The government’s decision to deepen currency appreciation to use the dollar as an anchor against inflation is leading to an increase in foreign currency outflows due to, among other factors, a boom in Argentines holidaying abroad. 

As a result, the stock of loans for foreign currency credit card purchases has nearly tripled compared to last January and has reached its highest level since February 2018.

The latest official data is from January 22. The Central Bank’s records show that on that day, the stock of dollar-denominated credit card loans climbed to US$761 million, continuing the persistent upward trend seen in recent months due to currency appreciation and the increasing cost of Argentina relative to other countries.

This figure represents a 185% increase compared to the January 2024 average (US$267 million) and is the highest value recorded since February 9, 2018 (US$772 million). Thus, it came close to the record of US$838 million set on February 2 of that year, in another period of strong currency appreciation, just weeks before the currency run that triggered the crisis of Mauricio Macri’s government.

Behind this phenomenon is the boom in outbound tourism: for those with the means to take an extended vacation during summer recess, travel to destinations such as Brazil, Chile, and the United States has surged. Locations like Rio de Janeiro and Florianópolis can be more affordable than Argentina’s traditional beach resorts.

According to INDEC data, outbound tourism increased by 51% year-on-year in December, while the arrival of foreign visitors fell by 10%. Cross-border shopping trips have also surged, as Argentines seek out cheap products: last month, the number of day-trippers who crossed the border and returned without spending the night jumped by 116% year-on-year.

Another factor contributing to the rise in foreign-currency credit card spending is the government’s tax incentives for importing goods via private courier services, which allow consumers to shop on international platforms.

Pressure on the exchange rate gap

Consulting firm 1816 suggested that this rise in credit card consumption in dollars is driving greater demand for the MEP dollar, “and the Central Bank’s constant presence to contain the gap and keep the CCL below the ‘glass ceiling’ of AR$1,190.”

In the first half of January, the Central Bank spent US$619 million of its reserves to intervene in financial dollars and mitigate upward pressures, data presented by its Vice President Vladimir Werning showed. This, despite the ongoing “blend dollar,” which allocates 20% of export proceeds to the CCL and serves as an indirect intervention tool.

A few months ago, the Central Bank indicated that 50% of Argentines’ foreign spending is paid with their own dollars (mostly acquired via the MEP market). The other half is settled in pesos at the “card dollar” rate, meaning it comes from the country’s net international reserves, which are currently around minus US$10 billion. This is despite the card rate being over 200 pesos higher than the MEP rate. 1816 believes the proportion of spending covered with travelers’ own foreign currency may increase in summer to cover higher expenses, such as airfare and lodging.

“The increase in overseas payments via digital wallets, which is not reflected in credit card balance statistics, also creates immediate demand for CCL and may explain why AL30 and GD30 trading volumes against cable surged significantly in January,” the consultancy noted.

Export duties, appreciation, liquidation

Finance Minister Luis Caputo remains committed to strengthening the currency anchor and, consequently, appreciation. Next week, the rate of devaluation will be halved, with the official exchange rate adjustment set at 1% per month.

Currency policy is the key issue in Argentina’s negotiations with the International Monetary Fund (IMF). Can an agreement be reached without devaluation? In an interview with the Herald’s sister publication Ámbito, Héctor Torres, Argentina’s former representative on the IMF board, stated that it is possible but that without a more flexible exchange rate policy, it is unlikely the IMF would approve a new lending program with a large initial disbursement to intervene in the market and lift capital controls.

During the in-person negotiations with the IMF’s technical staff (which concluded on Monday), the export tax cut reinforced the government’s commitment to the currency anchor. Although a surge in foreign currency liquidations has yet to materialize, since the agricultural sector is awaiting further details, the measure aims to increase dollar supply quickly to offset currency outflows caused by appreciation. A report by Portfolio Personal Inversiones (PPI) suggests this strategy is playing on two fronts.

“Since the ‘blend’ mechanism remains in place, this would mean increased agricultural liquidations both through the official exchange market for 80% of proceeds and through the financial market for the remaining 20%,” PPI noted. It added that the Central Bank would have greater room to purchase foreign currency in Argentina’s exchange market, due to an acceleration in private supply. This follows four consecutive sessions last week in which it sold US$121 million, ending a 14-day streak of net purchases. 

“In the financial market, increased agricultural supply would allow the Central Bank to maintain marginal intervention, after using US$315 million in the second half of December and US$619 million in the first half of January to contain the gap,” PPI’s report read.

“For the government, this is also a sign that it urgently needs dollars, even at the cost of giving up fiscal revenue to ensure liquidations occur sooner,” wrote Epyca consultancy. “The tightening of the currency anchor as an anti-inflationary policy, along with the financial surplus, allows the government to take a measure that will raise the price of some foods while reducing tax revenues.”

The requirement that exporters settle 95% of recorded sales within 15 days of submitting their export declaration to qualify for the reduced tax rate seeks to encourage commercial debt-taking through export pre-financing, according to industry sources. This would serve as a tool to bring in foreign currency in advance, even though shipments may occur months later.

Producers are uncertain about what proportion of liquidations will occur under these new terms (since it is the exporters who bring in the foreign currency), the financial cost of early settlement, and consequently, how much of the tax cut will be passed on by grain traders to the prices they pay for crops. 

The economic team’s main incentive remains the “carry trade,” which will be further bolstered next week by the slower pace of devaluation. Essentially, the government aims to entice exporters to increase their foreign currency borrowing and seek returns in pesos.