IMF sees deeper economic contraction in Argentina

BUENOS AIRES — Argentina's economy is set to contract by 2.8 percent this year, the International Monetary Fund predicted on Tuesday as President Javier Milei's massive economic reform package remained bogged down in Congress.

Milei took office in December vowing to slash spending and end decades of economic crisis in South America's third-largest economy, where annual inflation stands at over 200 percent.

However, the libertarian and self-described "anarcho-capitalist "has been forced to water down a massive package of more than 600 economic and political reforms to win support in Congress.

Milei's political party has only 38 of 257 seats in Congress, and opposition pressure has already forced him to ditch almost half of the articles in his bill, including key fiscal reforms.

The official debate on the law has been delayed as he tries to shore up support, and was expected on Wednesday.

The delays have only heightened economic anxiety in the country where poverty levels stand at 40 percent.

The IMF said it had scaled back Argentina's growth prospects "in the context of a significant policy adjustment to restore macroeconomic stability."

The IMF prediction marks a 5.6 percentage point cut from its last economic forecast in October, when it predicted a growth of 2.8 percent in 2024.

Argentina's economy is estimated to have contracted 1.1 percent in 2023, said the IMF.

The 53-year-old Milei won a resounding election victory on a wave of fury over the country's decades of economic crises marked by debt, rampant money printing, inflation and fiscal deficit.

He began his mandate by devaluing the peso by more than 50 percent, cutting state subsidies for fuel and transport, and reducing the number of ministries by half.

His reform package aims to notably scrap hundreds of economic regulations in a country accustomed to heavy government intervention in the market.

Milei has warned that economic "shock" treatment is the only solution to the country's troubles, and that the situation will get worse before it improves.

Argentina's economic woes are reflected across the updated forecasts to the IMF's World Economic Outlook.

The fund's 2024 growth forecast for Latin America and the Caribbean was revised down 0.4 percentage points to 1.9 percent, reflecting "negative growth in Argentina in the context of a significant policy adjustment to restore macroeconomic stability", it announced in the WEO update on Tuesday.

The IMF also noted that Argentina's inflationary surge was the main driver pushing up the 2024 inflation outlook for emerging markets and developing economies to 8.1 percent.

"The realignment of relative prices and elimination of legacy price controls, past currency depreciation, and the related pass-through into prices is expected to increase inflation in the near term," it added.

Agencies via Xinhua