Argentine President Javier Milei has lifted the exchange rate cap, introducing a floating exchange rate model without central bank intervention. This move responds to dwindling foreign reserves and aims to stabilize the economy with support from the IMF and other financial institutions. However, concerns about inflation and economic volatility have arisen among experts and economists.
Recent actions by President Javier Milei of Argentina, including the lifting of the exchange rate cap, have been described as a “bold” economic strategy amidst a challenging global landscape. This significant move allows Argentines to access foreign currency with fewer restrictions, effective from next week. A new floating exchange rate will be applied without central bank intervention, provided it remains under 1,400 pesos per dollar.
Economic expert Leonardo Piazza remarked that this measure is both unexpected and disruptive. He expressed that the government had little choice but to act now, especially due to anticipated international support from the IMF, which is expected to boost the Central Bank’s reserves significantly. The lifting of restrictions follows a period of rising demand for foreign currency, as many investors deemed the official exchange rate outdated and noted the central bank’s dwindling reserves.
As of the recent figures, the Central Bank faced a loss of approximately 4.9 billion dollars in reserves for 2025, concluding at 24.7 billion dollars. Efforts to stabilize the currency on Friday alone resulted in a 398 million dollar loss. The recent agreement with the IMF aims to strengthen these reserves, enabling Argentina to access 20 billion dollars in IMF loans, along with additional funds from the World Bank Group and the Inter-American Development Bank.
With the new floating exchange rate in place, there are concerns about inflation as the exchange rate for the public at Banco Nación was 1,097.50 pesos per dollar. Experts anticipate a correction in the exchange rate, leading to increased prices for goods and services, particularly as inflation already escalated to 3.7% in March. Piazza cautioned that inflation might spike, compelling the government to enhance social assistance for vulnerable populations affected by rising food costs.
While some economists, like Piazza, view the long-term plan positively, there are reservations expressed by others, such as Pablo Tigani of the Fundación Esperanza. He criticized the scheme as “crazy” for providing excessive freedom to export currencies and lead to immediate price increases in the economy. Tigani also raised concerns about the implications of additional debt, noting that Argentina’s gross external debt was 276 billion dollars by 2024, with a significant portion attributable to IMF loans.
In conclusion, Argentina’s recent economic maneuver to abandon the exchange rate cap under President Javier Milei indicates a shift towards a more flexible currency system. The implications of this decision raise concerns about potential inflation and increased living costs, while the government anticipates bolstered reserves through international loans. Despite differing opinions on the robustness of this plan, it is clear that the country is at a pivotal juncture that could determine its economic stability and growth in the coming months.
Original Source: efe.com
