Cash and checks: Argentina’s next IMF loan

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The Economist.

Hello and welcome to The Intelligence from The Economist. I'm Rosie Bloor.

And I'm Jason Palmer. Every weekday, we provide a fresh perspective on the events shaping your Our World.

Texas has been in the news a lot for its fight to stop the flow of illegal migrants. But a strange thing happened when our correspondent went there. She found very few people trying to cross the border, but an alarming rise in police cars driving dangerously fast.

And to say that it's an uncertain world these days is, well, you listen to the show. You know, for Europe's citizens and its governments, that uncertainty is manifesting in readiness. It's becoming a continent of preppers. First up though, if I came to you asking to borrow a few bucks to get me through a and then I didn't pay it back, or not on the agreed terms, or just didn't get my act together, you'd be wary the second time, right? How about if I did that 22 times in a row? That would sound like we're both unwise with our money. And yet that's more or less what's going on between Argentina and the International Monetary Fund. On Friday, the IMF promised another $20 billion of loans. Delighting Javier Milei, the chainsaw-wielding anarcho-capitalist president. "Never has Argentina been better equipped in its economic foundations to resist tensions from the global economy," he said. The thing is, as much as previous administrations have said this kind of thing before, like a bunch of times, he has a point. This time, maybe, probably, hopefully could be different? Both lender and borrower have to hope so.

Many of Argentina's previous 22 IMF programs have ended badly.

Kinley Salmon is our Latin America correspondent.

The most notorious surely was in the early 2000s, where despite the Fund pouring in money, there was a terrible recession. There was a run on the banks. There were even violent clashes in the streets. And the whole thing collapsed with the president of the day resigning and fleeing in a helicopter. From the roof of the presidential palace. Plenty of other programs have also ended in failure, but of a slightly less dramatic sort. But Javier Milei's record gives at least some credibility that this time might just be different.

And what's the basis of that? Where's this optimism coming from this time?

Javier Milei took office in December 2023, and he took over pretty terrible circumstances. There was wild overspending, inflation was running at 12% per month, there was a tangle of capital controls, multiple different exchange rates, and he's really He did take a big action in response to that problem. He slashed spending, that helped reduce inflation. There was an initial recession, but that's now turning into growth. Poverty got worse with that slashing, but has actually now gone below what he inherited. So that's a track record that's pretty impressive. And now he's trying to do something about some of the weaknesses that remained, one of which was an overvalued peso, the local currency, and those capital controls. So I'd say he's never been closer to transforming Argentina into something of a normal economy.

Fair enough. But what exactly is the plan? What does the IMF program lay out in exchange for handing over $20 billion worth of cash?

There is a lot of cash. They're getting $12 billion upfront and potentially another $3 billion during this year from the IMF. Two big changes are happening. One is that the exchange rate, which has been on a crawling peg, basically stuck close to the US dollar. It's now going to float. It's going to be flexible and floating, but between bands. And so it can do what it wants within those bands. If it devalues so much or depreciates so much that it hits the top of that band, the central bank can then defend it. But this is a big step in the direction of more flexibility and a more normal kind of exchange rate. The second big thing is that those capital controls, which have made it very hard to get money out of Argentina, are also being lifted to quite a large degree. Those had been putting investors off putting money into the country because who would want to put money in when you don't know if you can get it out? And so removing those should spur investment as well. But there are risks with all of this, of course. There are risks of swings, of big depreciations, of money flooding out. The central bank hopes that it can keep people in the economy by offering higher interest rates in pesos and keep the situation under control. But it's a bold couple of moves and there are risks that come with it.

What are the risks then?

So one big risk is money going out. It's easier to take money out of Argentina, and if people lose confidence in what the government's doing, they will get out of Dodge. So that's one worry that the government has when it reduces capital controls as it has done. They've kept a little bit of security by making some historic dividends which have been stuck in the country a long time. Those are still hard to take out, so they've given themselves a little bit of help on that risk. The second one is that there could still be pressure on the peso. If it goes to the top of that band, the central bank can defend it, but that could happen. Some see it as still overvalued and that will put pressure on the central bank to spend its scarce dollars and defend it. So there's that risk of floating around too. But overall, this should make it easier for the central bank to build its own reserves. That's really important for Argentina to borrow again in global capital markets.

And in these days, I can't get through a segment on this show without asking about tariffs. I mean, this is a big change for Argentina happening as a big change is happening for the entire world of trade. Does that figure in here? Does that make for even more risk?

Yeah, that does figure quite strongly. It's slightly ironic because Javier Milei really loves Donald Trump, but the trade war started in Washington. That has a couple of impacts. One is it's dropping the oil price. It's also threatening agricultural commodity prices. That's bad news for Argentina because those are two big exports. And so they want to sell those exports at as good a price as they can and build up their foreign reserves, that's all now harder. And general global mayhem in markets means that investors who Argentina wants to attract in all sorts of ways are going to be much warier of plunging in on Argentina, which is after all a serial defaulter.

But notwithstanding the uncertainty that plagues us all, all the time, on paper anyway, you think this looks like a good plan? This should work barring any serious emergencies?

Well, one piece we haven't touched on is that the depreciation of the peso could very well lead to an increase in inflation. And falling inflation is really the backbone of Javier Milei's popularity. So there's a real political risk there that if inflation jumps a little bit more, perhaps more even than expected, and stays higher, that could hit Javier Milei's popularity. That could in turn spook markets, generate more problems, and you can end up in a bit of a vicious circle. So the question of inflation and what happens to his political popularity is really important. His popularity, we should say, is still pretty good right now, but it's going to be tested in a series of regional elections starting very soon and midterms coming up in October. So I think in a way, Milei has removed maybe some market risk, but has a little bit more political risk because of that risk of rising inflation. Nonetheless, I would say quite remarkably really, given what he inherited, It now looks more likely than not that Javier Milei is going to manage to pull off this transformation of the Argentine economy, really.

And for the sake of asking, what happens if it doesn't work? If the 23rd time isn't lucky?

The IMF is already deeply exposed to Argentina. Another failed program would reduce their firepower for helping other emergencies. Look, if it doesn't work out, the political consequences for Milei will show up quickly in lost elections, most notably potentially at midterms this year, but also more importantly, his own reelection in 2027. And I think that would have global implications too. He's been something of an example, a bit of a totem of an anti-state, hard cost-cutting, freedom-loving version of right-wing politics. And this idea that's gained in currency that we need to absolutely slash back at the size of the state, as Millais said to me, his contempt for the state is infinite. That idea, I think, would decline in currency with the political fortunes of Milei declining as well. So there are implications, I think, for the size of the state, not just in Argentina, but potentially in lots of other countries as well.

Kinley, thanks very much for joining us.

Thank you.

A red vehicle weaves in and out of highway traffic in the city of El Paso. In hot pursuit are troopers from the Texas Department of Public Safety, following someone who they suspect is smuggling migrants. As they drive closer, they seem to hit the red vehicle. It flips and lands upside down. A body flies through a window. Others crawl out. The voices coming over the radio are mostly unintelligible, apart from one word: "Holy shit." That high-speed chase took place almost 3 years ago. Since then, the streets of El Paso have become only more dangerous.

A couple of weeks ago, I was in El Paso, Texas.

Erin Braun is our West Coast correspondent.

I was really struck by how quiet it was. I saw zero migrants. Border Patrol agents were kind of circling, looking very bored. And this is extremely different from the last time I was in El Paso at the end of 2023. Part of this has to do with Donald Trump's ramped up enforcement, but a lot of people told me it was also Joe Biden's crackdown at the end of his presidency. While I was down there, people started mentioning all these high-speed car chases that they were seeing lately, and I decided to pull on that thread.

So what was going on?

El Paso is the biggest border city in Texas. You can walk from downtown right across the bridge into downtown Juárez in Mexico. And as part of Operation Lone Star, which is this $11 billion border security initiative that Texas's Governor Greg Abbott started a couple of years ago, years ago, we've seen more and more high-speed chases near the border. So Texas Department of Public Safety agents allegedly going after human smugglers. And the evidence that is mounting suggests that these high-speed chases have become really risky, really aggressive, and increasingly deadly.

Okay, so let's unpack this a little bit. Operation Lone Star isn't a new initiative, is it?

No, it started a couple of years ago, and initially it was focused on South Texas and the Rio Grande Valley, which is where we saw a lot of migrants crossing the border in the first couple of years of the Biden administration. But then El Paso at one point became the center of the migrant crisis. More migrants were crossing there than any other part of the border. And so in 2022, the mayor there declared a state of emergency, and that meant more funding for the city under Operation Lone Star. After that happens, you've got these state troopers that fan out across the city, and data collected by the county attorney's office found that these high-speed chases increased sevenfold between 2022 and 2023 to nearly 400 chases. So just some detail about these chases, I think, that will illustrate the level of danger that we're talking about. Half of chases since 2018 reached over 100 miles per hour. A a quarter of the chases in the first 9 months of 2024 ended in a crash. And then a report from a human rights organization found that chases contributed to a little over 100 deaths and more than 300 injuries in counties where Operation Lone Star operates.

But why the increase in high-speed chases?

All of this is a result of a really reckless pursuit policy. When you compare the rules that Texas DPS does or doesn't follow to to other law enforcement agencies, including even Border Patrol. This group called the Police Executive Research Forum suggests a couple of best practices, basically. A couple of those are always considering alternatives to high-speed chases, or making rules for when these pursuits are warranted. So not when you see a minor traffic infraction, for example. And then really importantly, giving a supervisor at headquarters the powers to say, 'Okay, this pursuit is over,' rather than the guy in the driver's seat who's got a bunch of adrenaline deciding when or when not to call off the chase. The Texas Department of Public Safety basically has none of these rules. It bucks all of these guidelines.

So, Arin, as you say, when you went recently, the border was quiet. Are we now gonna see an end to these high-speed chases?

I think that depends on how successful local politicians are at lobbying the state government. They're certainly asking for fewer high-speed chases. And maybe now that the border is quiet, we'll see things die down a bit. What I found interesting is that when I look beyond El Paso, there are actually some places who want to loosen up their car chase policies. Washington State just passed a law that would loosen the rules for them. The Democratic governor of California, Gavin Newsom, is pressuring the city of Oakland Oakland to loosen its car chase policy. And these are liberal states that are trying to prove their law and order bona fides. And the most pertinent example of this is that the Biden administration in 2023 enacted a stricter high-speed chase policy, and as soon as Donald Trump took office, he rescinded it.

Aaron, good to talk to you. Thank you so much.

Thanks, Rosie.

I traveled to Sweden recently visiting my wife's family and some friends, and as we went to various people's houses, I noticed they all had a copy of the same book.

Stanley Pagnol writes Charlemagne. Our column on European affairs.

Now, my Swedish isn't what it should be. It's pretty clear what it's about. The title translates as "In Case of Crisis or War," and it's a 32-page brochure that the Swedish government mailed to 5 million households some weeks ago. "In Case of Crisis or War," as the name might indicate, is full of sage advice as to what you should do should you come under attack from an unnamed attacker. Russia, say. Where do you find reliable information? Well, you should tune into public radio rather than social media. And what do you do if you're caught in nuclear fallout? Apparently, the best thing to do is to hide away for a couple of days, after which time the radiation levels will fall drastically. The book is full of illustrations of forlorn-looking Swedes sitting in civil defense shelters, the kind of images that we've seen in Ukraine in recent years. And it's not a coincidence. The idea of the Swedish authorities is to show to Swedes that one day it could be them that come under attack. The purpose of the booklet is not to frighten citizens, but it's to jolt them into preparation. Would you have as a household what it takes to survive without food, without water, without Netflix even, for say 72 hours? Because if you can do that, then you are one less headache for local authorities to deal with should they be facing acute crisis. Now, to a lot of people, this'll sound a bit like prepping, which is normally a pastime for libertarian types who live deep in the woods, believe in conspiracy theories, and have a shotgun under the pillow. But such low-grade survivalism is now considered a basic civic duty in Europe. We've seen most of it in the Nordic and the Baltic countries, unsurprisingly, the ones that border Russia. But now governments further afield are taking note. And last month, the European Commission in Brussels recommended that all 440 million citizens of the EU should have enough at home for 72 hours to be able to survive independently. So what do they have in mind? Well, every country that has issued guidelines has slightly different recommendations. And if you're looking for a good guide, the Swiss have a website that you can go to in which if you enter the size of your family and your dietary preferences, they will tell you what you should buy. The one thing that always comes up first is water. You should have at least 2 liters of water per person per day just for drinking. Now, if you're a family of 5, for example, which is my case, you'd be looking at the best part of 100 liters of water should you be trying to survive for a week, which is actually what the Swedish authorities now recommend. Food, obviously, but not just any food. You want food that will keep well, like, you know, pasta. But there are other items, a battery-operated radio, for example, or a flashlight. How are you going to keep warm? Do you have firewood? Do you have a first aid kit? Do you have a phone charger and cash? Part of this is getting Europeans in the right state of mind. What the Swedes do is something they call total defense, which is this idea that all of society, not just the army, not just the police force, is involved in protecting society in in times of acute crisis. The Finns call it comprehensive security. For them, it's not necessarily about facing invasion, even though they have an extremely long border with Russia. It's also about what happens if a massive cyber glitch knocks out the electricity for a few days, or what if a natural disaster means that the roads are no longer working and supermarkets can no longer be stocked. The idea is to get people used to the idea that society can change rapidly and not for the better. Remember COVID-19? Pretty much overnight, all these supply chains that we had depended on vanished. War would deliver the same outcome. And that's why authorities want people to be prepared before there's a crisis and not once the crisis has started. The Swedish pamphlet that I saw when I was visiting my friends is actually an update of advice first preferred in 1943 and that people were following through all the way to 1991 when it was originally discontinued. And that's not a coincidence. After the end of the Cold War, society relaxed. Defense spending went down. But with Vladimir Putin's Russia becoming newly aggressive, society has had to get ready again. Defense budgets have gone up and the Swedes starting reissuing that pamphlet pamphlet about getting ready for an emergency in 2018. Conscription is being considered across the continent. Last month, Donald Tusk, the prime minister of Poland, talked about how all men should get some form of military training. As somebody who writes about Europe, which is a place where the state takes care of people from cradle to grave, I found this idea that the population should get itself ready for a crisis and not being able to rely on the state a really sobering piece of advice. As I was researching the topic, I took a detour to the supermarket, thinking I should get my family ready for war should it come. The cupboard under our stairs now includes a stock of fresh water next to the wine, and there are some tinned beans in the larder just in case. If that seems like overkill, remember what the Finns say: "You can only prepare in advance." That's all for this episode of The Intelligence.

We'll see you back here tomorrow.