The national government plans to keep the official dollar exchange rate at AR$350 until November 15, sources in the administration have told the Herald. Between November 15 and 30, the government could adjust the exchange rate by a slightly lower percentage than the rate of inflation from the previous month (October).

The current exchange rate of AR$350 was implemented by the government the morning after the August 13 primary elections. That Monday, 20 minutes before the market opened, the Central Bank devalued the peso and validated a 22% hike in the value of the dollar against the Argentine currency.

According to three government sources, the decision had been agreed with the International Monetary Fund (IMF), although they acknowledged the results of the primary, which were favorable to the libertarian candidate Javier Milei, accelerated the timetable.

As the Herald has learned, the collapse of sovereign bonds in pre-market trading alarmed the government. If these operations had been validated, a massive intervention by the Central Bank would have been necessary to contain the price of financial dollars. According to the sources, this precipitated a jump in the official exchange rate on Monday morning as opposed to the Friday of that week. 

The libertarian candidate Javier Milei received 30% of the vote in the primary elections — a result that the major consulting firms in Argentina had ranked as unlikely. Milei’s central campaign proposal is to dollarize the Argentine economy.

Argentina and its exchange rates

Multiple exchange rates exist in Argentina.

The official exchange rate, established by the government, rises every month by a lower percentage than the rate of inflation. This policy is agreed upon with the IMF.

Currently, the official exchange rate is AR$350 and applies to imports and exports of goods and services. But that rate comes with different taxes. For example, a 7.5% tax is applied to the import of goods and a 25% tax is applied to the import of services. All exports, by contrast, receive AR$350 per dollar, but it can be less owing to the fact that some sectors have tax withholdings. (Soybean exports, for instance, pay 35%.)

However, access to the official dollar depends on the Central Bank’s international reserves. As a result, parallel exchange rates with fewer restrictions exist. These are financial dollars, which rise in value with the purchase and sale of financial assets, such as sovereign bonds and shares, that are priced in both pesos and dollars.

The main instruments used in this market are sovereign bonds, because they are priced in pesos and dollars. The MEP dollar is derived from buying a sovereign bond in pesos and selling it in dollars in the Argentine market. The blue chip swap, also known as the CCL dollar, is the same, but buying in pesos in Argentina and selling in an international market.

Argentina and the IMF

The Economy Ministry’s conversations with the IMF are continuing in the context of the current Extended Fund Facility, which was signed in 2022. In this program, Argentina has to comply with targets in order to receive disbursements which are used to make the payment due to the IMF for the previous deal. Among these targets, the most important are for international reserves, fiscal deficit and monetary emissions. The exchange rate is a central element of reserve accumulation policy.

Economy Minister Sergio Massa traveled to Washington D.C. this week to be present in the U.S. capital while the IMF board discussed Argentina. The board is expected to approve a disbursement of US$7.5 billion, because the IMF staff has already given Argentina the approval it needs to receive the money.