Parallel U.S. dollar exchange rates in Argentina soared to 1,310 pesos on Wednesday as the market demands details on the agreement the country is negotiating with the International Monetary Fund (IMF). The Central Bank had to sell US$48 million, marking the eighth consecutive working day the monetary authority ended with losses, accumulating sales for US$1.3 billion.

Gross international reserves sit at US$26.2 billion, the lowest since January 2024. They have decreased by US$3.3 billion since the beginning of the year. Net international reserves are close to minus US$10 billion, a similar level to the end of the previous administration.

Argentina is negotiating a new loan with the IMF, seeking to strengthen its battered international reserves. President Javier Milei has said he could lift the country’s exchange and capital controls with the program’s fresh funds, but the lender has suggested Argentina adopt a more flexible exchange rate regime — a devaluation analysts fear would fuel consumer price hikes.

While the official wholesale exchange rate sits at 1,072 pesos and is devalued at 1% per month, the informal “blue” exchange rate reached 1,310 pesos on Wednesday, rising 1% in just one day. The financial blue-chip swap and MEP rates are 1,295 and 1,299, respectively, after marginal increases.

Several analysts accused the administration of “burning” international reserves in the secondary bond market to contain the financial exchange rates.

Investors ‘anxious to know’

“In a scenario of high volatility and global uncertainty, investors are anxious to know the technical details of the agreement with the IMF,” financial analyst Gustavo Ber told the Herald. “In particular, the focus is on eventual changes in the exchange rate regime, since it is expected that the guidelines will seek the accumulation of reserves.”

IMF sources confirmed on Tuesday that the lender’s “technical staff is holding consultations with the Executive Board,” adding that talks concerning a new program are “advanced” and within the framework of their “normal internal processes.” 

Gustavo Quintana, an analyst and broker for PR Corredores de Cambio, told the Herald the market is “overreacting,” adding: “In some cases, they speculate about changes in the functioning of the exchange market and they throw outlandish claims around about it, but that encourages the closing of [peso] positions and portfolio dollarization.”

Several market sources told the Herald that the consensus opinion is that the government would devalue its currency and abandon the 1% monthly devaluations in favor of a “more flexible” currency band scheme that allows the Central Bank to act in order to keep the exchange rate within a set range. 

Futures easing

The sources added that the administration is set to eliminate the “blend dollar,” a policy allowing exporters to liquidate 20% of their sales in the financial market. Created by the government to keep the financial exchange rates at bay, the IMF believes this hinders international reserve accumulation.

“Futures have been easing after the recent rally, due to a greater conviction that there would not be an exchange rate jump in the short term, and thus higher peso rates could be reactivating the appetite for carry-trade and higher liquidations by exporters, which have been reduced recently,” said Ber.

Meanwhile, the S&P Merval, an index that measures the performance of Argentina’s most important stock shares, fell almost 2%. Argentine companies on Wall Street, which trade through American Depositary Receipts (ADRs), fell by up to 5%, with e-commerce company Mercado Libre taking the worst hit, followed by cement manufacturer Loma Negra and the Grupo Supervielle bank.

Sovereign bonds in dollars closed with generalized declines of up to 1.3%, led by the Global 2035, Global 2030 (-1.1%), and Global 2029 (-0.9%). Argentina’s EMBI index, which measures the possibility of a country defaulting on its debt, increased one basis point to 762.