With Winners and Losers
2025 is ending on a much stronger note than it seemed just three months ago, while the outlook for 2026 has improved significantly.
Globally, the Federal Reserve’s interest rate cut and the announcement of balance sheet expansion bolstered the rally in financial assets—particularly certain commodities—and once again triggered a decline in the value of the U.S. dollar. Domestically, the outcome of the October 26 election extended both the political horizon (given the new composition of Congress) and the economic outlook, increasing the likelihood of regaining market access and reducing reliance on seigniorage to meet debt maturities.
In the near term, the passage of the 2026 Budget Law (the first under Milei’s administration) and the Fiscal Presumption of Innocence Law—a form of permanent tax amnesty aimed at bringing “mattress dollars” into the financial system—have provided additional political breathing room and are likely to give the market a further boost. The remaining bills submitted to Congress, including Labor Market Modernization, the clarification of the Glaciers Law (essential to unlock mining projects in the Andean region), and the Criminal Code reform, are expected to be debated in February. Provided no black swan events emerge, these initiatives would further accelerate the current momentum. Passing the financial program has always been a necessary condition for the macroeconomic framework to function, paving the way for a monetary program that allows for reserve accumulation and the establishment of an alternative anchor for the exchange rate, thereby reducing dependence on capital controls.
The announcement that the Central Bank (BCRA) will begin purchasing dollars in January—up to 5% of the daily market supply—along with a recalibration of the slope of the upper exchange-rate band (now indexed to inflation with a two-month lag), accelerated the reduction in country risk. For the first time since January 2025, it fell below the 600-basis-point threshold, reaching 570 basis points at the close of this report.
However, this move had the opposite effect on demand for peso-denominated debt, pushing interest rates higher. While adjusting the upper band reduces the risk of having to defend it against deeply negative net reserves, it simultaneously alters the expected returns from carry trades, requiring higher peso interest rates. Ultimately, with fewer capital controls, peso interest rates should converge toward dollar rates plus the expected depreciation.
Since the announcement of the new exchange-rate regime, the Treasury has been intervening by buying (through block trades originating from private debt placements) and selling dollars in the official foreign exchange market (MULC), resulting in a decline in deposits in recent days. Meanwhile, the BCRA has resumed providing hedging instruments (dollar-linked bonds and futures), prioritizing the exchange rate (between ARS 1,450–1,455) over reserve accumulation.
Following today’s sale, the Treasury holds slightly less than 40% of the dollars needed to pay the January 9 coupon (USD 1.644 billion out of USD 4.3 billion in total maturities, with USD 3.7 billion held by the market). The inflow of USD 706 million from the sale of hydroelectric assets is still pending (at least part of which will be in dollars), and ARS 3.4 trillion remain in the BCRA’s 2020 account (equivalent to roughly USD 2.3 billion), although funds could be transferred from Banco Nación if necessary. For now, the Minister has stated that the government will not issue debt in international markets, which remain open to private and provincial issuers, and will likely attempt to reenter the domestic market in a context where companies and provinces are tapping offshore dollar funding. In the interim, a bridge repo facility may be used to complete the coupon payment.
It is true that we are still in December and the new framework has yet to fully take effect. For now, however, the government appears to continue prioritizing disinflation through an exchange-rate anchor—set at a floor 15% higher than the one attempted last May—while seeking to build a new bridge toward the post-harvest period. The strategy hinges on the financial account enabling both dollar purchases and the maintenance of the exchange-rate anchor without exerting further upward pressure on interest rates, with the aim of restoring credit to the private sector, which remains constrained by rising delinquency, job losses in the formal sector, and declining incomes.
In the short term, the seasonal increase in year-end demand for pesos coincides with a shortage of foreign exchange supply in the official market, reflecting both seasonal patterns and incentives to front-load export settlements ahead of the October election. In February, external supply will still be limited, but demand for pesos will ease. The Fiscal Presumption of Innocence Law is intended to serve as a bridge until the harvest season. The amount of dollars purchased by the BCRA will determine how far the horizon can be extended beyond August, when export seasonality again turns unfavorable. Unlike 2025, there are no elections in 2026.
For now, we have not changed our scenarios for 2026 from those in our previous report, although we have renamed them: “dollar purchases within the original band” and “no purchases and rising FX pressures in the second half.” This reflects the fact that the new upper band is endogenous, adjusting to inflation, which in turn reacts to the exchange rate. In both scenarios, we assume the government prioritizes disinflation over reserve accumulation; however, if reserve accumulation fails to materialize, capital flight dynamics could override policy intentions.
Naturally, behind the aggregate averages lie clear sectoral winners and losers in terms of economic activity and relative prices. The same applies to employment: declines in formal employment have been offset by growth in informal and self-employment. Income trends are also highly uneven—formal wages, particularly in the public sector, remain heavily suppressed and below inflation, while incomes from informal and self-employment show a surprisingly strong recovery in the statistics, albeit from very low levels.
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