Argentina’s peso will float freely, but it’s not yet time, says Bausili

Argentina’s peso will be allowed to float freely but that step is not now and will “come in time,” says Central Bank Santiago Bausili.

Speaking during an event hosted by the International Monetary Fund (IMF) in Washington on Wednesday, on the sidelines of the multilateral lender’s annual spring meetings, Bausili warned that setting a date for the landmark could spark “anxiety” or “uncertainty.”

The free float of Argentina’s exchange rate “will come in time”, without setting a date that might spark “anxiety” or “uncertainty”, Santiago Bausili, president of the country’s Central Bank, said on Wednesday during an event at the International Monetary Fund (IMF) in Washington.

Speaking to a packed room, Bausili outlined the challenges posed by President Javier Milei’s economic adjustment programme.

“Argentina had run out of options,” he said at the IMF, explaining that the Central Bank had been “constantly printing money for two reasons: to finance the Treasury and to pay interest on its own liabilities”.

There was a need to make the peso more attractive. Rather than relying on the traditional approach — “raising rates and telling people to hold onto the currency because by the end of the cycle they’ll be wealthier and earn interest” — the Central Bank took “a very aggressive stance.”

The Central Bank moved interest rates “into negative territory in real terms, which was risky, but we trusted in our strong capital controls and believed the scarcity strategy would be more appealing,” Bausili explained.

Negative interest rates are designed to encourage investors and companies to invest rather than hoard capital.

“We began designing the programme with one very strong assumption: we have no credibility. It doesn’t matter who’s in charge, who designed the programme or who’s saying what — zero credibility. And credibility is an extremely powerful political tool,” said Bausili.

Under Milei, Argentina has entered a new phase of its adjustment plan, said the governor. “We’re calling it phase three. It’s like the iPhone,” Bausili joked.

Argentina has strong backing for its economic stabilisation plan: it has already received US$12 billion from the IMF, the first tranche of a US$20-billion loan.

Including fresh pledged support from the World Bank and the Inter-American Development Bank, the total rises to US$42 billion.

Argentina already owes the IMF US$44 billion from a previous programme.

This injection of fresh funds is intended to help stabilise the peso and support the ongoing decline in inflation — down from 211 percent year-on-year at the end of 2023 to 59 percent at present.

In return, Milei’s government has scrapped many of the currency controls in place since 2019.

It has also introduced a new floating exchange rate scheme for the dollar, within a band ranging from 1,000 to 1,400 pesos. These limits will be adjusted at a monthly rate of one percent.

“When will it float freely? It will come in time. There’s no further phase for free exchange. There’s no next step that will provoke anxiety or uncertainty,” Bausili promised. 

“We still have restrictions because imbalances remain,” he added.

Because “if you don’t have credibility … you should only take a step forward once you’re absolutely certain,” he concluded.

Bausili made his remarks during a conversation with Rodrigo Valdés, the IMF’s director for Latin America and the Caribbean — a figure who has been heavily criticised by Milei.

– TIMES/AFP