Milei Doubles Down on Strong Peso Strategy Ahead of Argentina’s Midterms

The Central Bank of Argentina in Buenos Aires. Photographer: Erica Canepa/Bloomberg Photo by Erica Canepa /Bloomberg

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(Bloomberg) — Five months ahead of crucial midterm elections in Argentina, the peso has become the cornerstone of Javier Milei’s campaign strategy. 

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The libertarian president views the currency as a key tool to lower inflation and boost his party’s chances in the October vote, instructing his aides to pursue bold measures that will drive up the value of the peso. 

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Milei in recent weeks unveiled a band in which the peso will trade after partially lifting currency controls for individuals. Since April 14, the currency has traded below the midpoint of the band — set initially between 1,000 and 1,400 pesos per dollar before widening by 1% a month in either direction — limiting depreciation and the pass-through of inflation that analysts had predicted.

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“The model of a miserable Argentina, given away in dollars, is over,” Economy Minister Luis Caputo said last week at a meeting with business leaders.

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A stronger peso could fuel optimism among Argentines about the economic outlook. On the flip side, it could also hurt margins and competitiveness, said Alejandro Cuadrado, global head of currency strategy for Latin America at BBVA. “The peso had already appreciated in real terms, so strengthening it would deepen that trend,” he said.

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Here’s how Milei’s government plans to strengthen the peso further.

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1. Seasonal soy exports

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The soybean harvest usually generates a flood of dollars during the second quarter. Add to that the expiry of a tax exemption on agricultural exports, which will end June 30, nudging soybean producers and exporters to sell dollars, in line with Milei’s goal.

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2. Bonds for dollar holders

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Argentina’s central bank is working on issuing peso-denominated bonds that can be purchased in dollars, Federico Furiase, one of the bank’s directors, said in a television interview last week. The initiative is aimed at helping the monetary authority accumulate reserves, Furiase said.

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3. The carry trade

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A recent regulatory change allows foreign investors to participate in the official exchange market as long as they keep their investments in Argentina for six months or longer. That’s attracting overseas money from investors looking to take advantage of the carry trade, a popular strategy that involves betting on returns in pesos amid a stable or appreciating exchange rate.

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4. Amnesty for savers

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Caputo plans to encourage Argentines to bank nearly $200 billion currently stored outside of the financial system. The economy minister wants to channel these savings into everyday transactions and monetize economic activity in dollars as the government seeks to limit the amount of pesos in circulation. Milei’s chief spokesman Tuesday said more details would be provided on Thursday.