Argentina’s Dollar Dilemma: The More Things Change…
Two important Argentine media figures on how the wheels are starting to wobble on the Milei miracle
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Founded in 1870 by Bartolomé Mitre, himself one of the founders of Argentina as a modern state, La Nación is the voice of traditional, conservative Argentina. Law and order and absent the former at least the latter have been its watchwords from the start. Virulently anti-peronista it sees itself a voice for rational government, especially in the management of the economy, and the enemy of populist schemes of all sorts. Still owned by descendants of its founder, it hasn't sold out the latter principle just because it approves of some of President Milei’s economic policies; it has led the way in investigating his crypto rug pull scam, his sister charging for access to him and the power of his chief adviser Santiago Caputo.
Carlos Pagni is an iconic figure in Argentine journalism. He opens his Monday night television programme with what he calls an editorial, a 40 - 45 minute piece to camera, sometimes with the aid of polling or economic data graphs. Erudite, ironic and well-informed, it's a weekly lecture on the history and politics of the present. Argentina's chattering class pays careful attention to what he says. It’s hard to tie him to a precise political position but his outlook is certainly liberal and democratic. Though his programme goes out on a channel owned by a different media group, the script of his editorial runs in La Nación on Tuesday and today they have it as the lead on its website’s front page.
A prominent figure in Argentine journalism ever since I can remember (the late 1990s) Ernesto Tenembaum is the very model of a progressive media figure, there can hardly be a left-liberal-woke cause he hasn’t endorsed. Big on human rights and speaking the truth, as he sees it, to power he was a mildly critical supporter of the governments of Néstor Kirchner and his widow Cristina Fernández de Kirchner. Were he British he’d be a perfect fit for the pages of The Guardian. Today his principal gig is anchoring the breakfast show of Radio Con Vos (Radio With You), the favourite listen of the illustrated and progressive classes in the nation’s capital. He’s written a biography of Milei and it’s safe to say that he’s not a fan.
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Diverse though their political outlooks are, Pagni and Tenembaum agree that Milei’s supposed economic miracle is starting to show a significant fissure, one that comes to all Argentine governments eventually, it’s running out of dollars.
The Argentine Central Bank’s net reserves fluctuated significantly throughout 2024. Although there were improvements in mid-year, the overall trend is bad and falls short of IMF targets. Currently, reserves are at -USD 5.3 billion
To complicate matters further the government sees the cheap dollar as key to its chances of performing well in the mid-term congressional elections in October, so it’s committed to maintaining exchange controls at least till then. Or so it says, except when it hints that it isn’t.
And to complicate them further still there’s the global economic uncertainty caused by the Trump administration and the effects it’ll likely have on Argentina’s economy.
Worried by market jitters Economy Minister Luis Caputo has in recent days given a series of interviews in which he’s cheerfully contradicted himself on whether the government is going to devalue the peso or lift exchange controls or leave things as they are: a crawling peg with the official peso being devalued at a rate of 1% a month. And having previously announced that a huge refinancing scheme with the IMF was in the bag it now looks like nothing firm has been agreed and any fresh funds will be doled out in tranches tied to USD reserve accumulation targets.
Caputo’s argument goes something like this, “Hey, nice people of the IMF, we’ve done everything you asked and more: slashed public spending, screwed the pensioners and liberalised many areas of the economy, you can’t possibly refuse us a fresh USD 20bn so we can have a decent election result in October. And by the way, we are great friends of President Trump and Mr. Musk, that counts in our favour, right?”.
One of the so-called golden boys, the Argentine traders who made tons of money on Wall Street in the early 200s, the Messi of finance according to former president Macri, Caputo would really have done better to have kept his trap shut. The “when you are explaining you're losing” axiom is especially applicable to Argentine economy ministers.
It’s hard to say what comes next but I don’t think we’re going to see a major crisis soon. We’re more in slow puncture than blow out territory. The government will likely be able to kick the can down the road till the October mid-term elections where it’s likely to be rewarded for bringing down inflation.
The IMF won’t abandon this administration as Argentina already owes it 40 bn USD. The adage about who has the real problem when you owe the bank a huge sum you can’t repay applies here. Not as many as the government would like and tied to unpleasant conditions but fresh dollars will be made available to Milei’s government at some point.
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Exchange controls! Central Bank reserves! Isn’t this a libertarian, anarcho-capitalist government?
You’ve been reading the Financial Times again, I see. This is just another Argentine government that’s battling with the USD exchange and inflation rates, like most of the governments that have preceded it. The libertarian anarcho-capitalism stuff is strictly for the consumption of the gullible foreigners thrilled by and/or horrified by the latest outrageous statement by the nation’s colourful leader. But he’s not making the day to day decisions on the economy, he’s too busy glad handing like minded leaders, clowning for Trump and his friends at CPAC and Mar-a-Lago and, above all, tweeting.
The real governing is being done by Santiago and Luis Caputo (distant relatives, I understand) and Minister for Deregulation and Transformation of the State Federico Sturzenegger, all of whom fit familiar moulds in Argentine politics and history.
If you live in the USA or Europe you probably live without giving a thought to exchange rates but it’s not like that in Argentina. People are aware on a daily basis of the peso-USD exchange rate, its effect on prices and whether they feel better or worse about their own finances. Anyone with any capacity to save does so in USD and property is bought and sold in that currency.
If you buy an apartment you show up at a back room at the bank with the money in cash where an employee puts it through a bill counting machine to check it's all there before handing it over to the seller and the relevant papers are signed. I know because I’ve done it.