Progress, Pending Challenges and Scenarios
The BCRA’s well-timed decision to finally begin purchasing dollars in January (USD 1.65 billion accumulated so far), while seeking to keep the exchange rate slightly below the original band, contributed to accelerating the decline in country risk toward the 500 bps area. What began in early January with the Treasury selling dollars and the BCRA providing FX hedging so that banks could sell dollars—allowing the BCRA to purchase and then resell them to the Treasury—ultimately reactivated the carry trade and built a bridge toward the end of the harvest season, in a context where the global dollar weakened again.
That bridge was further consolidated by the appearance in the official FX market (MULC) of part of the dollars originating from corporate bond issuances (ONs) and provincial debt placements. Recall that post-election debt placements totaled USD 10 billion; of that, USD 5.5 billion corresponded to cable dollars (CCL), of which—according to the BCRA—USD 3.5 billion had yet to be sold as of last week. Private sector capital outflows (formation of external assets) dropped sharply after the election but did not disappear (USD 1.47 billion per month in the last two months of the year). At the same time, part of the dollars purchased remain as bank deposits, boosting reserve requirements and gross reserves, which rose to USD 44.94 billion.
In the same direction operates the quasi-permanent tax amnesty enabled under the Fiscal Innocence Presumption Law approved by Congress in December and regulated this week, along with renewed trial balloons around allowing banks to extend dollar-denominated loans to borrowers with peso-linked income.
Dollar purchases, prioritizing the exchange-rate anchor (in January the wholesale exchange rate barely moved, and so far in February it has fallen 1.8%), have reinforced remonetization and compressed interest rates. Rates remain roughly neutral relative to still-elevated inflation (2.8% in December and around 2.7% in January, according to the Minister’s advance estimate following the imprudent decision to delay publication of the new index), and strongly positive in real terms against the dollar, ensuring rollover of peso debt maturities—which remain highly concentrated. February maturities amount to ARS 18 trillion, followed by an average of ARS 12.5 trillion per month through June).
In this context, the volatility observed in repo and call money rates at year-end and in early January declined significantly, and the TAMAR rate (wholesale time deposits) fell to 32% TNA after peaking at 38% TNA. For now, domestic credit expansion—the main growth driver in 2024 amid stagnant employment and incomes—has yet to materialize. Financial institutions are still digesting the rise in delinquency following the monetary tightening that began last July amid pre-election hedging dynamics.
Looking ahead, the economy is projected to grow more than 4% in 2025, but largely due to carry-over effects. November’s level was still 0.3% below year-earlier levels; our ESAE-based estimate for December suggests an additional 1.1% decline, and statistical carry-over for 2026 is virtually zero.
Meanwhile, exchange-rate gap compression, positive lending rates (following the elimination of the subsidized productive credit line), changes in relative prices (tariff and unregulated services recomposition versus goods price compression driven by the FX anchor and trade liberalization, alongside stagnant real wages), and the rapid liquidation of inventories by firms and households have generated a significant structural shift in the economy’s functioning. Inventory drawdowns explain much of the slowdown in activity, even as export volumes recovered (two-thirds agriculture—partly reflecting Chinese soybean purchases amid escalating trade tensions with the U.S.—and one-third energy). Currently, two segments show dynamism: sectors linked to the RIGI framework and those associated with platform-based activities operating with a degree of semi-informality.
The national government’s commitment to fiscal balance and debt servicing offsets concerns over tax revenues, which have been declining in real terms since August, compounded by tax reductions included in the still-debated labor reform (with a clause granting the Executive discretion over the timing of tax cuts). As we have emphasized, access to credit and the ability to refinance both dollar and peso maturities (at longer tenors to ease the 2027 maturity wall) are necessary conditions for consolidation of stabilization, renewed disinflation in 2026, and a sustainable recovery.
The path will not be linear. Two questions will gain prominence in the second half of 2026, when harvest-related FX inflows seasonally moderate and dollar supply once again depends primarily on debt issuance.
First: after Bessent, will Argentina still have a lender of last resort? Within the framework of what Trump himself dubbed the “Donroe Doctrine,” the question may seem rhetorical, but in practice it will largely depend on the U.S. election in November. The alliance with Trump (not the U.S. as an institution) was tactical. It was U.S. Treasury intervention that influenced the outcome of the October midterm election in a direction favorable to markets—an intervention later reversed at year-end, when the U.S. Treasury recovered USD 2.5 billion.
Second: as 2027 approaches, will markets price in Milei’s reelection without a runoff? Or, if a runoff appears likely, will political polarization reemerge under the “K-risk” narrative? Alternatively, as Carlos Pagni has suggested, could an “orthodox productivist” figure emerge to extend the policy horizon and ease uncertainty—someone emphasizing the microeconomic costs of the current framework without neglecting macro stability?
Clearly, a weaker global dollar scenario—aligned with Trump’s preferences—would help, provided it does not coincide with disruptive events affecting capital flows to emerging markets or commodity prices.
