Argentina faces a dollar shortage amid IMF pressure and flawed monetary policy.
Currency volatility worsens with falling exports, negative reserves, and retreats by the Argentine Central Bank in the midst of an election campaign.
247 - Pressure on the exchange rate in Argentina intensified again this week with the end of the deadline, which ended yesterday (22), for agricultural exporters to liquidate dollars with partial tax exemption, and in the face of demands from the International Monetary Fund (IMF) for the country to strengthen its international reserves. This information is from the newspaper Valor Econômico.
The turbulent exchange rate scenario occurs amidst the campaign for legislative and regional elections, scheduled for October, which are considered crucial for the ultraliberal president Javier Milei. The expectation is that dollar volatility will remain high in the coming weeks, reflecting the increased political and economic uncertainty in the country.
Currency pressure mounts amid IMF demands.
The need to strengthen Argentina's foreign exchange reserves was one of the main commitments made by the Milei government to secure a US$20 billion bridge loan from the IMF, granted in April as part of the renegotiation of a larger US$45 billion agreement signed in 2022. On Tuesday, representatives from the Fund and Argentine authorities discussed the first review of the pact signed in April.
In a report published before the meeting, the IMF highlighted that, “although economic fundamentals have improved substantially since the end of 2023, net international reserves remain critically low and sovereign bond yields, while lower, are still high.” According to the institution, at the end of March, the country's net reserves were negative by approximately US$6 billion.
Decline in agricultural tax revenue frustrates government.
The government's effort to boost foreign exchange inflows through incentives for agribusiness has had less impact than expected. The policy of temporarily reducing export taxes on agricultural products—which ended on July 1st—resulted, between February and June, in an average of US$200 million per day in Sworn Declarations of Sales Abroad (DJVE). Since the end of the incentive, this value has plummeted to around US$26 million per day, according to a survey by the consulting firm LCG.
Since the agricultural sector is the main generator of dollars in the Argentine economy, the sharp decline in exports put even more pressure on the exchange rate.
Dollar approaches the top of the band.
Since March, the official dollar has fluctuated freely within a band between 1.000 and 1.400 pesos. In July alone, the US currency has already risen 85 pesos — a 7% increase compared to June — and closed yesterday quoted at 1.275 pesos. Experts expect the exchange rate to continue approaching the upper limit of the range.
“We had been anticipating the upward trend of the dollar for several weeks,” stated Javier Okseniuk, CEO of LCG. According to him, the value could exceed 1.350 pesos soon. “This will eventually have its negative side (prices accelerating slightly, perhaps less economic activity), but also its positive side: more expensive imports and an export sector with higher margins, which could help mitigate the deterioration of the external accounts (external trade balance),” he added.
Luis Secco, from the consulting firm Perspectiv@s, agrees with the forecast of an increase: “The dollar may approach the upper limit of the band as we get closer to the elections. This, in itself, can be seen as something negative, because it brings more uncertainty and may have some effect on inflation — especially because the rise in the dollar was very rapid.”
Central Bank error worsens the situation.
The already fragile situation was aggravated by a recent decision by the Argentine Central Bank, which chose not to renew the so-called LEFIs — very short-term bonds used to withdraw pesos from circulation — generating an unexpected excess of liquidity in the financial system. Faced with the market reaction, the government had to backtrack and resume auctions to absorb the surplus.
According to analyst Juan Pablo Ronderos, partner at the consulting firm MAP, the measure was a timing error: “The pressure on the dollar doesn't surprise us; it was already in our forecasts. But this mistake by the government, which acted in a disorganized and poorly planned manner, precisely at this moment, is bringing more turbulence than it should. In the coming weeks, I believe we will continue with this level of volatility, both in interest rates and in other aspects.”
