Milei announces Argentina's "liberation": farewell to the exchange rate

Buenos AiresJavier Milei's government has launched what it calls the third phase of its economic policy. Last Friday night, the Argentine president announced on national television that he was ending the so-called exchange rate clamp for individuals, a regulation that limits the purchase of dollars—the currency in which Argentines who can afford to save typically—to a total of $200 per month.

From now on, they will have the right to buy an unlimited amount of foreign currency at a market value between 1,000 and 1,400 pesos per dollar. If it fluctuates outside this range, the government has guaranteed that the Central Bank will intervene to correct the exchange rate. "We have been able to remove the last thorn that inflicted deep pain on us; we have gotten rid of the exchange rate vine, which was an aberration that should never have existed," said Milei, flanked by his cabinet. On the same day, the March inflation figure was released: 3.7%, the highest since August of last year.

Expectations for Monday were high. How would the foreign exchange market react to the new measure? Those who supported the measure saw it as a "sincerity" of the peso, while those who opposed it saw it as a full-blown devaluation.

That same Monday, Milei received US Treasury Secretary Scott Bessent at the Casa Rosada, where he praised the ultra-liberal government's economic measures. "I wanted to come here today to show my support for President Milei and his commitment to what I consider historic in rescuing Argentina from the abyss," said the official from Donald Trump's administration, who did not rule out—but also did not specify—the possibility of reaching a zero-tariff agreement with Argentina.

Caves, the clandestine exchange houses

"Argentina is regaining economic freedom," economist Ramiro Castiñeira told ARA, highlighting the advantages of unifying the foreign exchange market: "It means putting an end to opportunism and the most obvious expression of the caste system, where some had the right to buy and sell dollars at a price, while others did not." Castiñeira is referring to the parallel currency market, or the market known as the dollar. blue, which is bought and sold in calls caves, clandestine exchange houses outside the financial system.

Sources of caves Buenos Aires residents have confirmed to ARA that many of them will likely have to close because they've sold very little this week. "Now it's easier and cheaper to buy the official dollar," they say, but they remain cautious, observing. Castiñeira acknowledges that a short-term price increase is likely, but insists that these are "blows" from the currency issuance carried out by the previous government.

Economist Fabián Medina sees this moment from a completely different angle. "You can call it what you want, but this is a devaluation," he says, and believes it will inevitably translate into higher prices, some of which have already risen this week. In his opinion, the lifting of the exchange rate freeze is merely an electoral strategy ahead of the midterm elections next October. This month, inflation may have dropped again. However, until then, both he and other experts predict that the coming months will once again be tough for Argentines' already diminished purchasing power.

Medina also recalls that former President Mauricio Macri eliminated the exchange rate in 2015, but had to reinstate it when he lost the election to Peronist Alberto Fernández, which kept him at $200 a month and also added a 30% tax.

The exchange rate tension was introduced in 2011 by the government of Cristina Fernández de Kirchner, whose original objective was to prevent capital flight and protect the Central Bank's dollar reserves. Argentina has a historical problem generating the foreign currency it needs, especially in the industrial sector, where a large part of the supplies are imported. For this reason, Milei has requested a new loan from the International Monetary Fund (IMF): 20 billion dollars, of which 60% has already been disbursed this week to increase the Central Bank's reserves so that it can act as a backup in the new exchange rate model.

However, Argentina is the largest debtor to the IMF, and with the current loan, it will owe the credit institution a total of $64 billion. In the past, Milei had been critical of governments that incurred foreign debt; now, he seeks to fulfill his political ambition. The agreement with the IMF will serve "to ensure that inflation is just a bad memory of the past," as he stated in his speech.