Argentina has officially secured a $20 billion agreement with the International Monetary Fund (IMF). This 48-month Extended Fund Facility deal was finalized on Friday. In a significant policy shift preceding the agreement, Argentina dismantled key aspects of its long-standing currency controls and relaxed its hold on the peso.

The IMF is set to disburse $12 billion by next Tuesday, with an additional $2 billion to be made available by June.

The IMF anticipates that this deal will assist Argentina in “catalysing additional official multilateral and bilateral support, and a timely re-access to international capital markets.”

According to an IMF statement, “Key pillars of the programme include maintaining a strong fiscal anchor, transitioning towards a more robust monetary and FX regime, with greater exchange rate flexibility.”

Earlier, the nation’s central bank declared its intention to remove a fixed currency peg starting Monday. This will allow the peso (ARS=) to fluctuate freely within a moving band of 1,000 to 1,400 pesos per dollar, compared to Friday’s closing rate of 1,074.

The central bank stated that Argentina will eliminate significant portions of the “cepo” capital controls, which have previously restricted access to foreign currency.

Starting this year, companies will also have the ability to repatriate profits out of the country, fulfilling a crucial demand from businesses that could potentially unlock further investment.

Economy Minister Luis Caputo stated at a press conference, “As of Monday, we will be able to put an end to the foreign exchange restrictions which were imposed in 2019 and which limit the normal functioning of the economy.”

President Javier Milei addressed the nation in a televised speech on Friday night, asserting that Argentina is now “in a better position than ever to withstand external turbulences.”

However, an IMF staff report concerning the $20 billion deal cautioned that “downside risks remain elevated.” It noted that the implementation of the program could face challenges due to rising global trade tensions and, domestically, due to the volatility introduced by the upcoming electoral cycle and fragile social conditions.

The new exchange rate system has the potential to devalue the peso by nearly a third if it reaches the weaker end of the band. Nevertheless, the central bank is expected to retain certain tools for intervention. The bank indicated that the band will expand by 1% each month.

This policy change occurred before the IMF’s final approval of what marks the 23rd program in a lengthy and varied history between Argentina and the Washington-based lender.

The funds acquired from the IMF deal will be allocated to recapitalizing Argentina’s central bank. The government anticipates that these funds will contribute to a healthier currency, reduced inflation, and the possibility of tax cuts, according to Caputo.

Additional multi-year disbursements were also announced, including $12 billion from the World Bank and $10 billion from the Inter-American Development Bank.

Argentina requires this financial support to strengthen its depleted foreign currency reserves, which are currently in deficit and have been declining in recent weeks amidst persistent inflation and a rising country risk index.

These funds are also essential for easing currency controls, which are likely to trigger a period of local market instability, already exacerbated by the international tariff war involving the United States and its trade partners.

Economist Ricardo Delgado commented, “This is a devaluation, which rather goes against what the government would have intended to calmly get to elections,” in reference to the midterm legislative elections scheduled later in the year.

He further added, “It’s a bit surprising that at this time of global volatility, the controls are being lifted.”