by Estefanía Pozzo and Facundo Iglesia

The first week without Argentina’s longstanding foreign currency restrictions, commonly known in the country as the cepo, has passed without a major economic crisis. However, economic analysts told the Herald that questions remain about the sustainability of the new scheme. 

Monday (April 14) was the first business day since the government announced it struck a US$20 billion deal with the International Monetary Fund (IMF). The administration also changed its foreign exchange scheme until April 11, when the Central Bank devalued the peso by 1% a month.

On Monday, the dollar started to trade under a banded exchange rate scheme that allows it to float between AR$1,000 and AR$1,400. The official retail exchange rate jumped from AR$1,108 per U.S. dollar on Friday to AR$1,233.3 on Monday. On Wednesday, it went down to AR$1,179.5. 

The Central Bank said it did not intervene in the official exchange rate market this week but on Tuesday announced that foreign investors will be allowed to access the official exchange rate market, with a six-month minimum parking period. The next day, JPMorgan released a report urging investors to buy peso-denominated debt, calling the new exchange rate regime a “game changer” that “warrants a more bullish stance.”

Pablo Repetto, head of research at the local Aurum Valores brokerage firm, said the easing of the restrictions was “much bolder than one could have presumed.” 

“There was a kind of euphoria in the market, with a return to carry trade [operations] to take advantage of interest rates in pesos because the dollar is relatively low,” Repetto told the Herald. He said that if the country’s risk index improves, the country could be able to “access international markets” in the coming months.

“Beyond all this, the truth is that if this obsession to keep the exchange rate low remains, in the end it may end up being very counterproductive,” Repetto said. “Because in the end, if everything boils down to reassembling the carry trade, we will end up in August or September being in a worse situation than we are today.”

Aldo Lo Russo, the owner of autopart manufacturer Baigorria, also expressed doubts about the new monetary scheme. 

“We are worse off than last Friday, because there are many supplies that were preemptively covered for [with increases]. These hikes were late because there are people who have not updated their prices since January,” Lo Russo told the Herald. However, he did comment that even after the exchange rate fell on Wednesday, “companies did not roll back the increases.”

He also said that companies producing and importing packaging, tools, and zinc had “increases ranging from 8% to 12%,” adding that the new scheme is “worse” than the previous one for companies like his, which rely on imported inputs and export finished products.

“Inputs you bring from abroad are now at a more expensive dollar, and the exchange rate for exports has decreased,” he said, as the government eliminated the ‘blend dollar’ scheme that allowed exporters to liquidate 20% of their sales abroad in the financial market.

“I see it as very unstable, and maybe it will be effective to lower inflation, but it could mean trouble in the future,” he concluded.

Prices and the ‘real’ economy

Before Monday’s devaluation, prices in Argentina had already gone up by 3.7% in March, the highest monthly increase since August 2024. Analysts agree that the new exchange rate regime could fuel an even higher inflation rate.

On Wednesday, the Association of United Supermarkets (ASU, by its Spanish acronym) released a communiqué saying they would not accept prices from their suppliers with “excessive and/or speculative increases.” A representative for a supermarket confirmed that two days before on Monday, some providers had already sent price lists with price hikes. The four manufacturers of cooking oil in the country increased the prices of their products by 9%, while noodles came in with a 12% surge.

The Herald spoke to sources from two supermarkets, a dairy company, and a beverage manufacturer. The message was clear — prices do not have much room to go up as consumption has already taken a huge hit. Supermarkets and suppliers have said they will continue talks as they wait for the exchange rate to stabilize.

The government continues to closely monitor the price increase. Earlier this week, Economy Minister Luis Caputo accused food manufacturers Unilver and Molinos of increasing their prices by 9 to 12%. In a post on X, he said that supermarkets had rejected the products with those hikes.

A representative of Unilever denied that the company had sent a price list with increases and added that the government had not contacted them about it. They did admit that they had a conversation about future increases. Molinos, who were also mentioned by Caputo, did not respond to a request for comment.

A government source denied that the administration had any contact with companies to discuss prices, and that they have not scheduled any future meetings to that end.