The markets’ reaction following the October 26 election extended the horizon and opened a window of opportunity to recalibrate the vertices of the policy triangle (Macro, Micro, and Governance), all of which are necessary to support the stabilization of the economy. The decline in the country risk to the 650 bps range increases the chances that the National Treasury will stop making cash payments on USD-denominated debt maturities and lengthen the maturities of peso-denominated debt, allowing seigniorage to be used for reserve accumulation rather than for debt service. The shift in Congress’ composition raises the probability of advancing structural reforms that strengthen systemic productivity—a necessary condition to sustain fiscal consolidation over time and to moderate the damage that the needed economic opening in today’s global environment will inflict on entire sectors of the economy, the counterpart of the productivity boost and relative price rebalancing achieved by using the exchange rate as a semi-anchor.
For now, given the flow dynamics supported by the election outcome (helped by Bessent’s “put”) and the government’s decision to maintain the upper band, we have once again recalibrated the scenarios included in our previous report. The question is no longer whether the bands will be recalibrated; the question is whether the government can maintain the regime and manage to buy dollars within the “new bands” (the lower band now appearing around ARS 1,400 while the upper band remains at ARS 1,500), or whether at some point the exchange rate will gravitate toward the upper band, forcing the central bank to recalibrate. The realization of one outcome or the other will depend almost exclusively on the government’s ability to finally access credit and stop paying obligations in cash.
