Argentine President Javier Milei lifts the exchange rate cap, allowing for a new floating exchange rate system. This bold move, supported by significant IMF loans, aims to tackle inflation but raises concerns regarding immediate devaluation and the country’s already high external debt. Experts are divided on the long-term implications, signaling uncertainty in Argentina’s economic outlook.
Argentina’s President Javier Milei has made a significant decision to lift the exchange rate cap, following the acquisition of substantial funds from the International Monetary Fund (IMF) and other loans. This strategy, which begins next week, aims to eliminate most restrictions on accessing foreign currency, establishing a floating exchange rate unmediated by the central bank, provided it remains under 1,400 pesos per dollar.
Leonardo Piazza, director of LP Consulting, emphasized the abruptness of this decision, stating, “The measures are very disruptive and surprising. It was a bold plan, but the government had no choice.” The urgency of the situation, owing to international support, played a vital role in this decisive moment.
As inflationary pressures mount, expectations for a devaluation have heightened alongside increased demand for foreign currency. The central bank witnessed a loss of nearly 4.9 billion dollars in gross reserves, concluding at 24.7 billion dollars on Friday, prompting fears about the official exchange rate’s viability given the low reserves.
Friday’s accord with the IMF is crucial for strengthening these reserves, comprising loans of 20 billion dollars from the IMF, 12 billion from the World Bank Group, and 10 billion from the Inter-American Development Bank. However, a floating exchange rate might also lead to increased inflation, which was already recorded at 3.7% per month in March 2025.
Piazza noted that while initial shocks may occur, especially with a budget surplus in play, long-term prospects look promising for normalizing the economy and attracting investment. Conversely, economist Pablo Tigani criticized the move, labeling it “crazy” for granting unrestricted access to currencies and anticipating a devaluation increase that would impact the real economy’s pricing structures significantly. Tigani expressed concern regarding Argentina’s external debt, which was already a staggering 276 billion dollars at the end of 2024, warning that this trend may lead to more substantial burdens in the near future.
In conclusion, President Javier Milei’s decision to lift the exchange rate cap represents a bold yet precarious economic maneuver aimed at revitalizing Argentina’s financial landscape. While the move could foster long-term stability and attract investments, immediate risks such as inflation and increasing external debt cannot be overlooked. The economic community remains divided on the efficacy of these measures, highlighting the volatile nature of the current situation.
Original Source: efe.com
