In a bold move, President Javier Milei of Argentina is lifting the exchange rate cap to allow for a new floating rate system. This decision, spurred by international financial support, aims to stabilize the economy amidst declining reserves, but it raises concerns about inflation and potential devaluation. Experts are divided on its long-term viability, with some seeing opportunity while others predict challenges.
President Javier Milei’s recent decision to lift the exchange rate cap in Argentina marks a significant and bold economic maneuver amidst a challenging global landscape. Effective next week, most restrictions on foreign currency access will be removed, introducing a new floating exchange rate that will function without the central bank’s intervention, as long as it remains below 1,400 pesos per dollar.
Economic experts have expressed mixed opinions on the move. Leonardo Piazza, director of LP Consulting, emphasized that while the plan is disruptive, the international support from the IMF and similar organizations necessitated timely implementation. The expectation is that this could lead to a sudden devaluation of the peso, raising concerns over inflation.
Recent data reveals that the Argentine Central Bank has experienced a significant decline in its foreign reserves, losing nearly 4.9 billion dollars in 2025 alone. Currently, the stated reserves stand at 24.7 billion dollars, though net reserves might be even lower. The agreement signed with the IMF, which includes a substantial 20 billion dollar loan, is intended to bolster these reserves amid pressure on the exchange rate.
In alignment with the new floating exchange rate regime, a correction in the official exchange rate is anticipated, which could result in heightened inflation. March observed inflation at 3.7% month-over-month, and the potential for a shock in the second quarter looms given a current budget surplus. Piazza advises that increased social assistance will be essential to support vulnerable populations against rising food costs.
Conversely, economist Pablo Tigani criticized the plan as reckless, asserting that it creates excessive freedom for currency flight and could lead to a sharp devaluation impacting real economy prices. He expressed skepticism about the longevity of this strategy and voiced concerns over the implications of further debt accumulation.
Argentina’s gross external debt has reached 276 billion dollars, with IMF loans accounting for approximately 41 billion dollars, a figure that is expected to increase amidst the current economic changes.
President Javier Milei’s decision to lift the exchange rate cap is poised to initiate significant economic shifts in Argentina. The introduction of a new floating exchange rate amid declining foreign reserves raises concerns over potential inflation and devaluation. While some economists view this move as a critical step towards stabilizing the economy, others warn of its risks, particularly concerning monetary freedom and increased debt. The effectiveness of this plan will be contingent upon its execution and the government’s ability to address rising inflation and social assistance needs.
Original Source: efe.com
