Javier Milei does not plan to change the band system that governs the exchange rate, despite market pressure for the peso to float freely against the dollar. The Argentine president now defends the controls he denied before coming to power, just as he begins a new visit to the United States on Thursday to attend a business forum in Miami and just weeks after the White House completed a bailout that served as a lifeline for the far right ahead of legislative elections and that many assumed would eventually lead to free floating. It won’t be like that.
“The (fluctuation) bands are designed to open up over time, and there will come a time when they are irrelevant,” Milei said in an interview with Financial times. Thus, in a reference medium for those who pull the strings of international finance, he justifies his intention to keep them in force at least until the presidential elections at the end of 2027. “We have a program and we will continue to maintain it.”
The Argentine exchange rate fluctuates between two bands whose minimum and maximum expand by 1% monthly. The system has been in place since April, when the government agreed with the International Monetary Fund (IMF) a bailout plan of 20 billion dollars (just over 17.3 billion euros). The high end of the range is today at 1,491 pesos to the wholesale dollar, very close to the price it has held for weeks.
Market pressure towards a free-floating system was particularly strong in the run-up to the October 26 mid-term legislative elections. Polls predicted difficult times for the far right opposed to Peronism. The possibility of bad elections has accelerated the peso’s instability.
Milei, however, managed to keep the exchange rate below the upper limit of the band thanks to the help of the United States Treasury, which granted it a exchange (currency exchange) of 20,000 million dollars and even intervened directly in the market with approximately 2,000 million dollars. Trump explicitly conditioned the continuity of aid on Milei’s electoral victory. and the fear effect The effect was more effective than expected on the Argentine electorate: to everyone’s surprise and contrary to what the polls said, the far right held an excellent election, also prevailing in the province of Buenos Aires, a bastion of Kirchnerist Peronism.
That electoral victory gave new vigor to Milei, so much so that he has now decided to resist numerous requests to free the currency from any state control. So far the only change is that the central bank will buy foreign currency even if the price does not reach the minimum level, as it had set before the elections.
The lack of international reserves – which would alleviate the free floating that Milei now denies – is, however, what most worries the Monetary Fund and bondholders, to the point that just over a month ago an imminent default was feared. Only the hand of Trump, generous with his co-religionist and great political ally in Latin America, allowed the ghosts to be dispelled.
Milei now says the “increased demand for money” expected in the coming months, following an end to election uncertainty, will facilitate the accumulation of reserves. And he claims that those who insist on the free floating of the peso have been influenced by “local economists and consultancies, who are systematically wrong about this”.
Looking for political allies
The Government has undertaken a plan of structural reforms which it hopes to be able to implement thanks to a greater presence in Congress. However, it will be necessary to form alliances with moderate parties and obtain the support of the governors – all opponents – who hold control of the various legislative blocks.
Milei excluded from any negotiations the Peronist senators and deputies who answer to former president Cristina Kirchner, who will continue to be the first minority in both houses of Congress despite the triumph of the far right. Among the laws the far-right president plans to fast-track are an ambitious labor reform that will roll back workers’ rights and a new tax system that promises to reduce the tax burden on big companies.
