Argentina’s Debt Trap
Comments Off on Argentina’s Debt TrapWith a pin of Javier Milei’s signature chainsaw affixed to her jacket, Managing Director of the International Monetary Fund Kristalina Georgieva threw her support behind Argentina’s new administration in Washington last month. During a press conference at Washington’s Spring Meetings, she urged Argentinians “to stay the course” and back Milei at the upcoming legislative elections in October. “It’s very important that they don’t derail the will for change,” she said.1Legislative elections are scheduled to be held in Argentina on October 26, 2025. Half of the seats in the Chamber of Deputies and a third of the seats in the Senate will be elected. Some districts also have provincial deputies elections. On some occasions national and local elections are conducted simultaneously and in others there are in different dates.
After publicly endorsing Milei’s economic achievements since coming to power in December 2023, Georgieva approved a new bailout package of USD 20 billion. This comes despite the fact that Argentina has yet to repay a single dollar of the $45 billion loan originally issued in 2018 under Mauricio Macri, and later formalized in 2022 by Martín Guzmán under an Extended Fund Facility (EFF) program.2Until February 2025, Argentina paid $12.5 billion to the IMF (<)a href='https://www.clarin.com/economia/pagaron-fmi-us-12500-millones-intereses_0_U70hDEF2tL.html'(>)in interest(<)/a(>). Together, the old and new loans make Argentina the IMF’s largest borrower by a wide margin, accounting for 34 percent of the Fund’s total outstanding credit—amount so far to $65 billion capital, plus interest—almost four times that of the second-largest borrower, Ukraine, a country in the middle of a years-long war.

Argentina’s toxic affair with the IMF has a long and complicated history. It was the last country in Latin America to join the institution, in 1956, and for the last forty-five years, it has co-governed Argentina through a revolving door of Stand-By Arrangements (SBAs) and three EFF programs. In other words, nearly two-thirds of Argentina’s modern economic history has unfolded under the IMF’s watchful eye—and often meddling hand.
President Milei, for all his libertarian branding, evokes a distinct sense of déjà vu. His economic team is less a bold new vanguard than a familiar cast of technocrats identifiable from previous neoliberal experiments—many of which ended in spectacular crises. The man who gifted Georgieva the chainsaw pin is Federico Sturzenegger, now Minister of Deregulation and State Transformation. He played a central role as Secretary of Economic Policy during the infamous megacanje of 2001: a controversial debt swap that deepened financial instability and helped precipitate Argentina’s worst economic collapse to date.3Sturzenegger was formally charged for his alleged role in the Megacanje operation. As a former official in the Ministry of Economy in the early 2000s, he was accused of participating in the planning and execution of the debt swap without fully disclosing the risks and adverse financial consequences for the Argentine state. The charges centered on the claim that Sturzenegger, along with other officials and international bankers, engaged in financial maneuvers that prioritized short-term debt relief but ultimately worsened the country’s fiscal outlook. However, the highly corrupt judiciary system dismissed the charges after fifteen years of legal disputes—during Macri’s administration. Despite still being under investigation, Macri appointed Sturzenegger as Director of the Central Bank in 2016 (CIS, 2014; Infobae, 2016). Other appointments have reinforced this pattern. Figures from Carlos Menem’s administration (1989–1999), such as Guillermo Francos, and even Menem’s nephew, Martín Menem—now President of the Chamber of Deputies—feature prominently.
From the Macri era (2015–2019), familiar names return: Patricia Bullrich, Santiago Bausili, and most notably, Luis Caputo. Caputo as well as Bausili were former JP Morgan and Deutsche Bank directors. Both were business partners in Anker consulting company. Perhaps the most striking irony lies in Milei’s past condemnation of Caputo. In a 2018 interview, Milei accused Caputo of having “sold out” and having “smoked $15 billion from the IMF,” as well as being responsible “for the disaster in the Central Bank.” Today, that same Caputo serves as Milei’s Minister of Finance, while Bausili is President of the Central Bank. So much for the much touted independence of Argentina’s current economic policy.
Against this backdrop, the IMF’s decision to approve yet another financial lifeline raises unavoidable questions. Lending fresh funds to the team that has repeatedly driven the country into crisis is either a leap of faith on the Fund’s part or the product of institutional amnesia. The scale of Argentina’s borrowing now poses systemic risks not just to the country, but to the Fund. As the IMF candidly admitted in its own ex-post evaluation, the 2018 Stand-By Arrangement “has created substantial financial and reputational risks to the Fund.” In this high-stakes gamble, the chainsaw may yet come full circle.
Reputational risks
The Italian sociologist Giovanni Arrighi theorized that any cycle of accumulation led by a hegemonic power will include a phase of material and financial expansion, followed by stagnation and crises, often leading to broader ruptures in global leadership.4Giovanni Arrighi, (<)em(>)The Long Twentieth Century: Money, Power, and the Origins of Our Time(<)/em(>), Verso (1994). According to Arrighi, world hegemony refers to a state’s ability to lead and govern a system of sovereign nations, often involving transformative actions that reshape the system’s functioning.
Hegemony differs from simple domination. Unlike a dominant power’s dependence on coercion, hegemony is strengthened by intellectual and moral leadership and the ability to frame conflicts in universal terms. When a hegemon loses legitimacy, it ceases to be hegemonic. Global hegemony, therefore, arises not just from power among states, but also from a state’s capacity to represent the collective interests of its own citizens and others. For Arrighi, the US claim to hegemony following World War II relied on its ideological leadership of Bretton Woods institutions like the IMF and the World Bank, as well as the UN, all of which promoted development and peace and countered the Soviet influence. As the US reorganized the “free world,” the Bretton Woods institutions and the UN became tools of American hegemony; when they couldn’t serve this role, their functions were limited.
The IMF has 191 member countries but the US is by far the most powerful. Its voting power reflects this. It holds 16.5 percent of the total votes, giving it effective veto power over major decisions, which typically require an 85 percent majority. The top five countries collectively hold 38 percent of the voting power, while the top ten countries account for over 52 percent, reflecting a significant concentration of influence among a small group of powerful economies.

Successive failures in stabilizing the global economy and providing developmental paths for the countries of the global South like Argentina means that the IMF is now experiencing substantial financial and reputational risk.5International Monetary Fund (IMF), Ex-post evaluation of exceptional access under the 2018 Stand-By Arrangement—Press release and staff report (2021). https://www.imf.org/en/Publications/CR/Issues/2021/12/22/Argentina-Ex-Post-Evaluation-of-Exceptional-Access-Under-the-2018-Stand-By-Arrangement-511289 Considering the increasing role of China as a lender of last resort and the expansion of a Sinocentric network of development banks, this is no minor issue.
Argentina and the IMF
Argentina has had a long and complex relationship with the IMF, marked by recurring cycles of debt, crisis, and restructuring. Since 1958, it has entered into over twenty IMF arrangements—primarily Stand-By Arrangements and Extended Fund Facilities—totaling more than 133 billion SDRs in agreed funds, $177 billions, 60 percent of which were drawn. These programs have consistently come with strict macroeconomic conditionalities, often focused on fiscal austerity, inflation control, trade liberalization, and structural reforms.
In 1944, Argentina had been excluded from the Bretton Woods agreement due to concerns over its lack of political alignment with the United States and its neutrality during World War II. With the overthrow of the Juan D. Perón government during the “Revolución Libertadora” in 1956, Argentina was finally welcomed to the club.

The first agreements, signed in the late 1950s and 1960s, were modest in size and aimed at monetary stabilization and foreign reserve accumulation, introducing Argentina to IMF-style fiscal discipline, and eliminating key development assets such as the railway network.6By the 1940s, Argentina had the largest railway network in the American continent achieving over 47,000 km. The first agreement signed with the IMF in 1958 among other goals aimed to “eliminate” most of the railroads.
In December 1982, Argentina’s central bank nationalized nearly $17 billion of private debt, concluding a period of Kissinger-backed dictatorship (1976–1983) characterized by some of the earliest experiments with neoliberal restructuring. The decision paved the way for the debt crisis of the 1980s and subsequent deindustrialization and adjustment reforms policies in hand with social repression. The Latin American debt crisis unfolded in the context of escalating US interest rates, prompting Argentina to enter into a series of larger SBAs. These included measures such as currency devaluation, public sector downsizing, and tight wage controls, all of which contributed to recessionary pressures and political unrest amid rising inflation and social discontent.
In the 1990s, Argentina embraced the Washington Consensus and so entered into what became known as its era of “carnal relations” with the US. The 1991 SBA and the 1992 EFF supported Carlos Menem’s reforms, particularly the convertibility plan that pegged the peso to the US dollar. IMF-backed policies included mass privatizations, trade liberalization, and fiscal consolidation. However, by the late 1990s, vulnerabilities deepened. The 1996 SBA and 1998 EFF aimed to sustain convertibility, but external shocks and rising debt levels set the stage for a devastating crisis.
At the turn of the millennium, Argentina signed a new 16.9 billion SDR loan, followed by a Supplemental Reserve Facility of 6.1 billion SDR in 2001 as its economy spiraled into collapse. The IMF demanded further deficit reduction, labor market reform, and continued commitment to the currency peg. These measures were widely seen as deepening the crisis, which culminated in the 2001 debt default, the largest in global history at the time.
In 2003, during the post-crisis transition, Argentina signed two new SBAs to stabilize its economy and begin restructuring its debt. These programs marked a shift from a program of strict austerity policies geared toward recovery. Then, in a historic move, President Néstor Kirchner announced the full repayment of IMF debt in December 2005—approximately $9.9 billion. By 2006, Argentina closed the IMF’s office in Buenos Aires, symbolically severing ties. Kirchner criticized the Fund’s role in Argentina’s crisis, stating the country was “burying an ignominious past” of externally imposed economic policies.
“We will return”: the largest loan of IMF’s history
Georgieva is not the first IMF director to show signs of political favoritism in Argentina. In 2020, Mauricio Claver-Carone, who served as the United States Executive Director at the IMF and was a crucial advisor to the first Trump administration on Latin America, asserted that “Everything Trump did at the IMF was to assist Macri and prevent Peronism from returning to the Casa Rosada.”
It was under President Mauricio Macri in 2018 that Argentina returned to the IMF with a record-setting $57 billion loan. Some argue that the IMF approved the loan—its largest ever, anywhere in the world—to politically support Macri’s re-election in 2019, despite clear warning signs that the program was unsustainable. This perception of partisan interference tarnished the institutional neutrality expected from the IMF.
The program aimed to restore market confidence but imposed harsh conditions: zero growth in the monetary base, sharp fiscal consolidation, and a market-driven exchange rate. The 2018 agreement was struck quickly and quietly, leading to accusations that the terms were opaque and negotiated behind closed doors without democratic oversight or public debate. This raised questions about its legitimacy, even if not outright illegality under international law; the deal only worsened recession and poverty, ultimately failing to stabilize the economy. It also violated Argentina’s domestic law and the IMF’s own rules.
According to Argentina’s Constitution, major international financial agreements—especially those involving sovereign debt—should be approved by Congress. Macri’s administration negotiated the $57 billion agreement (eventually drawn down to $45 billion) without prior legislative ratification.7The (<)em(>)Coordinadora de Abogadxs de Interés Público(<)/em(>) (Lawyers for Public Interest Coordinator) led the (<)a href='https://fmiargentina.com'(>)legal disputes (<)/a(>)in the judiciary to declare the nullity of the IMF loan in 2018. The deal was later formalized by Alberto Fernández’s Minister of Economy Martín Guzmán, who regularized it in 2022 via an Extended Fund Facility, which achieved congressional approval only after the fact.
Several experts and former IMF officials have argued that the loan breached the IMF’s Articles of Agreement. Much of the 2018 disbursement was used to support the Argentine peso and finance capital outflows, which contradicted the Fund’s core mission, stated in Article I, according to which the IMF is supposed to ensure general economic and balance of payments stability. Article 6 states that “A member may not use the Fund’s general resources to meet a large or sustained outflow of capital.” But the Argentine Central Bank found that most of the funds were used to pay off foreign investors and support capital flight, rather than fund productive investment or structural reform.8Banco Central de la República Argentina (BCRA). (2020). Mercado de cambios, deuda y formación de activos externos 2015–2019. https://www.bcra.gob.ar/Noticias/publicacion-de-informe-mercado-cambios-deuda-2015-2019.asp The ex-post evaluation by the IMF mentions the term “capital flight” twenty-one times and recognizes that “capital flight undermined the restoration of international reserves.”
Critics argued that the program lacked a credible macroeconomic plan and sustainable debt path. The Fund recognized something similar in its ex-post evaluation, acknowledging that “the SBA has created substantial financial and reputational risks to the Fund.” The evaluation concluded with five major “learnings” that, half a decade later, appear to have been ignored:
First, it is essential that they incorporate realistic assumptions. Second, programs should be tailored to country circumstances, including political economy considerations, which could entail using unconventional measures if standard macroeconomic policies are unlikely to deliver. Third, the analysis of risks underlying key judgments made when applying the Exceptional Access Framework should be clearly laid out and communicated to the Board. Fourth, ownership, which should be understood in a broader societal sense, should not preclude a candid assessment of possible better policy choices and program outcomes. Fifth, effective external communication is essential in securing proper buy-in at different levels and the intended catalytic effect. Finally, an appropriate burden sharing is needed when entering into exceptional access arrangements.
Guzman’s failures
In 2021, President Alberto Fernández placed the Minister of Economy, Martin Guzmán, in charge of renegotiating the controversial IMF loan. Amid an unprecedented global pandemic, the war in Ukraine, and a shifting international financial landscape, Guzmán led a widely criticized negotiation that secured neither a reduction in principal nor meaningful relief on interest payments. Moreover, Guzmán’s negotiations were notably secretive—even to senior political leaders and foreign affairs officials—undermining any potential for building internal consensus.
Despite acknowledging the IMF’s role in “financial gambling,” and approving a political loan that constituted “fraud,” Martín Guzmán formalized the questionable loan through an EFF—essentially replacing the original debt with a new one, under slightly modified terms. The original Stand-By Agreement had been legally dubious, yet Guzmán effectively “legalized” it and postponed capital payments instead of challenging its legitimacy. Guzmán also introduced Law 27.612, the so-called “Guzmán Law,” which required Congressional approval for new international financial agreements, particularly those involving the IMF.
Guzmán aimed to promote gradual fiscal adjustment, reserve accumulation, and protect social spending—a softer stance compared to previous IMF arrangements. However, none of the EFF program’s objectives were achieved. Inflation, already high, spiraled out of control and exceeded 200 percent; Guzmán had little choice but to resign, which he did in July 2022. Public frustration over rising prices and declining living standards paved the way for Milei’s electoral victory in late 2023. Guzmán’s docile strategy was a failure: the negotiations were innocuous.
Even the “Guzmán Law” proved largely symbolic. President Javier Milei’s administration circumvented it by issuing a Decree of Necessity and Urgency (DNU) to approve a new Extended Facility Program worth 15.3 billion SDR (approximately $20 billion). His success in doing so illustrated how little resistance even substantial financial agreements may face within Argentina’s fragile institutional framework, plagued by corruption and entrenched political decay.
The “victory” over the surcharges seems more like a dispute over a “candy” than a real resolution of Argentina’s illegitimate loan from the IMF.
The second round
Milei’s new IMF loan is structured under a forty-eight-month EFF arrangement for Argentina, totaling $20 billion (or 479 percent of its IMF quota). This adds to the existing $45 billion, with an immediate disbursement of $12 billion. A first review is scheduled for June 2025, with a corresponding disbursement of approximately $2 billion just a few months before the October elections. The funding is intended to stabilize Argentina’s currency and address urgent debt obligations. Given that the targets will not be met, the IMF has decided to postpone the review date from June 13 to the end of July—another reminder that the loan is less about technical or economic sustainability than pure political discretion.
The disbursed $12 billion has already been used to purchase liabilities from Argentina’s Central Bank—in other words, to move funds from the Treasury to the Central Bank. With this financial “magic,” the total amount of reserves will remain stable; when held by the Treasury, they count as part of gross reserves because they are recorded as “encumbered” deposits; and once they are transferred to the Central Bank’s assets, they become net and liquid reserves, available for intervention if necessary within a banded floating exchange rate system. This opens new avenues for carry trade in a context of over-valued pesos, sitting pretty for a future flight of capital.
Regarding repayment dynamics, the IMF emphasizes the need for Argentina to rebuild its foreign reserves from low levels. Regaining market access and managing global risks will require further enhancements to the foreign exchange (FX) and monetary regime, alongside a careful, sequenced easing of FX restrictions.
As of early 2025, the Argentine peso is the most overvalued currency on The Economist’s Big Mac Index; it is sitting at 56.7 percent against the US dollar (Bloomberg, 2025). This has contributed to a slowdown in the liquidation of commodity exports. In response to concerns from the agribusiness sector, Finance Minister Luis Caputo suggested producers engage in carry trade strategies to increase returns. Rural associations, in turn, replied:
The productive sector we represent has received statements from national officials that are troubling. First, we were advised to engage in financial speculation—an activity entirely unrelated to our core mission. Our work is to generate real, exportable wealth, which over the years has allowed successive governments to confiscate a total of $200 billion.
It remains unclear how the Argentine government intends to truly recapitalize the Central Bank’s reserves; this would entail doing so through sustainable means rather than by increasing external debt. So far, the government has relied on a “blanqueo de capitales” ( capital regularization or tax amnesty) scheme—often criticized for enabling large-scale money laundering. A total of $32 billion in assets was declared, including $22 billion in cash deposits via Special Regularization Accounts (CERA) and Settlement and Clearing Agents (ALyC), and almost $10 billion in other assets such as real estate, vehicles, and corporate shares. Coincidentally or not, the current Minister of Justice in Milei’s administration, Mariano Cúneo Libarona, previously served as the defense lawyer for several of Argentina’s most prominent drug traffickers.
Argentina’s debt traps
During his April 2025 visit to Buenos Aires, US Treasury Secretary Scott Bessent expressed strong support for Argentina’s economic reforms under President Javier Milei, particularly the government’s fiscal, monetary, and exchange rate adjustments. He highlighted the $20 billion IMF Extended Fund Facility and additional loans from the World Bank and the Inter-American Development Bank as crucial to stabilizing Argentina’s economy.
While endorsing these reforms, Bessent also raised concerns about China’s growing influence in Latin America, describing Chinese loan agreements in the global South as “rapacious.” In a pointed remark, he suggested that Argentina should terminate its swap agreement with China once it accumulates sufficient reserves. The swap line, valued at $20 billion, has only been partially activated, with $5 billion drawn so far. The figure below shows the implication of the SWAP in Argentina’s Central Bank reserves.
In response, the Chinese Embassy in Argentina issued a statement of “deep discontent,” rejecting Bessent’s characterization of Chinese financial agreements as “predatory.” The embassy emphasized that China’s engagements with developing nations, including Argentina, are mutually beneficial and free of political conditions. This exchange underscores the complexity of Argentina’s ties with both the US and China, reflecting broader tensions between Western and Eastern powers in the geopolitical arena.
Ironically, Bessent’s criticism of Argentina’s $5 billion swap with China contrasts with his approval of Argentina’s ballooning IMF debt, which now stands at $65 billion. Comparing these figures raises the question as to where the real debt trap lies—in the East or in the West?
A month later, on May 16, Mauricio Claver-Carone, former IMF director responsible for the largest loan in the Fund’s history to the Macri administration, stated: “As long as the country has the swap, it is tied to China and depends on that swap to stay economically afloat. Therefore, Argentina is not free.” The Chinese Embassy in Argentina responded: “His remarks on the China-Argentina cooperation through the currency swap are full of clichés, prejudices, and manipulations characteristic of the Monroe Doctrine.”
The IMF itself has acknowledged that China’s financing assurances are vital for Argentina’s economic stability, particularly for refinancing the PBOC swap and sustaining hydro-dam projects tied to Chinese funding. This assessment directly contradicts Bessent’s and Carone’s rhetoric, revealing a tension between US political goals and Argentina’s economic realities.
Moreover, in both official and informal meetings, the Central Bank of Argentina has explicitly stated that it expects to receive the $2 billion disbursement from the IMF next month, regardless of whether it misses the target for rebuilding foreign reserves in the upcoming review. They believe that cutting pensions, eliminating strategic ministries, and shrinking the middle class are sufficient goals; it remains unclear where the surplus is currently being directed, as it is not being used to rebuild foreign reserves.

There is a historical irony. The neoliberal experiments imposed by the US-backed dictatorship in 1976, and the later adoption of the Washington Consensus in the 1990s, contributed to Argentina’s deindustrialization, transforming it into a commodity-exporting economy. Industry’s share of GDP plummeted from over 50 percent in the mid-1970s to roughly 20 percent by the 2000s. Exactly the consequences of neoliberal policies leading to de-industrializations are drivers of Argentina’s dependency on the Chinese markets.
Today, Argentina’s exports consist largely of raw commodities like soybeans, beef, and barley, which remain its primary source of foreign currency. China has been Argentina’s second-largest export destination since 2009, though this relationship has weakened in recent years. Argentine exports to China fell to $5.2 billion in 2023, down from $7.9 billion in 2022. By 2024, China had dropped to fourth place among Argentina’s trade partners, and by May 2025, exports to China had dipped below $1 billion.9INDEC, Estadísticas del Comercio Exterior (2025). (<)a href='https://comex.indec.gob.ar/#/'(>)https://comex.indec.gob.ar/#/https://comex.indec.gob.ar/#/(<)/a(>)
Despite this decline, China remains critical for Argentina’s trade, especially for key exports like soybeans and beef—products the US struggles to source from Argentina due to domestic production. Consequently, Argentina remains tethered to China to sustain its ability to service IMF debt. However, the growing reliance on raw commodity exports—primarily to import Chinese manufactured goods—has widened Argentina’s trade deficit with China. Swap agreements have been essential for maintaining trade during balance-of-payments crises. In fact, the Chinese swap line enabled Argentina to repay IMF interest charges in 2023 after Guzmán’s resignation.
China’s long-term investment strategy in Argentina, particularly through large-scale infrastructure projects like the Patagonian hydroelectric dams, has yielded limited short-term results. As of 2024, the Néstor Kirchner dam was only 20 percent complete, and the Jorge Cepernic dam is still less than half finished. US vetoes have blocked Chinese-backed nuclear projects, and Belt and Road Initiative plans in Argentina have yet to advance beyond the drawing board.10Haro Sly, M. J., & Hurtado, D. (2023). Hacia la convergencia de trayectorias en ciencia y tecnología que se bifurcan: Desafíos de la cooperación de Argentina y China. In M. Andrés (Ed.), (<)em(>)Argentina-China 50(<)/em(>) (<)em(>)años de relaciones diplomáticas: Cooperación, desarrollo y futuro(<)/em(>) (pp. 115–133). Ministerio de Ciencia, Tecnología e Innovación y Academia China de Ciencias Sociales. https://www.argentina.gob.ar/sites/default/files/c_2023-05-08-argentina-china.pdf This calls into question both the efficacy of China’s strategy and the sustainability of Argentina’s dependence on Chinese financing.
This geopolitical and economic backdrop underscores the challenges facing the IMF as a lender of last resort to countries like Argentina. The Fund’s financial and reputational risks are increasingly entangled with the recurring debt crises it seeks to manage—and often exacerbates.
As Giovanni Arrighi’s theory of hegemonic cycles emphasizes, hegemony involves not just coercive dominance but also intellectual and moral leadership—shaping the rules of the international system so as to promote a developmental path representing collective interests internationally. The relative decline of US hegemony and the failure of Bretton Woods institutions to foster sustainable development raises profound questions about the future of global governance. China’s expanding role as an alternative creditor and the rise of Sino-centric financial institutions has yet to break the core-periphery dynamics set by the US, but the possibility of a new narrative is emerging.
Proxy tensions in Argentina have hindered China’s ability to advance its planned projects, but they have also undermined the US strategy to isolate China, as Argentina remains reliant on Chinese markets and financing.
Argentina’s current political climate further complicates its navigation through these global tensions. President Milei’s reforms— implementing an alignment with IMF orthodoxy—have deepened the country’s cycle of debt dependency in an increasingly unstable global context. The low voter turnout in the 2025 local elections reflects a broader disillusionment with the political establishment and waning public confidence in the viability of Argentina’s long-term development strategy.
No major political force has articulated a clear and actionable vision for escaping the debt traps imposed by Western financial institutions. Opposition parties, including various Peronist factions, have offered little more than rhetorical condemnation of the IMF’s latest loan agreement, without pursuing concrete alternatives or mobilizing any substantive resistance. The political establishment has no idea how to build a new development path for the country. Though the citizens and social movements that defined Argentina’s 2001 rebellion remain scattered today, whispers of change are stirring from below.