Argentina’s President Javier Milei announced a significant shift in the country’s monetary policy this week. Starting Monday, April 14, he has loosened the strict currency controls that were in place for over a decade. This change comes after Milei secured crucial financial backing from international institutions, including a $20 billion loan agreement with the International Monetary Fund (IMF).
The new policy marks the end of many restrictions on buying and selling dollars, which were originally imposed in 2011 by former President Cristina Kirchner. These controls aimed to stop capital flight and stabilize the Argentine peso but created a large gap between the official exchange rate and the black market rate. For instance, at the time of the announcement, the official rate was about 25% lower than the real market rate.
Under the new system, individuals can now buy and sell dollars without limits, with the exchange rate expected to float between 1000 and 1400 pesos per dollar. If the rate hits either end of this range, the Central Bank of Argentina (BCRA) will step in to stabilize the market. Businesses will also be allowed to repatriate their earnings starting in 2025.
Initially, there were concerns about whether this move would lead to a rush for dollars, causing the peso to devalue further and reignite inflation. However, the early signs have been positive. Following the announcement, the dollar settled around 1110 pesos, suggesting a degree of stability.
This new approach aims to boost consumer confidence in the peso and attract foreign investment, which is a key goal for Milei’s administration. The expectation is that a more stable currency will lead to less inflation in the long run.
While the outlook seems encouraging, Milei’s administration is not out of the woods yet. His predecessor, Mauricio Macri, also lifted currency controls in 2015 after securing an IMF loan, but faced challenges that led to a return of strict controls just a few years later. Milei must now navigate the upcoming midterm elections, where his party, La Libertad Avanza, is hoping to improve its position. If his policies fail to deliver the promised economic growth, he could face a similar fate to Macri, struggling to maintain political support amidst economic turmoil.