Despite a chorus of calls from investors, President Javier Milei and his advisers are hesitant to rapidly build up Argentina\u2019s international reserves, let the peso float and relax currency controls.<\/p>\n
The government\u2019s landslide victory in the mid-term elections last month has given Milei a window of opportunity<\/a> to advance a new foreign-exchange framework, according to Argentine investors. That could include reserve purchases, greater flexibility and a weaker exchange rate to help balance Argentina\u2019s external accounts.<\/p>\n But Economy Minister Luis Caputo, Central Bank Governor Santiago Bausili and others are resisting the changes after the government\u2019s peso intervention ahead of the vote. Factors like the country\u2019s illiquid FX market and volatile money demand contribute to the reluctance, as does the fear of resurgent inflation.<\/p>\n \u201cI\u2019m not going to rush out and buy dollars like a madman and trigger a jump in the exchange rate,\u201d Milei said in an interview last week with a local streaming platform<\/a>. \u201cAs the economy expands, we will buy dollars. But we\u2019re going to keep a close eye on the inflation rate every day.\u201d<\/p>\n Investors argue that a tightly controlled peso holds back the economy, which had slumped before the midterm elections, only to regain pace in recent weeks. Economists and analysts see risks stemming from a strong peso at a time when Central Bank reserves are lacking.\u00a0<\/p>\n \u201cThere\u2019s an exchange-rate level we shouldn\u2019t cross \u2013 and we\u2019re quite close to it,\u201d said Alberto Ades, a director at NWI Management LP. \u201cIf you see people flying to Miami and coming back with suitcases full of goods, and construction \u2013 which has always been the engine of post-devaluation recoveries in Argentina \u2013 still isn\u2019t picking up, that tells you the exchange rate is wrong,\u201d he added.\u00a0<\/p>\n The International Monetary Fund also would like to see the government take action and buy dollars. \u201cWe have stressed the need to accelerate reserve accumulation<\/a> efforts to help better manage volatility and to further strengthen market confidence,\u201d IMF Spokesperson Julie Kozack said last week.\u00a0\u00a0<\/p>\n The Central Bank\u2019s net foreign reserves \u2013 its total minus debt liabilities \u2013 stood at negative US$12.4 billion as of November 7. That puts it about US$9 billion short of its IMF target for the end of the year, according to estimates by local brokerage Max Capital. The government also faces a US$4.5-billion maturity on its global bonds in January, which it could cover using private financing following the drop in Argentina\u2019s country risk after the October elections, among other options. Since then, dollar inflows have gone up as companies have sought to tap external financing.\u00a0<\/p>\n Caputo and Bausili have set out various reasons for why the peso isn\u2019t ready to be set free. One of them: \u201cWe cannot let the currency float when our political alternative continues to be Communism,\u201d the minister said last week. Milei\u2019s party was dealt a significant blow in regional elections in Buenos Aires Province in September, resulting in a win for the local Peronist movement that weakened the government going into the midterm vote.\u00a0<\/p>\n Worries about excess peso supply are also playing a major role. \u201cToday the government isn\u2019t buying dollars because there\u2019s an excess of pesos and the goal is to lift capital controls. If you lift the controls now, you could trigger a run against the peso and stoke inflation,\u201d said Ramiro Casti\u00f1eira, a member of the government\u2019s advisory council.\u00a0<\/p>\n To avoid that, peso demand needs to rise, reducing the amount of money overhang or excess savings, he said. The overhang currently stands at around 1.5 percent of gross domestic product, down from about 10 percent in November 2023, before Milei came to power.\u00a0<\/p>\n Some in the market think the government could pivot abruptly in the weeks ahead and start buying dollar reserves as Argentines tend to need pesos for holiday spending. In fact, the Treasury\u2019s dollar deposits at the Central Bank rose by US$117 million last week, according to figures published on the institution\u2019s website \u2013 underscoring the incipient but still slow pace of reserve accumulation.<\/p>\n \u201cDecember typically brings higher money demand for seasonal reasons,\u201d said Daniel Chodos, a partner at Dhalmore Capital in Buenos Aires, adding that this could lead the government to boost reserves. Other factors, such as the settlement of farm sector exports or an unwinding of positions following overseas bond sales, will also play a role, said Fabio Saraniti, a partner at Win Securities, a brokerage firm.<\/p>\n Officials say it will happen, but on their terms. \u201cWe are going to accumulate reserves \u2013 and more than anyone might be thinking,\u201d Caputo said last Thursday, adding that purchases will track rising peso demand. \u201cReserve accumulation will be a consequence of the economic programme, not its motor. The objective can\u2019t be accumulating reserves at any cost in a way that could put economic stability at risk,\u201d Bausili said Wednesday at an economics symposium<\/a>.\u00a0<\/p>\n Still, the government only has so much time, said Juan Manuel Pazos, an economist at local brokerage One618. If the administration keeps the current framework, \u201cthe ghost of the 2027 election is bound to weigh on policy measures, capping the government\u2019s ability to switch lanes to a consistent regime at that time,\u201d he said.<\/p>\n by Ignacio Olivera Doll, Bloomberg<\/p>\n","protected":false},"excerpt":{"rendered":"Despite a chorus of calls from investors, President Javier Milei and his advisers are hesitant to rapidly build…\n","protected":false},"author":2,"featured_media":305034,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[36],"tags":[28,101],"class_list":["post-305033","post","type-post","status-publish","format-standard","has-post-thumbnail","category-economy","tag-business","tag-economy"],"_links":{"self":[{"href":"https:\/\/www.newsbeep.com\/us\/wp-json\/wp\/v2\/posts\/305033","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.newsbeep.com\/us\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.newsbeep.com\/us\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/us\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/us\/wp-json\/wp\/v2\/comments?post=305033"}],"version-history":[{"count":0,"href":"https:\/\/www.newsbeep.com\/us\/wp-json\/wp\/v2\/posts\/305033\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/us\/wp-json\/wp\/v2\/media\/305034"}],"wp:attachment":[{"href":"https:\/\/www.newsbeep.com\/us\/wp-json\/wp\/v2\/media?parent=305033"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.newsbeep.com\/us\/wp-json\/wp\/v2\/categories?post=305033"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.newsbeep.com\/us\/wp-json\/wp\/v2\/tags?post=305033"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}