrument composition and maturity:
  - Foreign-currency denominated debt will continue to dominate over the long term.
  - Government’s debt management strategy focused on deindexing debt and extending maturity; issuances relying mainly on fixed rate instruments (over 90 percent) since Q2:2024.
  - Some reliance on inflation-linked (CER-linked) debt instruments assumed to persist near- and medium-term.
  - Large share of FX debt held by IFIs and large share of overall debt held by intra-public sector mitigate rollover risks.
  - Residual maturity: 6. years (as shown in projections).

### Baseline Scenario and Key Projections (Table 6 highlights)
- Public debt (Percent of GDP):
  - Actual 2024: 84.7
  - 2025: 71.5
  - 2026: 68.0
  - 2027: 64.7
  - 2028: 62.6
  - 2029: 58.7
  - 2030: 55.2
  - 2031: 51.6
  - 2032: 48.1
  - 2033: 44.7
  - 2034: 41.4
  - 2035: 37.8
- Change in public debt (Percent of GDP):
  - 2025: -13.2; 2026: -3.5; 2027: -3.3; 2028: -2.1; 2029: -3.9; 2030: -3.5; 2031: -3.6; 2032: -3.5; 2033: -3.4; 2034: -3.3; 2035: -3.6
- Contribution of identified flows (Percent of GDP):
  - 2025: -16.1; 2026: -6.7; 2027: -5.5; 2028: -4.5; 2029: -4.4; 2030: -4.2; 2031: -4.2; 2032: -4.1; 2033: -4.0; 2034: -3.9; 2035: -3.9
- Primary deficit (Percent of GDP):
  - Actual 2024: -1.8; 2025: -1.6; 2026: -2.2; 2027: -2.5; 2028–2035: -2.5 each year (steady-state target)
- Automatic debt dynamics (Percent of GDP):
  - 2025: -14.5; 2026: -4.5; 2027: -3.0; 2028: -2.0; 2029: -1.8; 2030: -1.6; 2031: -1.6; 2032: -1.5; 2033: -1.4; 2034: -1.3; 2035: -1.4
- Gross financing needs (GFN) (Percent of GDP):
  - 2024: 19.4; 2025: 18.9; 2026: 11.9; 2027: 15.4; 2028: 11.5; 2029: 14.9; 2030: 10.7; 2031: 13.7; 2032: 11.1; 2033: 12.1; 2034: 9.5; 2035: 9.0
  - Of which: debt service (Percent of GDP): 2024: 21.2; 2025: 20.5; 2026: 14.2; 2027: 17.8; 2028: 14.0; 2029: 17.4; 2030: 13.3; 2031: 16.2; 2032: 13.7; 2033: 14.7; 2034: 12.0; 2035: 11.5
  - Local currency (Percent of GDP): 2024: 16.1; 2025: 17.5; 2026: 10.0; 2027: 13.4; 2028: 8.8; 2029: 10.7; 2030: 7.6; 2031: 8.7; 2032: 6.7; 2033: 8.0; 2034: 6.2; 2035: 1.5
  - Foreign currency (Percent of GDP): 2024: 5.1; 2025: 3.0; 2026: 4.2; 2027: 4.5; 2028: 5.2; 2029: 6.7; 2030: 5.7; 2031: 7.5; 2032: 7.0; 2033: 6.7; 2034: 5.8; 2035: 4.9
- Memo:
  - Real GDP growth (percent): 2024: -1.3; 2025: 5.5; 2026: 4.5; 2027: 4.0; 2028: 3.2; 2029: 3.1; 2030: 3.0; 2031–2035: 3.0 each year.
  - Inflation (GDP deflator; percent): 2024: 206.0; 2025: 39.0; 2026: 12.9; 2027: 8.5; 2028–2035: 7.5 each year.
  - Nominal GDP growth (percent): 2024: 203.5; 2025: 46.2; 2026: 17.9; 2027: 12.8; 2028: 10.9; 2029: 10.8; 2030: 10.7; 2031–2035: 10.7 each year.
  - Effective interest rate (percent): 2024: 3.4; 2025: 2.5; 2026: 4.4; 2027: 4.0; 2028: 4.2; 2029: 4.2; 2030: 4.3; 2031: 4.2; 2032: 4.2; 2033: 4.2; 2034: 4.3; 2035: 4.1
- Commentary:
  - Public debt is projected to decline over the long term reflecting adherence to a zero overall deficit fiscal anchor and lower FX misalignments.
  - Large residual in 2024 explained by valuation changes, including compensation of inflation-linked bonds.
  - Reduction of the effective interest rate in 2025 reflects placement of zero-coupon bonds; effective interest rate projected to increase with easing of FX controls.
  - Efforts needed to deepen domestic capital markets, boost exports and productivity, mobilize domestic saving, strengthen reserves, and improve prospects of international market access.

### Medium-Term Risk Analysis and Stress Testing
- Staff assesses medium-term risks as moderate.
- Key indices and values:
  - Debt fanchart width (percent of GDP): 74.3 1.1
  - Probability of debt non-stabilization (percent): 1.1 0.0
  - Terminal debt-to-GDP x: 40.00.9
  - Debt fanchart index (DFI): 2.0 — Risk signal: Moderate
  - Average baseline GFN (percent of GDP): 13.94.7
  - Initial Banks' claims on the gen. govt (pct bank assets): 30.19.8
  - Change in banks' claims in stress (pct banks' assets): 9.03.0
  - GFN financeability index (GFI): 17.5 — Risk signal: Moderate
  - Medium-term index: Risk signal: 5/ (Final assessment: Prob. of missed crisis, 2025-2030, if stress not predicted: 27.3 pct.; Prob. of false alarms, 2025-2030, if stress predicted: 10.2 pct.)
- Commentary:
  - Moderate medium-term risk driven by projected decline in debt-to-GDP in context of strong fiscal anchor and more stable macroeconomic conditions.
  - Substantial uncertainty around the baseline debt trajectory remains; maintaining fiscal balance helps to contain financing risks.

### Decomposition of Public Debt and Debt Service by Creditor, 2025–2026 (Table 8 selected figures)
- Total debt stock (end of period) and shares:
  - Total (US$ bn): 471.7 — Percent total debt: 100.0
  - Total (Percent GDP): 72.1 (2025); 89.7 (2026) [table shows multiple columns; listed values reflect table structure]
- External (US$ bn and shares):
  - External: 147.7 — Percent total debt: 31.3 — Percent GDP: 22.6
  - Multilateral creditors: 90.5 — Percent total debt: 19.2 — Percent GDP: 13.8
  - IMF: 54.7 — Percent total debt: 11.6 — Percent GDP: 8.4
  - World Bank: 12.1 — Percent total debt: 2.6 — Percent GDP: 1.9
  - IADB: 17.2 — Percent total debt: 3.6 — Percent GDP: 2.6
  - Bonds (external): 53.2 — Percent total debt: 11.3 — Percent GDP: 8.1
- Domestic (US$ bn and shares):
  - Domestic: 324.0 — Percent total debt: 68.7 — Percent GDP: 49.6
  - T-Bills: 115.6 — Percent total debt: 24.5 — Percent GDP: 17.7
  - Bonds (domestic): 201.6 — Percent total debt: 42.7 — Percent GDP: 30.8
  - Loans (domestic): 6.8 — Percent total debt: 1.4 — Percent GDP: 0.0
- Notes and commentary:
  - Debt coverage follows country authorities’ classification of creditors; includes official and commercial.
  - Holdouts and litigations related to the London GDP warrant case (totalling about US$4 billion) included in the DSA but not in the table.
  - External versus domestic classification based on residency definition.
  - Multilateral creditors defined as institutions with more than one official shareholder.

*Source: IMF staff estimations and projections.*

### Annex II. Foreign Exchange Regime as it Applies to Current

### Annex II. Foreign Exchange Regime as it Applies to Current International Transactions

### Key Changes to the FX System Announced Since April 11, 2025
- On April 11, 2025 Argentina announced reforms eliminating most restrictions on access to FX by individuals and easing access for firms; measures included elimination of the monthly US$200 cap, allowing access to FX for transfers of new dividends, liberalization of import payments, removal of the withholding tax for most FX purchases, elimination of cross restrictions on access to the official FX market and the securities market (CCL or MEP) for individuals, and changes to the export incentive scheme.
- Numbered measures (legal instrument, date, type):
  - 1 Free access to the FX market for all resident individuals (including the removal of the monthly limit of $200 on FX purchase and of restrictions applied to individuals receiving certain social benefits). — BCRA Communication A8226 — Apr 11, 2025 — Easing of FX restrictions.
  - 2 Removal of the 30 percent withholding tax on most purchases of foreign currency by individuals. — AFIP-ARCA General Resolution 5672/2025 — Apr 11, 2025 — Narrowing the scope of an MCP.
  - 3 Authorizing FX purchases for transfers of dividends for retained earnings recorded in regular and audited annual financial statements for fiscal years beginning on or after January 1, 2025. — BCRA Communication A8226 — Apr 11, 2025 — Easing of an FX restriction.
  - 4 Elimination of the 30-day wait period for obtaining FX payment to make payments for new imports. — BCRA Communication A8226 — Apr 11, 2025 — Easing of an FX restriction.
  - 5 Elimination of the 30-day wait period for FX access for the purpose of paying for services by unrelated parties and reducing the wait period for related parties to 90 days. — BCRA Communication A8226 — Apr 11, 2025 — Easing of FX restrictions.
  - 6 Changing the repatriation and surrender requirements to stipulate that 100% of repatriated FX proceeds be settled in the official FX market (rather than at least 80 percent in the MULC and the remainder in the CCL). — Decree 269/2025 and BCRA Communication A8227 — Apr 11, 2025 — CFM Measure.
  - 7 Elimination for individuals and for non-residents of the restriction on access to the official foreign exchange market (MULC) unless the requesting entity has not in the previous and subsequent 90 days undertaken certain transactions in the securities market (CCL and MEP). — BCRA Communications A8226 and A8257 — Apr 14, 2025 and June 12, 2025 — Easing of an FX restriction.
  - 8 Elimination of the requirement to inform the BCRA at least two days in advance for FX access above US$ 100,000. — BCRA Communication A8261 — June 19, 2025 — Easing of an FX restriction.

### FX Access by Resident Individuals / Invisible Transactions
- Virtually all restrictions on access to foreign exchange for current international transactions by resident individuals have been eliminated (Communication “A” 8226 of April 11, 2025).
- Key operational points:
  - The previous cap of $200 per month on purchase of FX has been removed if the individual is making the FX purchase with a debit from a local financial institution.
  - If the transaction is made with cash in local currency, the limit of $100 per month remains in place along with a requirement to attest that the applicable requirements have been met.
  - The requirement of an affidavit attesting that the individual had not in the preceding 90 days accessed the CCL or the MEP, and will not do so in the succeeding 90 days, has been eliminated.
  - Restrictions on access to the FX market by individuals receiving certain social benefits (e.g., participants in the pension buyback scheme, debtors to ANSES or SIPA, or natural gas subsidies) have been removed.
  - Previous limitations on access to FX by resident individuals for invisible transactions (e.g., savings, wages, salaries, family remittances, medical expenses, educational expenses) and other current account transfers have been eliminated, with no motive now required to access FX.

### Payments for Imports
- Beginning April 14, 2025, most FX restrictions on payment for imports were eliminated or eased.
- Specific changes:
  - The 30-day delay for access to the FX market for goods import has been reduced to zero; FX may be obtained as of the day of customs entry or arrival of the goods at a port in Argentina.
  - For micro-, small- and medium-sized enterprises (MSMEs), FX access may be provided on the day of clearance at the port of origin, before arrival of the goods in Argentina.
  - For services, FX may be accessed to make payment on the day of the provision of the service, instead of 30 days after the provision of the service, except for services between related parties where the delay has been reduced from 180 to 90 days.
  - For capital goods, advance payment may be made up to 30 percent of the FOB value of the goods, an additional 50 percent from the date of clearance at the port of origin, and the remainder from the date of arrival in Argentina.
  - Except as noted, restrictions on access to the FX market for advance payment for imports of goods and services remain in place.

### Dividends and Profits
- Communication “A” 8226 of April 11, 2025 authorized access to the FX market for transfer abroad of new dividends.
- Under the new regime:
  - Clients may purchase and transfer foreign currency abroad as profits and dividends to non-resident shareholders with regard to distributable profits realized in regular and audited annual financial statements for financial years beginning on or after January 1, 2025.
- Limitations:
  - The new rule does not cover the backlog of unpaid dividends; for profits realized prior to the period covered by the new regime, FX access for payment of dividends continues to be restricted, except with BCRA authorization (Communication “A” 8191), which is routinely withheld.
  - Argentina has sought to clear backlogs and other eligible FX liabilities by issuing dollar-denominated instruments (BOPREAL).

### Repatriation/Surrender Requirement and Export Incentive Scheme
- In April 2025 Argentina repealed the “dollar blend.”
- Decree 269 of April 14, 2025 ended the export incentive scheme that had allowed exporters to settle up to 20 percent of export proceeds in the securities market (CCL or MEP) and the remainder in the MULC.
- With repeal of the incentive scheme, all FX proceeds now have to be surrendered to the MULC.

### Interest and Amortization on External Loans
- Steps to ease access for amortization of FX loans:
  - For intra-company debt arising from funds introduced on or after April 21, 2025, access to the official market is granted if the maturity of the debt is not shorter than 180 days instead of 2 years previously (Communication A 8230).
  - A parking period of 18 months applies to FX access for the repayment of debt securities subscribed abroad on or after May 16, 2025 (Communication A 8244).
  - A parking period of 12 months applies to FX access for principal payments of local securities debt issued after May 26 by banks and financial institutions under BCRA supervision (Communication A 8245).
- In substance, restrictions on payments of interest and amortization remain in place.

### Repatriation of Investments
- Changes to attract new investment while maintaining restrictions on legacy flows:
  - Non-resident investors in the securities market can access the official FX market to repatriate funds and their income, provided those funds had been introduced via the official FX market on or after April 21, 2025 (Communication A 8230 amended by Communication A 8257).
  - For foreign direct investments introduced on or after April 21, 2025, FX access is granted after a parking period of 180 days.
  - The international standard of a 10 percent voting power threshold is used to distinguish foreign direct investment from portfolio investment.

### Exchange Restrictions (Staff Assessment)
- Broad headings summarizing remaining exchange restrictions:
  - General Restriction: Limitations on access to the MULC for resident firms unless the requesting entity has not in the previous and subsequent 90 days undertaken certain transactions in the securities market (CCL and MEP) — the “cross-restriction”.
  - Restrictions on Payments for Imports: (i) limitations on advance payments for imports of goods and services, (ii) a 90-day delay for payments with respect to services procured from related parties, and (iii) a prohibition on accessing the FX market for making payments for imports of soybeans until the export proceeds for the soybean product have been received.
  - Invisible Transactions (Dividends and Profits): Limitations on accessing the FX market to transfer foreign currency abroad as profits and dividends predating January 1, 2025; prohibitions on nonresident individuals transferring proceeds of dividends, profits, rental income, and similar proceeds.
  - Restrictions on payments of interest and amortization on external loans:
    - (i) requirements that all external debt proceeds have been surrendered into the local exchange market prior to accessing foreign exchange to service external debt,
    - (ii) limitations on advance payments of debt,
    - (iii) prior BCRA consent for payments of principal (including amortization) to related parties,
    - (iv) prior BCRA consent for FX market access for payments of interest to non-resident related counterparties.

### Multiple Currency Practice (MCP)
- An MCP arises from the 30 percent withholding exchange tax on the purchase of foreign exchange to settle certain credit card transactions.
- Following recent changes, the withholding tax now applies to the settlement of FX credit card balances with pesos instead of dollars.
- Resident individuals can avoid the tax by purchasing FX without limit and settling credit balances with the FX obtained; other credit card users do not have the same free access, so the MCP has not been eliminated.
- For program purposes, a reduction of the withholding tax or narrowing its scope would not constitute non-observance of the performance criterion on introduction or modification of MCPs, in line with the TMU carve-out.

### Macroeconomic Impact of Measures
- The cost and distortions from the MCP and other exchange controls have been reduced.
- Easing has focused on current international transactions (such as imports) and new capital flows, while legacy FX liabilities are being addressed gradually (e.g., BOPREAL issuance for importers’ debt and stock of dividends).
- Benefits include higher trade and capital flows.
- Remaining restrictions are focused on impeding outflows and reducing risks of a surge in balance of payment needs, but they continue to affect international trade and investment due to disallowed operations, complexity, and operational costs and policy uncertainty.

*Source: Annex II. Foreign Exchange Regime as it Applies to Current International Transactions (selected text).*

### 1.      Notwithstanding a challenging external environment, the launch of the third phase of

### 1.      Notwithstanding a challenging external environment, the launch of the third phase of

### Program launch and macroeconomic stabilization
- Rollout of the economic program supported by financing from the Fund and other IFIs has been smooth, with markets reacting very positively to the introduction of a more robust monetary and FX regime.
- The official exchange rate has settled near the middle of the band, supported by improved confidence and tight macroeconomic policies.
- Inflation and inflation expectations are firmly on a downward path; FX gaps have virtually disappeared.
- Sovereign spreads compressed from almost 1,000 bps at program approval to a range of 650-750 bps.
- Returned to international capital markets much earlier than expected.
- Social assistance and expanding activity contributed to reductions in poverty, with 1.7 million children being lifted out of poverty.

### Recent developments and program performance
- Inflation and activity
  - Inflation declined to 1.6 percent m/m in June.
  - Break-even inflation rates averaging about 1¾ percent m/m for the remainder of the year.
  - Real GDP expanded by 5.8 percent y/y in Q1:2025.
  - Poverty around 31 percent in Q2:2025 (from over 50 percent in H1:2024).
- Monetary and FX framework
  - Peso now floats freely within the exchange rate band.
  - BCRA actions to manage liquidity and support transition:
    - tightened reserve requirements for peso deposits;
    - repurchased remaining put options on Treasury securities;
    - intervened in a limited and temporary manner in non-deliverable forward (NDF) markets;
    - enhanced communication around the monetary framework.
  - Expiration of Treasury Liquidity bills (LeFis) led to elimination of the monetary policy rate; maturing LeFis replaced by short-term Treasury paper (Lecaps).
  - Mid-June indicative ceiling on net domestic assets (NDA) was breached due to delays in reserve accumulation.
- Fiscal performance
  - Elimination of impuesto pais, temporary reduction of taxes for key agricultural exports, and unwinding of other one-off revenues totaling almost 2 percent of GDP.
  - Government posted a cumulative cash primary surplus of about ARS 6,900 billion (0.8 percent of GDP) through end-May.
  - Overall cash surplus of 0.3 percent of GDP through end-May; overperformed end-May indicative target by ARS 831 billion (0.1 percent of GDP).
  - Overperformance continued in June with a cumulative primary surplus of 0.9 percent of GDP.
  - Taxes related to economic activity are up 11 percent y/y in real terms through June.
  - Real spending is up 5 percent y/y through June.
  - Flagship social programs cover 98 percent of the basic consumption basket, above the mid-June indicative target floor.
  - Mid-June QPC on net government financing from the central bank has been met; domestic arrears remained well below the program’s end-May indicative ceiling.
- External sector and reserves
  - Current account deficit estimated at 1.1 percent of GDP in H1:2025 (from a surplus of 0.6 percent of GDP in H1:2024).
  - Export volume growth 4 percent y/y; goods import volumes up 45 percent y/y.
  - Imports of capital goods and spare parts up by over 50 percent y/y.
  - Gross private capital inflows increased, corporate issuances at local and international capital markets risen.
  - Positive flows from official creditors of US$2.7 billion through mid-July (excluding Fund disbursements).
  - New repo agreement of US$2 billion between the BCRA and international banks.
  - Bonte issuances thus far for US$1.5 billion.
  - Net international reserves (NIR) at negative US$4.7 billion on June 13, below the mid-June NIR program floor.
  - Early-July FX obligations to bondholders of US$4.2 billion were met without resorting to IMF or other IFI resources.
- Capital flows and market access measures
  - Nonresident investors no longer subject to a minimum holding requirement to participate in local debt markets; cross-restriction between official and parallel markets removed.
  - Requirement of a 48-hour advance notice for large FX purchases removed.
  - BCRA issued a new 3-year FX-denominated bond (BOPREALs) targeted at firms with legacy commercial debt and dividends.
- Banking sector and credit
  - Since program approval, bank loans to households and firms in pesos and foreign currency have grown by about 15 percent.
  - Overall credit to the private sector around 14 percent of GDP.
  - Bank liquidity: about 37 percent of peso deposits and 58 percent of FX deposits.
  - Bank capitalization: 29 percent of risk-weighted assets.
  - Corporate foreign-currency loans and debt issuances about US$6 billion in H1:2025 (from US$3 billion in H2:2024).
- Deregulation and openness measures
  - Liberalization steps including easing restrictions on import of used capital goods and vehicles, reducing import and internal taxes on consumer electronics and appliances.
  - Eliminated export taxes on industrial products.
  - Extended through March 2026 the reduction in export taxes on key agricultural products (excluding soybeans and maize).
  - Simplified tax declaration for autonomous workers and reporting standards for financial transactions.
  - Large investment regime (RIGI) approved projects amounting to almost US$13 billion.

### Outlook and risks
- Growth and inflation projections
  - Real GDP growth in 2025 remains unchanged at 5½ percent.
  - End-of-period inflation for 2025 revised slightly to 20-25 percent (from 18-23 percent).
  - Current account deficit for 2025 revised upward to around 1.7 percent of GDP (from 0.4 percent previously).
- Financing and reserve expectations
  - Higher current account deficit expected to be financed with higher private capital inflows, supported by relaxation of FX restrictions, continued access to capital markets, privatization of SOEs, and FDI inflows.
  - These flows expected to support improvements in reserve coverage during the remainder of 2025 and 2026, consistent with revised program commitments.
- Risks
  - External risks: intensification of trade tensions and geopolitical uncertainties, tighter global financial conditions; potential partial offset from further US dollar weakness and higher oil prices.
  - Domestic risks: political uncertainties ahead of the October mid-term elections could add to market volatility.
  - Upside risks: sustained program implementation could deliver steady access to international capital markets and earlier/stronger pickup in investment and productivity.

### Policy stance and contingencies
- Commitment to adapt policies to changing circumstances and meet program objectives.
- If external or domestic risks materialize and FX pressures emerge, readiness to aggressively tighten fiscal policies and monetary conditions, among other adjustments.
- Continued legal challenge (including through vetoes) of any new spending initiative proposed and approved by Congress that risks macroeconomic stability.
- Tax reductions to be conditional on offsetting permanent revenue gains or expenditure cuts to preserve the fiscal anchor.

### Fiscal policy (program)
- Anchor and targets
  - Continue to adhere to zero overall cash fiscal balance anchor.
  - Consistent with a primary fiscal balance target of 1.3 percent of GDP for this year, with efforts to boost the primary surplus by an additional 0.3 percent of GDP.
- Social protection and spending priorities
  - Space to expand targeted social assistance and ensure recovery in the real value of pensions.
  - Ensure an adequate average cost recovery for electricity to reduce energy subsidies.
  - Improve targeting, governance and efficiency of social programs via integration of social datasets into a single social registry (end-December 2025 SB).
  - Stand ready to cut discretionary spending if revenues underperform; continue to reject spending initiatives that compromise the fiscal anchor.
- Public financial management and structural reforms
  - Commitments and timelines:
    - Close all but one of the extra-budgetary trust funds: 29 out of 32 trust funds already closed (end-December 2025 SB).
    - Develop plan to eliminate inefficient extra-budgetary entities (end-September 2025 SB).
    - Strengthen institutional capacity for transparent privatization of SOEs in Ley Bases, including publishing an assessment and plan for privatization and concessions (mid-November 2025 SBs).
    - Enhance cash management by expanding integrated system of financial information coverage (end-December 2025 SB).
    - Implement resolution 21/2025 to improve competition in the wholesale electricity market and alleviate payment chain pressures (end-November 2025 SB).
  - Privatization proceeds to be recorded as a below-the-line financing item.
- Medium-term fiscal reforms
  - Budget 2026:
    - Draft 2026 fiscal budget consistent with zero-overall deficit target; to be presented to Congress in September and committed to seek approval by end-December 2025.
    - Will include a medium-term fiscal framework and a detailed fiscal risk statement with adverse scenarios (end-September 2025 SB).
    - Work to enshrine zero-overall fiscal deficit rule into law (end-December 2026 SB).
    - Engage with provinces and municipalities to reduce reliance on distortive taxes and streamline operations; consider reforming the revenue sharing system.
  - Tax reforms:
    - Prepare comprehensive revenue-neutral tax reform to simplify and improve efficiency and equity (end-December 2025 SB) including:
      - gradually reducing distortive trade and financial transaction taxes;
      - streamlining tax expenditures (including by streamlining VAT rates);
      - improving the system of excise taxes (through the normalization of fuel and other excises);
      - encouraging formalization of businesses and workers (building on recent changes to taxation of autonomous workers).
    - Strengthen tax and customs administration with Compliance Risk Management (CRM) framework and other TADAT recommendations.
  - Spending reforms:
    - Prepare comprehensive revision of the pension system aimed at improving equity and sustainability.
    - Diagnostic and system revision report to be presented to Congress late next year (end-December 2026 SB).
    - Consider strategy to address infrastructure gaps with enhanced private sector collaboration, including PPPs.

*Source: 1argea2025003-source-pdf*

### 18.      Our domestic debt management strategy will continue to prioritize enhancing the debt

### Our domestic debt management strategy will continue to prioritize enhancing the debt profile

### Domestic debt composition and market development
- Average maturity of domestic debt has risen to about 25 months.
- Share of indexed debt in primary auctions declined from 95 to 10 percent.
- Non-resident investors returned after an absence of seven years, expected to deepen local debt markets.
- Sizeable Treasury buffers are held at Banco Nacion and the BCRA, enabled by tight fiscal policies, positive net debt placements, and the central bank profit distribution, which mitigate refinancing risks.
- The publication of the borrowing plan (specifying instruments offered in auctions) provides greater predictability to market participants.

### FX financing strategy and litigation engagement
- Treasury resumed international capital market access via peso debt issuance subscribed in US dollars, facilitating payment of the July FX debt service to bondholders.
- Sustained implementation of the economic plan is expected to reduce spreads, facilitating steady access to capital markets at more favorable terms and helping refinance large FX obligations coming due in the near to medium term without increasing public external indebtedness.
- Strategy aims to allow a reduction in exposure to the Fund as conditions permit.
- Good faith negotiations are underway on payment schedules from already resolved litigation cases; engagement continues with claimants on pending international litigation cases.

### Official creditor financing and bilateral arrangements
- The World Bank and Inter-American Development Bank (IADB) have together disbursed about US$2.5 billion in budget support loans during H1:2025 and are expected to disburse an additional US$9 billion through end-2028 in ongoing budget support and project loans.
- Firm financing commitments are being secured from key bilateral official creditors.
- Following a 12-month refinancing agreement reached in April with the People’s Bank of China (PBOC) on the drawn portion (about US$5 billion) of the swap, work is ongoing toward resuming the hydro-dam project and associated financing.

### Monetary framework and exchange rate band operations
- The BCRA remains committed to maintaining tight monetary conditions and strengthening its monetary framework to support the exchange rate band system.
- Monetary framework anchored on control of money supply: primary issuances through FX purchases and absorption through FX sales occur only at the bottom and top of the band, respectively.
- Interest rates are fully endogenously determined by the market; the BCRA retains the ability to conduct open-market operations and use overnight instruments to prevent market dislocations.
- Treasury will calibrate primary auctions to refinance domestic debt while maintaining sufficient market liquidity consistent with re-monetization needs.
- A tight NDA ceiling under the program remains in place.
- Interventions in NDF markets will remain limited and temporary, targeted at addressing dislocations in this relatively thin market.

### Banking liquidity management and short-term money markets
- With the elimination of the LeFis, reforms to support banks’ liquidity management and transmission of short-term Treasury rates include:
  - Harmonizing settlement times for short-term money market instruments and payments.
  - Making reserve requirements uniform between banks and money market funds.
  - Eliminating the daily reserve requirement minimum threshold of 25 percent.
  - Supporting private-sector initiatives to launch new intra-day repo instruments (such as the REPI).
- The Treasury is prepared to temporarily increase the frequency of primary auctions to support orderly functioning of the short-term money market; the central bank will continue open market operations and use overnight instruments as needed.

### External buffers, NIR targets, and FX operations
- Initial rollout of the exchange rate band emphasized price discovery and exchange rate flexibility; heightened pre-approval speculation contributed to significant reserve losses ahead of program start.
- After program launch the authorities prioritized letting the exchange rate float freely within the band, initially delaying reserve rebuilding; recognizing external vulnerabilities, actions to strengthen external buffers have resumed.
- Multipronged strategy to strengthen net international reserves (NIR) includes:
  - Inclusion in the Treasury’s auction schedule of peso debt issuance subscribed in US dollars.
  - Strategic block FX purchases in the event of large FX liquidations.
  - Purchase of FX proceeds from privatizations, concessions, and asset sales.
- By end-2025, the NIR is projected to be about US$6 billion higher than at program approval and broadly unchanged relative to end-2024, despite significant FX debt obligations.

### Central bank balance sheet and safeguards
- Authorities will continue to strengthen the central bank balance sheet and work toward implementing many recommendations of the recent safeguards assessment.
- Consideration will be given to incorporating a framework aligned with IFRS accounting standards and further strengthening the BCRA’s balance sheet, including through buybacks of Treasury securities, as conditions permit.

### Competitiveness, deregulation, and structural reforms
- Ongoing reform program aims to boost growth, investment, and external competitiveness by:
  - Deregulating and reducing entry barriers across sectors.
  - Reducing state overreach, rationalizing redundant public employment, and enhancing SOE efficiency and governance.
  - Further opening the economy to trade and encouraging investment, including regulatory and tax predictability through the RIGI regime.
  - Improving labor market efficiency to encourage formalization, address skills mismatches, and limit dislocation costs.
- The Mayo Council has been established to build consensus on these reforms.

### Financial integrity, AML/CFT, and governance measures
- With Fund technical assistance, authorities will implement FATF report recommendations, including early priority actions to promote a risk-based approach to AML/CFT and analysis of money laundering risks from cross-border financial flows, with Fund technical assistance and publication of a progress report (end-November 2025 SB).
- Following the revision of FATF Recommendation 1, a regulatory review will streamline unnecessary or redundant requirements to avoid unintended exclusion of legitimate businesses and consumers.
- Updated guidance will be issued to refine AML/CFT obligations and promote simplified customer due diligence measures as appropriate.
- A centralized beneficial ownership registry has been established; mechanisms to verify submitted information will be developed.
- Sectoral risk assessments of payment and virtual asset service providers (VASPs) will be conducted, followed by development of an AML/CFT supervisory toolkit for VASPs.
- Strengthening of the risk-based supervisory strategy for reporting entities supervised by UIF and governance improvements (including public procurement transparency and competition/anti-trust frameworks) will continue; a more precise timetable will be developed in future reviews.

### Key program figures and exchange rates (selected)
- Average maturity of domestic debt: about 25 months.
- Indexed debt share in primary auctions: declined from 95 to 10 percent.
- Non-resident investor absence prior to return: seven years.
- World Bank and IADB disbursed during H1:2025: about US$2.5 billion.
- Expected additional World Bank and IADB disbursements through end-2028: US$9 billion.
- PBOC drawn portion of swap referenced: about US$5 billion.
- Reserve requirement daily minimum threshold eliminated: 25 percent.
- NIR projection by end-2025: about US$6 billion higher than at program approval; broadly unchanged relative to end-2024.
- Program exchange rates (rates published by the BCRA as of Jan 31, 2025):
  - Argentine Pesos to the US dollar: 1,053.50
  - Argentine Pesos to the SDR: 1,373.58
  - Argentine Pesos to the Euro: 1,097.43
  - Argentine Pesos to the Canadian dollar: 731.24
  - Argentine Pesos to the British pound: 1,311.71
  - Argentine Pesos to the Renminbi: 145.42
  - Gold price (US$/ounce): 2,808.08

*Source: 1argea2025003-source-pdf*

### 6.      Measurement: The Federal government’s primary balance will be measured at each test date

### 1argea2025003-source-pdf - 6.      Measurement: The Federal government’s primary balance will be measured at each test date

### Measurement and monitoring of the Federal government primary balance
- Measurement: The Federal government’s primary balance will be measured at each test date as the cumulative value starting from the beginning of each calendar year.
- Monitoring: All fiscal data needed for program monitoring will be provided to the Fund with a lag of no more than 25 calendar days after the end of each month.

### Ceiling on Federal Government accumulation of domestic arrears
- Definition: Domestic arrears = floating debt = difference between primary spending recorded on an accrual basis (gasto devengado, from the SIDIF system) and primary spending recorded on a cash basis (base caja, from the Treasury). This includes intra-public transfers (transferencias figurativas), and primary spending for personnel (gasto en personal), acquisition of goods and services (bienes y servicios), nonprofessional services (servicios no profesionales), capital expenditures (gastos de capital), and transfers (transferencias).
- Measurement: Arrears are measured on a daily basis.
- Ceiling: Arrears will be capped at about 0.8 percent of GDP (ARS 6,831.7 billion) for the daily average of the final two weeks of each quarter.
- Monitoring: Daily data on the stock of arrears (and underlying spending on an accrual and cash basis), recorded at daily frequency, will be provided to the Fund with a lag of no more than 25 calendar days after the end of each month.

### Cumulative floor on the change in Net International Reserves (NIR) of the BCRA
- Definitions:
  - NIR of the BCRA = U.S. dollar value of gross official reserves of the BCRA minus gross official reserve liabilities. Non-U.S. dollar denominated foreign assets and liabilities converted into U.S. dollar at the program exchange rates.
  - Gross official reserve assets defined consistently with BPM6: (i) monetary claims, (ii) free gold, (iii) holdings of SDRs, (iv) the reserve position in the IMF, (v) holdings of fixed income instruments, and (vi) net cash balances within ALADI. Exclusions: assets pledged/collateralized/encumbered, claims on residents, claims from FX derivatives vis-à-vis domestic currency, precious metals other than gold, assets in nonconvertible currencies and illiquid assets.
  - Gross official reserve liabilities in foreign currencies include: (i) foreign currency liabilities with original maturity of one year or less, (ii) Fund cumulative net purchases from the start date of the program onwards, (iii) deliverable forward FX liabilities with original maturity of one year or less on a net basis undertaken by the BCRA or on its behalf. For program purposes, the foreign currency swap with the People’s Bank of China, the foreign exchange bank reserve requirements, SEDESA, ALADI and other non-resident deposits are considered gross official reserve liabilities.
- Measurement: The change in net international reserves will be measured as the cumulative change in the stock of NIR at each test date relative to the stock on December 31, 2024.
- Monitoring: Foreign exchange asset and liability data at the BCRA will be provided to the Fund at daily frequency within two days. Net international reserves will be provided to the Fund at weekly frequency within two days.
- Adjustors:
  - Official non-project borrowing and grants: NIR targets will be adjusted upward (downward) by the surplus (shortfall) in program loan disbursements and grants from multilateral institutions (including the BCIE, EIB, IBRD, IADB and CAF) and borrowing and grants from official bilateral partners, relative to the baseline projection reported in Text Table 2.
  - Cap on downward adjustor for shortfall of borrowing and grants: cumulative of US$4 billion in each calendar year.
  - Definition: Program loan disbursements = external loan disbursements (excluding project financing disbursements and IMF disbursements) from official creditors for financing of the general government and/or the BCRA.

### Cumulative ceiling on the BCRA’s net financing of the Federal Government
- Definitions: Central bank (BCRA) financing to the government includes:
  - (i) overdraft transfers from the BCRA to the Federal Government (Adelantos Transitorios),
  - (ii) distribution of profits (Utilidades),
  - (iii) acquisition of government debt in the primary market or by direct purchases from public institutions,
  - (iv) issuance of new non-marketable government bonds (Letras Intransferibles),
  - (v) purchase of government securities in the secondary markets (including bilateral transactions, MAE and BYMA, or other parties’ discretion from application of regulation A7291 and issuance of “put options” under A7555 and A7716).
- Net financing of the Federal Government is defined as the amount of financing to the government net of increases of peso deposits at the BCRA, of cash transfers from the Federal Government to the BCRA to repurchase government securities, reduce the stock of overdraft transfers or the stock of non-marketable government bonds or recapitalize the BCRA.
- Exclusions: Transactions in the context of debt exchanges or rollover of non-marketable government bonds, or direct purchases from public institutions financed with the proceeds of IFI disbursements; transactions with peso-denominated government instruments of residual maturity of less than three months used to conduct monetary policy.
- Key figures presented (cumulative from January 1, in millions of US$):
  - end-September 2025: 4,730
  - end-December 2025: 5,836
  - end-March 2026: 0
  - end-June 2026: 818
- Measurement: The cap of cumulative flows on net financing since July 18, 2025 is set to zero.
- Clarification: Any decrease in the stock of Adelantos shall only reflect cash payments of this amount by the Treasury to the BCRA. Transfer of Letras Intransferibles to the BCRA will not reduce the stock of Adelantos.
- Monitoring: Daily data will be provided to the Fund within two days. Secondary market purchases will be measured up to the end of the month prior to the target date.

### Federal government non-accumulation of external debt payment arrears
- Definitions:
  - Debt: a current contractual liability created through provision of value requiring future payments in assets or services; includes loans, suppliers’ credits, leases (present value at inception excluding operation/repair/maintenance payments). Arrears, penalties and judicially awarded damages arising from failure to make payment under such contractual obligations that constitute debt are debt.
  - External debt: determined according to the residency criterion (including nonresident holdings of Argentine law peso and foreign currency debt).
  - External arrears: External debt obligations (principal and interest) falling due after the start date of the program that have not been paid, considering contractual grace periods.
- Coverage: This performance criterion covers the federal government. It does not cover:
  - (i) arrears on trade credits,
  - (ii) arrears on debt subject to renegotiation or restructuring,
  - (iii) arrears resulting from the nonpayment of debt commercial claims that are being liquidated prior to the start date of the program.
- Monitoring: This performance criterion will be monitored on a continuous basis.

### Exchange restrictions, MCPs, bilateral payment agreements and import restrictions (continuous performance criteria)
- Commitments: Consistent with IMF arrangement commitments, authorities will not:
  - (i) impose or intensify any exchange restrictions,
  - (ii) introduce or modify Multiple Currency Practices (MCPs), as elaborated in the TMU,
  - (iii) conclude bilateral payment agreements that are inconsistent with Article VIII,
  - (iv) impose or intensify import restrictions for balance of payment reasons.
- Clarification: Narrowing the scope or lowering the rates of the withholding tax assessed as giving rise to MCPs by the Fund will not constitute a modification as defined under the performance criterion.

### Indicative target: Ceiling on the change in the BCRA’s Net Domestic Assets (NDA)
- Definition: NDA of the BCRA = base money − net international reserves measured at program exchange rates. Base money = banknotes and coins issued by the BCRA plus banks’ accounts at the BCRA denominated in pesos. Reserve requirement = peso-denominated reserves on account at the BCRA that banks are required to keep by regulation on average each month.
- Measurement: The ceiling applies to the monthly average of NDA for the final month of each quarter. The change will be calculated with respect to the average of the month of December 2024 which was ARS 29,892.0 billion.
- Monitoring: Data will be provided to the Fund on a daily basis with a lag of no more than 2 days.
- Adjustors:
  - Official non-project borrowing and grants: NDA ceilings will be adjusted downward (upward) by the surplus (shortfall) in program loan disbursements and grants relative to the baseline projection reported in Text Table 2. Cap on upward adjustor in event of shortfall: cumulative of US$4 billion in each calendar year.
  - Reserve requirement: NDA ceilings will be adjusted by the same peso amount as any regulatory change in minimum reserve requirements. The BCRA will reach agreement with IMF staff prior to making any changes to the levels or structure of reserve requirements.

### Floor on the coverage of social assistance programs provided by the Federal Government
- Definition: Target = percentage of the basic consumption basket (canasta básica alimentaria) covered by benefits from:
  - Asignación Universal para Protección Social, including sub-programs Asignación Universal por Hijo and Asignación por Embarazo.
  - Tarjeta Alimentar.
- Monitoring: Data provided with a lag of no more than 25 calendar days after the end of each month. The indicative target will be measured as the average of the coverage in the six months prior to the test date. The social assistance benefit will be measured for an adult-equivalent.

### Other information and reporting requirements
- Daily (selected items):
  - Nominal closing exchange rates of the Argentinian peso against the U.S. dollar; FX volumes at the official market; total currency issued by the BCRA; deposits held by financial institutions at the BCRA; total liquidity assistance to banks through normal BCRA operations, including overdrafts; and interest rates on overnight deposits.
  - Disaggregated data of BCRA’s international reserve assets by source with a lag of three days.
  - Aggregated data on banks’ foreign exchange positions by category: public national; public provincial; private domestic; private foreign; and small banks.
  - Daily data on BCRA FX sales and purchases in the official and forwards FX markets showing the minimum, maximum and weighted average exchange rate of the Argentinian peso against the U.S. dollar at the time of these FX sales and purchases and amount in US dollar.
  - Daily data on Federal treasury FX sales and purchases amount and average FX rate in USD dollar.
  - Data on gross BCRA sales and purchases of securities settled in different currencies, for each market segment and at transaction price in the applicable currency, with a daily frequency and lag of three days.
  - Data on BCRA position of non-deliverable futures by maturity, to be provided within two working days.
  - Data on BCRA government securities purchased and sold in the secondary market by maturity and mechanism, and corresponding price and quantities, with a lag of one day.
  - Daily data on BCRA-issued securities by type of security and interest rate.
  - Daily data on sales and purchases of securities settled in different currencies, recorded and provided by the Comision Nacional de Valores, including trading by the BCRA; includes daily estimation of total stocks and implicit exchange rate of the most representative securities transacted in the CCL and MEP modalities and operations.
  - Daily data on Treasury deposits in SDRs at the BCRA.
  - Daily data on flows in and out of the BCRA’s SDR holding account including amount and purpose.
  - Daily data on external financing from each multilateral and bilateral creditor, broken down by budget support and project financing, and by largest bilateral projects.
  - Data on the outstanding stock of BCRA put options on government bonds.
  - Daily data for computation of NIR at current and program rate on international reserve liabilities: (i) swap lines, (ii) regulatory requirement FX deposits, (iii) Sedesa liabilities, (iv) SDR Buffer, (v) BOPREAL liabilities maturing in less than one year, (vi) other liabilities.
- Weekly:
  - BCRA balance sheet.
  - Weekly data on stock of BOPREAL by series; maturity profile of BOPREAL; interest payments on BOPREAL; stock of the debt registry.
  - Weekly data of Gold and SDR components of international reserves.
- Fortnightly:
  - Interest rates on domestic debt instruments including LELITE, LEDES, LECER, LEPAS, BONAR, BONTE, BONAD, LECAP, BONCAP and BONCER at different maturities.
  - Information on outstanding debt instruments (local and global): maturity, currency, legislation, characteristics (DL, Dual, CER, fixed), holders (banks, FXI, insurance, corporates, foreigners, BCRA, FGS, BNA, provinces).
- Monthly (lag no more than 25 days after month close):
  - Federal government operations including monthly cash flow from the beginning to the end of the current fiscal year (and backward revisions as necessary), in formats IMIG and AIF.
  - Specific reporting: (i) Revenues from sales of physical assets, licenses, and permits (and 12-month projections for future sales of such assets); (ii) Income related to the issuance of government debt securities (resto de rentas de la propiedad).
  - Data on the stock of domestic arrears.
  - Fiscal financing sources (below-the-line), issuance of domestic public securities, financing from within the non-financial public sector, external financing, and other financing schemes.
  - Detailed quarterly financing plan for the coming twelve months, provided one month in advance.
  - External financing received and projections for the coming four quarters, with loans and grants categorized by program and project.
  - On federal debt:
    - i. Domestic and external debt service (amortization and interest payments) of the federal government.
    - ii. Information on the stock of external arrears reported continuously, including those resulting from resolved international litigation cases.
    - iii. Federal government debt stock by currency, as at end month, including by creditor, instrument and direct/guaranteed.
    - iv. Balances of the federal government at the central bank and in the commercial banking system needed to determine the cash position.
  - Required and excess reserves of the banking sector in local and foreign currency.
  - Balance sheets of other financial corporations (non-deposit taking), including holdings of federal and provincial debt and of the BCRA instruments within one month after month end.
  - Data on the total loans value of all new federal government-funded public private partnerships.
- Quarterly:
  - Federal government transfers to the provinces and the Autonomous City of Buenos Aires related to settlement of liabilities associated with pensions, revenue sharing and expenditure allocation, as well as payments of arrears as per ICSID or similar arbitration rulings.
  - On provincial government operations, with a lag of no more than two months after the closing of each quarter, in the format defined by the Ministry of Finance.
  - On provincial debt:
    - i. Quarterly provincial government debt stock by currency, provided within two months following the closing of each quarter, including by creditor and instrument and direct/guaranteed.
    - ii. Quarterly domestic and external debt service (amortization and interest payments) of provincial governments, provided within two months following quarter close.
    - iii. Quarterly projections for the following semester for provincial government debt amortization/repayments and interest payments, at least 30 days before the end of each quarter.

*Prepared by Western Hemisphere Department — supplement to the Staff Report circulated to the Executive Board on July 25, 2025.*

### 1.      Efforts to rebuild reserves continue. The Treasury bought US$1.2 billion

### 1.      Efforts to rebuild reserves continue.

### Reserves and external financing
- The Treasury bought US$1.2 billion during July via strategic block purchases, adding to the US$200 million already purchased in June through this modality.
- Block purchases, together with the repo agreement (US$2 billion) and peso bond issuances subscribed in US dollars (US$1.5 billion), bring reserve accumulation efforts to US$4.9 billion since the start of the program.
- Recently approved budget support loans: Interamerican Development Bank (US$1.2 billion) and Latin American and Caribbean Development Bank (US$300 million) are supporting external buffers.
- Net international reserves currently stand at around US$-6 billion, representing a shortfall of about US$2 billion relative to the original program target.
- Another budget support loan from the World Bank (US$300 million) is being considered for approval soon.

### Export taxes and fiscal impact
- Temporary export tax reductions in effect during H1:2025 for core agricultural products (covering over 70 percent of primary and agricultural exports) have been made permanent.
- The changes imply a decline in the tax rate of 20-25 percent relative to their 2024 levels.
- Preliminary staff estimates suggest export volumes for affected categories could rise by about 5 percent.
- The Buenos Aires Grain Exchange estimates soybean production could rise by 15 percent.
- Resulting foregone export tax revenue is estimated at around ¼ percent of GDP on an annual basis (0.1 percent for the remainder of 2025).
- Authorities expect revenue losses to be offset by stronger-than-anticipated revenue performance and continued expenditure restraint in 2025, and plan to offset them beyond 2025 through planned tax reform and continued rationalization of expenditures.
- Authorities remain committed to achieving their primary fiscal surplus objective of 1.6 percent of GDP, having already exceeded the indicative target for May by 0.1 percent of GDP.
- Export tax rates and shares in agricultural exports (as reported):
  - Soybeans: Before 33.0, Now 26.08
  - Soybean derivatives: Before 31.0, Now 24.525-30
  - Corn, wheat, barley: Before 12.0, Now 9.525-30
  - Sunflower: Before 7.0, Now 5.52
  - Beef and poultry: Before 6.8, Now 5.06

### Monetary framework, liquidity management, and market operations
- The BCRA is absorbing excess liquidity by offering overnight instruments at substantially higher rates: 48 percent versus 29 percent prior to the elimination (on July 10) of overnight Treasury securities, LeFis.
- The Treasury calibrated primary auctions to refinance most maturing domestic debt with a total rollover rate of about 125 percent in July.
- In the latest auction on July 29, the Treasury accepted nearly all bids, validating elevated market interest rates, refinancing about ¾ of the amounts falling to banks.
- Banks set aside remaining liquidity to meet higher reserve requirements effective August 1.
- Authorities expect interest rates and volatility in the money market, as well as the need to intervene in NDF markets, to decline as banks adjust to the new framework and the interbank market is developed.
- The peso’s transition to a flexible exchange rate regime operating within a widening band unfolded without market disruption; FX market gaps narrowed from 24 percent to 0.5 percent.

### Market sentiment, inflation, and macro outcomes
- Since July 24, sovereign spreads have declined to around 720 bps.
- Prices of Argentine corporates trading in New York have jumped by about 6 percent.
- Monthly inflation fell from 3.7 percent in March to 1.6 percent by June.
- Sustained fiscal discipline delivered a surplus of 0.9 percent through June.
- Growth projected at 5.5 percent for 2025.
- Statement expectations: inflation expected to decline within the 20-25 percent range in 2025 and reach single-digit levels by 2026.
- Since the start of the administration, over US$25 billion in foreign exchange has been purchased within just eighteen months.
- Since end-May, approximately US$5 billion has been secured through a combination of Treasury FX operations, sovereign peso bond issuances subscribed in dollars, and a Central Bank repo facility; however, these purchases have not translated into higher net reserves because proceeds continue to be used to service external debt obligations.
- Rebuilding net reserves durably hinges on restoring sustainable access to international capital markets.

### Policy messages and program orientation (from statement by Mr. Leonardo Madcur and Mr. Adrian Nador)
- Prioritizing FX flexibility and refraining from market interventions were essential to program success; allowing the peso to float within the band enabled price discovery and reinforced monetary credibility.
- Monetary policy contributions: strict control of monetary aggregates since program start; elimination of Central Bank remunerated liabilities helped anchor expectations; real negative interest rates early in the program reduced the monetary overhang.
- Authorities reaffirm commitment to a monetary framework anchored around strict control of the monetary supply, with interest rates determined by markets.
- Given strong program ownership and steady performance over eighteen months, authorities request a modification to the review schedule to allow timelier implementation and avoid electoral volatility in assessment periods.
- President Milei’s policy priorities emphasized: fiscal discipline as foundational (eighteen consecutive months of fiscal surplus), elimination of inflation via elimination of the fiscal deficit, and growth through removal of distortive levies (e.g., permanent export tax reductions).

*Statement by Mr. Leonardo Madcur and Mr. Adrian Nador on Argentina, July 31, 2025*

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_Source: https://www.imf.org/-/media/files/publications/cr/2025/english/1argea2025003-source-pdf.pdf_