Inflation is declining, economic activity is slowly recovering but foreign reserves are depleting
Inflation has stabilized between 3% and 4% monthly, and the government anticipates a further decline.
Economic activity is showing signs of a slow but promising recovery. Real wages for workers and retirees are improving, and consumer credit is beginning to reemerge. Furthermore, the government is advancing towards opening the economy by eliminating distortionary taxes and lifting import restrictions. Nevertheless, both domestic financial investors and international holders of Argentine debt remain concerned about the future of exchange controls and the financial and exchange rate system’s appearance once they are lifted.
This concern is well-founded, considering the magnitude and nature of Treasury’s obligations, particularly those that will need to be serviced or refinanced throughout 2025.
The government has indicated that exchange controls will likely remain in place throughout 2025 and may even extend into 2026. However, I believe it’s possible that the government will come to realize, sooner rather than later, that advancing the liberalization and reunification of the exchange market is in its best interest, even at the risk of devaluation. This could occur if the government returns to its original idea of implementing a definitive stabilization plan that credibly institutionalizes a system of currency competition, thereby reinforcing the significant fiscal and monetary balance that has already been achieved.
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