Last week, the Argentine government took a bold step by securing another credit line from the International Monetary Fund (IMF) to open its economy to foreign investment and terminate the “cepo,” a series of currency controls imposed on Argentine citizens and companies since 2019.
President Milei’s recent action, fulfilling one of his campaign promises, places the future of the Argentine economy in the hands of the government’s ability to rein in the dollar’s value and maintain a stable peso. Former President Mauricio Macri also attempted to end the cepo during his administration but ultimately had to reinstate it as Argentina faced a severe capital flight.
To address this, the central bank has implemented a fluctuation system aimed at maintaining the exchange rate between 1,000 and 1,400 pesos per dollar. Outside this range, the central bank will intervene in the market to stabilize the rate—selling when it exceeds 1,400 to increase supply and buying when it falls below 1,000 to boost demand.
During its first week of free flotation, the dollar has remained stable, trending toward the lower end of the fluctuation system. This indicates confidence in Milei’s gambit and suggests that Argentines have not fully committed to the dollar.
Read more: Dollar Reined in After First Currency Control Free Week in Argentina
Dealing with the greenback will be one of the biggest tests Milei will face, and his political future hangs in the balance. If all goes well, Milei will demonstrate his ability to dismantle a system that has been in place for years without the possibility of withdrawal.
Conversely, if Milei’s plan fails, Argentines will bear the consequences of increased devaluation and inflation, and the anticipated economic miracle for Argentina will be overshadowed by rising debt levels with the IMF and other international lenders.
Read more: Argentina Scores $20 Billion Key IMF Credit Facility, Terminates Currency Controls
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