Between the electoral narrative and the IMFs fine print
With USD13.500 billion in disbursements from the IMF and other international organizations in hands, the government is pushing the narrative of phase 3, showcasing that, with a floating exchange rate and a “consistent program”, the dollar can only appreciate. This took place in the context of a renewed carry trade, following the initial jump in the exchange rate and peso interest rates. Last Monday, the market opened with the dollar at ARS1.250, with no gap compared to the Banco Nacion’s selling rate (thanks to coordinated arbitrage made possible by the lifting of the capital controls for individuals) and the shortest-term note at auction carried an annual nominal interest rate (NIR) of 45%. Today at the close of the market following the Easter holiday, the official dollar stood at $1.094, still without a gap, and the interest rate on that same note had dropped to 31,4%.
The president and his team have made it clear in every public appearance that “the Central Bank will only buy dollars when the exchange rate hits the lower band of ARS 1,000”—a direct message to the agricultural sector, which was also informed that in June the previous export tax scheme, rolled back in January, will be reinstated. At the same time, detached from the Lecaps, the cost of financing for importers is rising again, delaying their purchases. Due to inflationary inertia, the lower band will continue to appreciate significantly in the coming months, falling below the equivalent levels in place when the government took office.
To reinforce the strategy, the government authorized non-residents to join the carry trade by allowing access to the official foreign exchange market (MULC), if they first convert their dollars there and keep their peso-denominated investments for at least six months—coincidentally, just after the October elections.
The shift of surplus peso funds into local instruments has caused the equilibrium exchange rate for peso-denominated operations—both for companies and individuals—to remain below the upper band of the floating dollar system through the end of the year. The projected value for year-end stands at ARS 1,401, which is above the midpoint of the band and higher than the futures market expectation (ARS 1,340), yet still below the ARS 1,526 upper limit of the floating range. However, unlike last Tuesday—when higher interest rates were in place—there are no positions expected to be defended through the sale of reserves at the top of the band.
Alongside the effort to bring down the exchange rate, pressure has also emerged to prevent price increases, to limit the pass-through of the devaluation to consumer shelves. So far, this pass-through appears contained, with our retail price survey pointing to a 3.5% rise in April. Most of the impact has been concentrated on imported household and electronics goods, while in the food sector, the normalization of meat prices, albeit at high levels, has helped ease pressure. It’s worth noting that, now that the crawling peg has been abandoned and a more flexible exchange rate regime is in place, the most effective way to price dollar-denominated costs is through futures market prices -ultimately, the cost of hedging, which until the policy shift was effectively “guaranteed” by the Central Bank through the crawling mechanism-.
A straightforward initial estimate suggests that, under the agreement—once adjusted for the correction factors included in the Program document regarding the use of the repo and disbursements from international organizations—net reserves should reach around USD 4 billion by the end of the year. This stands in sharp contrast to the starting point of negative USD 8 billion, following the Central Bank’s aggressive sales over the past month.
Taking into account the remaining disbursements from international organizations (USD 4.7 billion) and the repo facility (USD 2 billion), as well as the scheduled maturities with private creditors—including the Central Bank’s payments on BOPREAL obligations—and those with international organizations (USD 10.9 billion), the total amount of purchases/market borrowing needed to meet the reserve accumulation target outlined in the agreement reaches USD 14.7 billion by year-end. This figure is roughly equivalent to the redirection of 20% of export earnings that previously went to the financial exchange market (CCL via the “Blend” mechanism), in a context where the door has now been opened to foreign asset accumulation by individuals. The agreement requires securing USD 3.7 billion by June, an additional USD 4.1 billion in the third quarter, and USD 6.9 billion in the final quarter—whether through dollar purchases in the official market (MULC) or via debt issuance, a strategy that hinges on country risk, currently at 720 basis points, continuing to fall toward the 300–400 bps range.
If access to credit does not open, the Central Bank or the Treasury would need to purchase the equivalent of USD 95 million per day to meet the June target. The government should take advantage of the current window to buy dollars rather than artificially suppress the exchange rate. On the one hand, it needs to make progress toward meeting its commitments with the IMF in a context where, for now, dollar-denominated credit remains off-limits. On the other hand, the second half of the year brings seasonal headwinds, and the electoral cycle may introduce additional uncertainty.
For now, the country is floating within wide bands that continue to widen over time, backed by additional debt from the IMF and other international institutions—both preferred creditors. Meanwhile, a more restrictive monetary program is in place, one that, to meet the reserve accumulation target, assumes Argentina will regain access to dollar financing by the fourth quarter. All of this is unfolding in a market that remains focused on reserve levels and polling data.
In summary, the government is crafting a success narrative by allowing the peso to appreciate and signaling that it won’t buy dollars until the exchange rate hits the lower bound of the band. It has driven down the financial dollar by over 200 pesos in a week, eliminated the tax on online gambling, enabled carry trades by non-residents, and is attempting to offset the removal of the “Blend” mechanism by allowing individuals to accumulate foreign assets—while corporations remain tightly restricted.
Profits earned in 2025 can only be repatriated in 2026, and the only real improvement offered has been in the timing of import payments. At the same time, the government is betting that these foreign asset flows will stay within the banking system and help finance the Treasury—either directly through LETES or indirectly through dollar credit to the private sector, which is then sold to the Central Bank. Once again, we find ourselves caught between a narrative that leaves no room for dissent and the fine print of what the government signed with the IMF to unlock disbursements, all in the thick of the electoral race.
