Our latest monthly report was titled, “Float to appreciate or accumulate reserves? Although at the time the question was already rhetorical – officials from the economic team had made it clear that they would not buy dollars until the exchange rate reached $1,000 pesos (the floor of the original band) – the decision to intervene in the futures market in order to stimulate supply in the spot market, thereby putting downward pressure on the official exchange rate, was not yet clear.
It was also unclear that the capitalization of the Central Bank (BCRA) with IMF dollars (USD 12 billion) would be quickly undone by the decision to transfer part of the BCRA’s profits to the Treasury in an amount almost equivalent in pesos (12 trillion pesos). Nor was it clear that the economic team itself would acknowledge that the intended goal is the remonetization of the economy (continuing with the issuance of pesos to cover the financial program gaps of the Treasury), leaving the monetary program—published by the BCRA at the same time as the IMF agreement announcement—in an abstract state.
In other words, the government secured the IMF dollars for a program that implied a higher exchange rate and higher interest rates, prioritizing the accumulation of reserves. But it quickly shifted to trying to recreate the futures and interest rate curves that existed before the de-anchoring of expectations in March—a clear signal of its intent to maintain an overvalued exchange rate and the carry trade (which, up to now, had been mostly local) without buying dollars.
As we have been arguing, no one seems concerned about this deviation. After all, the explicit support of the U.S. Treasury Secretary appears to guarantee that the remaining disbursements from the IMF in 2025 will be delivered. However, while the country risk fell, it has stalled around 700 basis points. The decision not to buy dollars doesn’t sit well with those who run the numbers and observe: the rise in imports while exports stagnate, the increase in outbound tourism while inbound tourism collapses, and the growing external imbalance. All of this is happening in a context where the rise in local costs—resulting from the overvalued exchange rate—combined with the same tax structure, nearly the same labor regime, and no improvements in infrastructure (quite the opposite, in fact, given the halt in public works) cannot be offset by the ambitious agenda pursued by the Ministry of Deregulation or the “lower prices” of tradable goods resulting from economic liberalization.
In this direction, the government is attempting to activate three mechanisms to obtain dollars. First, it seeks to channel part of the dollars that people are buying—those not spent on tourism or used to finance the closing of the exchange rate gap (i.e., the supply in the CCL market, which more than compensates for the elimination of the “Blend”)—into the banks. The idea is that, in a second round, these dollars would enable a reactivation of credit. So far, deposits have only increased by USD 1.248 billion. Second, it aims to get the “under-the-mattress” dollars into circulation. The goal is to encourage dollar-denominated transactions that, in turn, would remain within the financial system. This initiative is still in its early stages. While the reporting thresholds have been raised, the necessary laws to activate this “permanent amnesty”—by amending the foreign exchange criminal law, the tax criminal law, and the tax procedure law—were only submitted to Congress last week. Third, the government has moved forward with the placement of a peso-denominated bond subscribed in dollars by non-residents. The interest rate of 29.5% (nominal annual rate) for a two-year bond—extendable to five years, since the buyer holds the early redemption option—is extraordinarily high, assuming the President’s claim of inflation being crushed by 2026 were credible. As this report was closing, it was announced that monthly issuances of USD 1 billion of this bond would go forward. The bond is already trading at a 27% yield on the secondary market, and the reopening of the repo line for up to USD 2 billion is also underway.
It is clear that the Central Bank (BCRA) will not be buying dollars (though it has been suggested that the Treasury might, although it has yet to do so). It is also clear that, beyond these sui generis (and costly) placements, the Treasury will not seek to issue dollar-denominated debt in international markets in 2025. The question is how much additional financing can be secured through any of the three previously mentioned mechanisms -or through some creative alternative that may emerge in the coming months.
On the whiteboard, we’ve written a quote by Joaquín Cottani, former Secretary of Economic Policy under the current administration: “I wouldn’t underestimate Toto’s ability to bring in dollars”. To that, we add: his ability to manage “the narrative” and domestic flows in a context where he controls the central tables -the Central Bank (BCRA), the ANSES, the main public bank, the Financial Program, and the Treasury (which expanded its peso reserves thanks to the BCRA and its dollar reserves thanks to the IMF). Moreover, he’s in direct conversation with all key domestic players in a game where, in the end, the spread between the peso interest rate and the dollar rate that defines the carry trade is paid by the Treasury — although part of it ends up being monetized.
Clearly, no one doubts that the anchor will hold until October. The real question is: at what cost and, more importantly, what happens next? Will the government try to push for a “carry forever” strategy, aiming to secure a lender of last resort (which, in today’s surreal landscape, is far from evident)? Or, on the contrary, will they — with their hallmark flexibility — attempt a program recalibration after the expected electoral victory, introducing new bands that go back to the original idea of recapitalizing the Central Bank through dollar purchases? This, of course, assumes that following the election results, both Bessent and the IMF resume cooperation, enabling a recalibration without breaking the anchor, in the context of a government relaunch paired with a structural reform agenda -one that, for now, does not exist. The answer to this question will shape the demand for hedging ahead of the election, even with the polls working in their favor.
Without access to an unlimited lender of last resort, a systematic increase in the current account deficit -starting from an estimated 1.3% of GDP in 2025 (around USD 9 billion)- does not appear to be financially viable. This is especially true considering that, in 2026, the repatriation of profits abroad will once again be allowed (those from 2025, after five years of restrictions), and that the country faces USD 20 billion in debt maturities in 2026 (including the BCRA’s Bopreal bonds). This outlook holds even under the assumption of full refinancing of private and provincial debt maturities and a decline in country risk that would allow for renewed market access.
