It is time to take another look at the economy of Argentina, partly because people have been asking me and partly because yesterday brought some developments.
Argentina’s stocks, bonds and currency tumbled on Monday after President Javier Milei’s party lost by a landslide in elections for the country’s largest province, ahead of midterm national polls that will be pivotal for his reform drive. ( Financial Times)
In terms of the financial marker detail we are told this.
Dollar bonds dropped about five cents on the dollar, some of the biggest losses since before Milei secured a $20bn IMF bailout this April.
Argentina’s Merval stock index, already the worst performing market in dollar terms among almost a hundred major global bourses this year, was down nearly 10 per cent on Monday.
The peso’s official exchange rate fell 5 per cent on Monday to 1,430 to the dollar, close to the lower limit of its currency band. It had already fallen 8 per cent in the past two months. ( FT)
Losing money on Argentine bonds has been one of the certainties of life although the Milei period did have an interesting impact on the century bond issued in 2017. Here is the Wall Street Journal from March 25th.
The bonds they were given in the default, plus the fat coupons on the original century bond, are now worth more than the original investment. Not just that: They are worth far more than if the dollars had been invested in “safe” U.S. Treasurys……If the coupons had been reinvested in the same bonds, an investor would have made well above 50%, against a loss of about 10% for U.S. 30-year bonds and a slight gain for the U.S. Treasury index.
It is a bit of an academic construct to assume coupon reinvestment but if you had held your nerve in the 2020 drop when you would have lost 75% you would be a King amongst bond traders since and much of that is in the Milei era. Not so good in the last fortnight though.
The Argentine Peso
This is the standard bearer for the Argentine economy.A currency always has importance but in addition to that in this instance we have its role in creating an inflationary spiral when it has plunged in the past. Plus as you may recall the initial Milei promise of Dollarisation which I looked at in detail on November 30th 2023. So let us look at Minuto.com.
The blue dollar is selling for $1,385 this Tuesday, September 9, 2025 , up $15, the first impact following Javier Milei’s defeat in the elections held this Sunday in the province of Buenos Aires . It’s worth noting that yesterday it reached peaks of $1,480 . Meanwhile, on the parallel market, the US currency is being bought at $1.365.
For those unaware the “blue dollar” sometimes spelt with only one L is the unofficial exchange rate. So the unofficial and official rates are close which is good but that has been a depreciation here since we last looked at it.Over the past three months the currency has fallen by some 20% and whilst this is much slower than in the past ( my chart tells me the US Dollar has risen by 1805% over the past five years) there must be fears of a return to the bad old days.
In fact one can link this to my article on Gold and Silver last Wednesday as those investing in precious metals out of the Argentine Peso will have enjoyed 2025 so far.
BCRA
We can start our look at the central bank with a reminder.
The Board of Directors of the Central Bank of the Argentine Republic (BCRA) has decided to reduce the monetary policy rate from 32% to 29% of the annual percentage rate. The interest rate on active repos has also been reduced from 36% to 33%. These rates will take effect starting Friday, January 31st.
So much lower in Argentine terms but relative to others high. It is always a little ominous when a central bank update mentions strengthening international reserves but here is the plan from June the 9th.
1. The stability of the exchange rate and interest rates in the money market.
2. The decrease in the price of financial dollars and the elimination of the exchange rate gap with the official dollar price.
3. A downward trajectory of inflation during the transition period.
4. Private sector inflation expectations are anchored, aligned with the ongoing disinflation process.
The International Monetary Fund
The IMF rejoined the party on April 8th.
Washington, DC: IMF staff and the Argentine authorities have reached a staff-level agreement on a comprehensive economic program that could be supported by a 48-month arrangement under the Extended Fund Facility (EFF) totaling US$20 billion (SDR 15.267 billion or 479 percent of quota), subject to approval by the IMF Executive Board.
At this point there was quite a lot of praise for what Argentina had achieved under President Milei.
The agreement builds on the authorities’ impressive early progress in stabilizing the economy, underpinned by a strong fiscal anchor, that is delivering rapid disinflation and a recovery in activity and social indicators.
They are projecting real GDP growth of 5.5% for this year which would be extremely welcome.
There was no mention however of the past loans given when Christine Lagarde was Managing Director of the IMF. But looking at the main page there are SDR borrowings of 40.3 billion as opposed to a quota of 3.2 billion. Another perspective is provided by the fact that Argentina has had 23 arrangements with the IMF.
Foreign Exchange Intervention?
It has started again and will have to have been true yesterday as the Peso headed above it supposed limit of US $1400 plus 1% a month. The trouble is that the IMF money was not supposed to be spent on defending the Peso.
Trade Problems
Looking at the trade figures there was quite an improvement in 2024 with a trade surplus of US $19 billion. But as the economy has picked up that has started to fade as the first five months of 2025 saw a surplus of US $1.9 billion as opposed to the US $8.9 billion for the same period in 2024. That suggests a return to past deficits is on its way and that is exactly what Argentina cannot afford as it has very little ability to pay.
Comment
To my mind the particular issue here is the balance of payments. The problem with the trade figures is that a better economic position has been accompanied by a rise in goods imports of 34.3% in the first five months of this year. Plus it seems to have reignited an ability to travel further adding to the problem.
the deficit of the travel account rose from USD709mn in the first quarter of 2024 to USD3.5bn in the first three months of 2025. ( Oxford Analytica)
What Argentina needs is more exports along the lines of this.
The BCR report highlighted the boost in “unconventional oil and gas production” provided by the Neuquén basin, in particular shale-rich Vaca Muerta, this year. It noted that “national gas and oil production grew by four percent and 11 percent respectively when comparing January to July this year with the same period in 2024.” ( Buenos Aires Times)
Also fingers crossed for a good harvest and surely with beef prices as they are exports of it must be strong. This would also help.
The European Union is advancing its efforts to ratify a proposed trade deal with Mercosur countries by the end of the year after proposing safeguard measures to get France and other sceptical countries on board. ( Buenos Aires Times)
Personally I cannot see a good route forwards in just letting the Peso fall. After all if that worked Argentina would be the most successful economy in the world.
