Background on Key Figures and Context
The Argentine peso has experienced a significant 5.49% depreciation against the US dollar this week, closing at 1,467.41 pesos per greenback following a period of market volatility after the ruling party’s defeat in Buenos Aires’ legislative elections.
This is the largest weekly depreciation of the peso since late 2023, when former ultraliberal president Javier Milei was in office. The defeat by 14 points of the ruling party, led by candidates from peronist governor Axel Kicillof in Buenos Aires—the country’s most populous province—triggered uncertainty about the government’s prospects in the national legislative elections on October 26. The government had hoped to gain seats in a Congress where it is currently in the minority to push through reforms.
Market Reactions and Government Interventions
The peso plummeted at the start of trading on Monday following the aforementioned defeat. The currency’s quote neared the upper limit of the floating band established by the government at 1,471 pesos per dollar.
In response to this week’s market turbulence, the Argentine government initiated interventions in the foreign exchange market using funds from the National Treasury to support the peso, as an agreement with the International Monetary Fund (IMF) signed in April restricts central bank intervention until the currency’s quote reaches the band’s ceiling.
Inflation and Market Sentiment
Despite the positive August inflation rate of -1.9%—matching July’s level—market anxiety persisted, as many analysts believe the peso is overvalued. This sentiment was further fueled by Argentine stocks trading on Wall Street losing up to 30% in certain shares and the Merval index, measuring leading Argentine equities, declining 11.90% over the week in the Buenos Aires stock exchange.
Political and Corruption Scandal Context
Market pressure intensified amid a corruption scandal involving President Milei’s sister, Karina Milei, who also serves as the Secretary General of the Presidency.
This month, for the first time, Congress overturned a presidential veto on increased funding for disability services. The following week, lawmakers will debate two more vetoes concerning financing for pediatric hospitals and universities.
IMF Support and Funds Received
This week, the government received further backing from the IMF through its spokesperson, Julie Kozack, who acknowledged “the significant progress made in reducing inflation.” Argentina has already received approximately 14,000 million dollars from the new IMF loan.
Key Questions and Answers
- What is the main reason for the peso’s depreciation? The peso’s significant 5.49% depreciation against the US dollar is primarily due to market volatility following the ruling party’s defeat in Buenos Aires’ legislative elections.
- Who are the key figures mentioned in this context? The key figures mentioned are former ultraliberal president Javier Milei, current peronist governor Axel Kicillof, and President Milei’s sister, Karina Milei.
- What restrictions does the IMF agreement impose on Argentina’s central bank? The IMF agreement restricts the central bank from intervening in the foreign exchange market until the peso’s quote reaches the upper limit of the floating band.
- Why are analysts concerned about the peso’s valuation? Analysts believe the peso is overvalued, contributing to market anxiety despite positive inflation rates.
- What recent political developments have impacted the market? Congress overturned a presidential veto on increased funding for disability services, and lawmakers will soon debate two more vetoes concerning hospital and university financing.
- What support has Argentina received from the IMF? Argentina has received approximately 14,000 million dollars from the new IMF loan and acknowledgment of progress in reducing inflation from the IMF.
