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The board of the International Monetary Fund approved on Friday a new program with Argentina for about $44 billion, the IMF said, but acknowledged that it comes with "exceptionally high" risks.

The agreement, reached by consensus according to two sources, marks the 22nd IMF program for Argentina and comes after more than a year of negotiations. It replaces a failed $57 billion program from 2018, for which Argentina still owes over $40 billion.

About $9.66 billion will be disbursed immediately, the fund said.

The approval comes after Argentina's Congress signed off on March 17 on the financing aspect of a staff-level agreement, but not on the policies expected to keep the economy on track and the debt sustainable.  

"Risks to the program are exceptionally high and spillovers from the war in Ukraine are already materializing," Kristalina Georgieva, the IMF's managing director, said in a statement.

"In this context, early program recalibration, including the identification and adoption of appropriate measures, as needed, will be critical to achieve the program’s objectives."

An IMF official said at a news press conference that the recalibration of targets is being considered from the beginning of the program due to the ongoing shock of the war in Ukraine.

Russia's invasion of Ukraine late in February and the sanctions that followed have pushed prices of many commodities, including energy and food, sharply higher and are expected to drive inflation even higher than has been expected.

Argentina's fiscal deficit and inflation are expected to be among the most affected by the shock.

"The 2022 fiscal consolidation strategy entertained in the IMF program is already compromised on higher energy costs," said JPMorgan earlier this week as it revised its primary fiscal deficit forecast to 2.8% of gross domestic product, above the program's target of 2.5%.

The economic shock of the war in Ukraine is also behind the pulling forward of the agreement's first review to mid-May, from the original date in June.

There is still no date set for the May visit to Buenos Aires, an IMF official said.

NO 'CONFIDENCE SHOCK'

Among the deal's goals are strengthening public finances, starting toreduce inflation, and building up the local currency debt market.

Political cracks inside Argentina's ruling center-left coalition have widened over the deal and there are fears the economic strings attached will further strain people in the South American country fighting inflation above 50%.

"It will very unlikely trigger the positive confidence shock, increase in private investment, and access to international capital markets that the country badly needs," said Alejo Czerwonko, emerging markets Americas chief investment officer for UBS Global Wealth Management, ahead of Friday's meeting.

Details of the deal were made public after a staff-level agreement reached earlier this month.

Argentina's 2018 agreement was the largest in the IMF's history and the fund risks reputational damage if the program doesn't succeed.

Some private holders of Argentina's debt, restructured in September 2020, criticized early-on the negotiations as tainted by politics, allowing the government to carry on "erratic" economic policies.

"There's been a lot of criticism of this deal, that it's going to fall apart, that it's an IMF-light deal, it's a Band-Aid. … But it's an important Band-Aid," said Robert Koenigsberger, chief investment officer at Gramercy Funds Management, in an interview before Friday's meeting.

"The only thing that would make this stuff worth less than 32 (cents), which is where it trades today, is if the wheels fall off the bus. What this IMF deal does is it tightens the lug nuts on the wheels, so to speak."

The restructured U.S. dollar bonds have been trading in the low 30-cents-on-the-dollar area for most of the last year. The 2030 bond rose 1.55 cents to 31.05, while others fell marginally. The restructured bonds in euros ended the day flat to slightly higher.