Milei blames banks and establishment for new run on currency

Javier Milei has his culprits for the rough times shaking up money markets around the turn of the month. Beyond the classic “Kukas” (easy enough to single out) and the latest dart aimed at Vice-President Victoria Villarruel, there is another blame game as to the responsibility for the dollar going up 14 percent only in July, deriving in the third run on the currency under the libertarian government. For Milei there is no doubt. There are banks conspiring and not just financial institutions – in the official vision, members of the círculo rojo establishment lurk behind. Those who consider that the exchange rate is lagging, that Argentina is not competitive, that domestic costs are contracting too slowly and that action with the exchange rate is definitely needed to modify reality. That on the other hand, a dollar close to 1,380 or 1,400 pesos is the highest rate for the real economy to work in Argentina in the sense of making imports more expensive and improving competitiveness against foreign competitors. And to provoke a direct action, all the private negative forces were encapsulated in the same position of demand for currency, triggering a chain reaction on the official exchange rate market and driving the dollar into the upper half of the floating currency band, close to a Champions League level of 1,450 pesos (the band ceiling as calculated for August).

Milei said it clearly on the late Thursday night streaming conducted by Alejandro Fantino: “We knew they were coming to do damage, this doesn’t surprise us, they were looking to break things up because that’s all they’ve got,” said the President, recalling minutes later that the banks now have to work “as banks” because the state no longer places pesos in circulation to cover the classic fiscal deficit, making them nervous and inclined to semi-coupmongering attitudes to return to the status quo ante.

A few hours previously, it was Economy Minister Luis “Toto” Caputo and Central Bank Governor Santiago Bausilli talking about this issue in another streaming but giving another interpretation. According to the minister, the dollar climbed because in the last five weeks the Economy Ministry had bought dollars with funds from the fiscal surplus, thus boosting demand. A few minutes later, on the same programme, Bausilli spoke of the purchase of dollars by foreign banks (without singling them out as coup-mongers), following orders from their headquarters obliging them to close July protected by the dollar as well as the June 27 advice of somebody who had seen it all: the already famous JP Morgan report recommending an exit from bonds and a return to the dollar until Argentina’s exchange rate and political uncertainties clear up. That would be after the midterms on October 26.

In reality, what happened last week could be something simpler to explain – and very technical. The government decided to terminate its Lefi (Letras Fiscales de Liquidez) bonds, a financial instrument created last year by the Treasury to heal the balance of the Central Bank and administer the liquidity of the banking system. They were ultimately seen by the government as an instrument to pressure local financial institutions into sustaining the demand for pesos. The banks were asking for an instrument to replace this bond since they did not like losing potential profits, being banks in the final analysis, not NGOs or foundations. Nevertheless, there was no agreement between the financial institutions and the economic team, which dug in between July 14 and 15, turning off the tap by sending interest rates soaring. The banks simply listened to JP Morgan and headed to the dollar, even paying a heavy price. Nothing to do with coups. Just 100 percent speculation, an indispensable ingredient for any capital market in countries with aspirations to develop. Nothing personal against Milei, Caputo, Bausilli and the rest of the economic team.

The President did not interpret it that way, continuing to place the banks and the main spokesmen of Argentine industrialists in the círculo rojo establishment which he has always fought, never understood and which at various points seeks to pressure him into decisions. Sometimes via the exchange rate, as recently. And at other times with other political or financial mechanisms such as the fiscal package which the Senate approved, Milei vetoed and now returns to debate in Congress.

The exchange rate onslaught was not the only recent brawl with the círculo rojo establishment. The government was displeased with the data of a stagnant demand for registered labour in the private sector despite the new mechanisms in the Bases II law to extend trial periods and reduce the consequences of labour litigation. According to the presidential reflection, businessmen had not taken advantage of the political effort made by the government at the start of the year to incorporate this chapter of labour reform into Bases II, thus complicating the social areas of the economic plan.

Nothing new really. Milei has mistrusted this círculo rojo establishment since April, 2023 when at the start of his presidential campaign he was invited to the Foro del Llao Llao, the imposing hotel built by Alejandro Bustillo in Bariloche, where once a year a select group of the most important businessmen in the country meet in a forum to reflect and hear out the politicians. Milei arrived in a suit as a winner, confronting such personalities as Eduardo Elsztain, Marcos Bulgheroni, Marcos Galperin, Carlos Miguens, Federico Braun and Martín Migoya. There he attempted for the first time some kind of explanation of his plans to dollarise and demolish the Central Bank, encountering, to his surprise, a chill reception as his narrative advanced and finally asked complicated questions about a key issue which remains current today: how to implement macro-economic exploits on that scale without political majorities in sight. From that moment, the country’s main businessmen (to whom he had given innumerable chats during almost a decade) were dubbed by the libertarian as part of “the caste” and, in consequence, enemies. And that’s what he did to the point of organising a counter-summit of IDEA while boycotting that traditional event in Mar del Plata in that electoral year.

Nothing improved after Milei reached the Casa Rosada. From the very first day he maintained that the country’s main businessmen producing food, beverages and items of mass consumption had betrayed his confidence and increased the prices of their products by calculating the value of the dollar at 2,000 pesos at April, 2024, and rising to 3,000 by midyear. Since that projection failed to happen, he blamed them for last year’s two runs on the currency in February and June. Milei suspects that in those days, much of that círculo rojo establishment followed a common practice in the times of hardcore Kirchnerism – anticipating future runs on the money by imposing speculative prices for the times ahead and saving their balance sheets in advance. This at some point was denominated “pricing punk,” a price strategy based on the criterion that there is no tomorrow and that if all can be gained is by speculating for worse times, better to do it as soon as possible.

In other words, those businessmen who calculated that level of devaluation with the inevitable inflation directly disbelieved Milei’s ability to have any kind of success in his presidency, or at least that was Milei’s personal experience. On seeing food prices rise more than the projected inflation with a tentative lowering now, the President felt deeply defrauded – far beyond the “no la ven (they just cannot see it),” as defined by Milei himself in public interviews. A real confirmation of something he always suspected and believed (and continues to believe) – that they do not trust him and act in consequence.

That made them part of the problem from the beginning of his presidency, almost a conspiracy – a punk conspiracy. He has felt the same way recently with another sector key to his economic policy. His personal decision to oblige the prepaid health schemes to roll back their pricing almost to the levels of his arrival in the Casa Rosada made him reflect hard on himself and his credibility over the ideological need to deregulate and free markets so that it is an invisible hand which balances prices.