Argentine financial markets have grown increasingly volatile, with uncertainty surrounding a new International Monetary Fund (IMF) pact pushing the exchange rate and country risk levels upwards as the values of Argentine companies and international reserves continue to plummet.

The government is currently negotiating a new agreement with the Fund, which demands a “more flexible exchange rate policy” and is likely to discourage the Central Bank from using reserves to inflate the value of the peso. The Milei administration has virtually frozen the exchange rate to keep inflation at bay. Analysts speculate that a new deal will provide fresh funds but demand a devaluation in exchange.

President Javier Milei issued an emergency decree mandating Congress support a new program with the lender but without providing any details. The lower house will debate the decree on Wednesday.

“We don’t know how much money the IMF is going to give us,” Economy Minister Luis Caputo said in an interview this morning. Caputo did not rule out the possibility of a devaluation and failed to provide details about what the country’s new monetary scheme might look like after a deal with the IMF. 

Several industry sources told the Herald that the interview has only served to fuel speculation and U.S. dollar purchases.

“In the Argentine economy, uncertainty is worse than bad news,” said financial analyst Christian Buteler. “When in doubt, the market covers itself.”

Since Friday, Argentina’s EMBI index, which measures the possibility of a country defaulting on its debt, jumped from 737 to 784 basis points. During that same period, the MEP and blue-chip swap rates jumped 61.5 and 59.1 pesos, respectively. As of this evening, they both stood at AR$1299 per unit — 21% higher than the official dollar rate.

U.S. dollar futures set to mature this month also saw a huge surge.

In only three days, the Central Bank sold US$745 million. Gross international reserves are currently US$27.2 billion — the lowest since September 2024 — while net reserves are negative US$9 billion. A source at the Central Bank said US$400 million were paid to the Inter-American Development and World Banks, while other losses could be attributed to “the usual market dynamics.”

Buteler said the Central Bank’s sales were likely investors “closing” their carry trade — a kind of operation that entails using U.S. dollars to buy peso-denominated debt, then buying back more dollars with the profit once the credit matures. The difference between the U.S. dollar devaluation and the peso-denominated financial instruments made carry trade attractive for investors, but a new monetary scheme could change that.

“This has generated a dollarizing stimulus that continues to put pressure on prices,” Gustavo Quintana, an analyst and broker for PR Corredores de Cambio, told the Herald.

Pablo Repetto, head of research at the brokerage firm Aurum, told the Herald he believes “the agreement with the IMF will come with a much bigger change in the exchange rate scheme than it seemed at the beginning” and that this is the reason that “all this rebalancing in the official US dollar market and the futures market is taking place.”

“If this hunch is correct, and the implementation goes well, we believe that Argentine bonds and stocks will more than reverse these recent losses,” he added, theorizing that a devaluation would take place after the IMF deal. Repetto added that the current monetary scheme rate is “perceived to be exhausted.”

Financial analyst Gustavo Ber said he believed the new monetary policy could include a series of changes: the gradual disappearance of the “blend dollar” scheme, which allows companies to liquidate 20% of exports at the blue-chip swap rate; a further exchange-rate loosening; and the replacement of the 1% monthly devaluation with an exchange rate band system that allows the Central Bank to intervene in the market to “defend” the peso when it reaches a certain value. Other analysts concurred.

“All of this will improve the [government’s] capacity to accumulate reserves, which is crucial to continue advancing towards an exit from the cepo [exchange rate controls],” Ber added.

Two senior market analysts told the Herald that the exchange-band plan was borne of a meeting between a group of economists and IMF representatives in which the latter sought the former’s opinion on such a scheme.