This sale is the largest in five years. Buenos Aires no longer has dollar reserves, despite its efforts to repatriate banknotes from the black market.
After a year of “chainsaw” – understand, drastic budget cuts – Argentina still does not come out. The central bank had to intervene violently on the markets this week, selling nearly 600 million dollars from its reserves.
A necessity, to allow its automobile industry to pay invoices to its American subcontractors – who do not accept payments in pesos. Local industry emphasized this issue after President Javier Milei announced the removal of a tax on the import of industrial goods. For the past year, he has stepped up these measures to reduce the price of imported goods and inflation.
Over the last three working days, the central bank had to disburse a total of $803 million, the largest intervention on the market since 2019. Enough to prevent any fundamental reform of the Argentine monetary system in the very short term: it is now today afflicted by exchange controls, which fix the official rate of the peso in relation to the dollar, in particular.
The presidency planned to lift these controls in 2025: if Milei insists, the central bank is now talking about a more flexible system, without a fixed rate but with a range, allowing the peso to appreciate or decrease a little. A much more modest ambition.
Net reserves non-existent
Problem is, the reserves of the central bank are essential to the reform of this system: it is by possessing large quantities of dollars that the monetary authorities can control the rate of the peso. However, at present, the reserves are around 30 billion dollars, after this operation. It's better than when Milei arrived – 21 billion at the time – but not enough to establish an exchange rate policy.
Above all, Argentina's net reserves are… Negative. The fault lies with an IMF loan program, estimated at $44 billion, which will have to be repaid for Buenos Aires. From next year, 9 billion drafts – in dollars – are planned for the liabilities of the central bank, which could see its reserves melt even faster.
A new aid program is negotiated with the Washington institution. Javier Milei affirmed last week in an interview given to the Wall Street Journal that Donald Trump would be inclined to support this new aid plan
He also explained, despite the threats of new taxes on Canada or Mexico issued by the new American administration, that Donald Trump would allow the signing of a free trade agreement.
“I think it's very likely, because the United States has discovered that we are a strong partner,” the president emphasized.
While waiting to honor Washington's promises, Milei mainly succeeded in regulating the black market: while the Argentines were competing to buy dollars at a lower price, and illegally, an amnesty law on these black dollars almost put an end to this traffic.
By allowing residents to return the dollars against the promise of not being prosecuted or taxed, the libertarian presidency made it possible to bring almost 20 billion dollars into the coffers of the central bank. Insufficient in the long term, but enough to quell the thirst of the foreign exchange market.
The Experts: Argentina after a year of Milei method – 10/12
Inflation and poverty
Argentina has also brought inflation back to reasonable levels. Milei removed controls on food prices, and devalued the peso by 50%. His administration cut 33,000 civil servants and cut public spending by 30%. Subsidies have been crushed and certain costs transferred to the regions.
But inflation was quickly reduced, falling from 26% monthly to less than 2.4% in November. Over the year – and this is how we calculate inflation in France – it remains at 166%, a very high level. Javier Milei welcomed this decline, “faster than expected”. Growth, initially weakened, has resumed, at 3.9% at an annual rate.
The counterpart of these drastic policies is the explosion in the level of poverty: 53% of Argentines live in poverty, compared to 42% a year ago. 15% are even in a situation of “extreme poverty”. These figures are the highest in the country in almost 30 years.
