All the currency, capital controls Milei needs to end this year

More than a year after Javier Milei became president, strict exchange controls remain the biggest hurdle for foreign investors looking to allocate funds toward Argentine assets.

Milei has taken several steps to ease restrictions during his first year in office, but he entered 2025 with few indications that there will be a quick unwinding of the rules, which have been in place for six years. In fact, some restrictions have been tightened in recent weeks.

How and when Argentina lifts its controls will be key for the ongoing negotiations with the International Monetary Fund for a new programme to succeed the current US$44-billion deal, which is expiring in December.

Futures pricing in the local Rofex market indicates investors expect the peso’s depreciation to continue near the one percent monthly level set by the government peg, lower than current inflation readings. Investors fear that the restrictions could remain in place until the country’s midterm elections, in which Milei wants to gain more support from voters.

“The market is not pricing in the lifting of currency and capital controls before the elections,” said Pilar Tavella, a strategist at Balanz Capital Valores in Buenos Aires. Milei succeeded in getting Congress to suspend primaries in August before the official midterm vote in October.

Not surprisingly, there’s been a dearth of foreign direct investment, with inflows slowing to US$89 million in 2024 — the lowest since 2003, according to the Central Bank — and private sector current account deficits rising to US$952 million, a record for Milei’s term and triple the September shortfall of US$342 million.

There were only six major foreign investments in 2024 as part of a programme called RIGI, which provides tax, customs and exchange-rate incentives for 30 years. All of those had project volumes of less than US$10 billion each. For 2025, bankers expect US$1.4 billion in foreign investment, according to Grupo Mariva, a medium-sized financial institution in Buenos Aires.

It’s unlikely the government will lift the controls before the midterm elections because “it doesn’t want to play with fire: They don’t want inflation to become volatile or spiral out of control,” said Juan Carlos Barboza, Grupo Mariva’s head of research team.

Milei said in early February there will be no more controls as of January 1, 2026, indicating that he could speed up the removal if the IMF provides the country with fresh funds — a classic case of who goes first?

Laundry list

The main restrictions investors face today include:
– Cross-restriction rule: Investors are prohibited from buying dollars on the spot foreign exchange market 90 days before or after conducting legal foreign exchange transactions on the parallel market, known as MEP or CCL
– Mandatory bank accounts: Investors are obliged to deposit dollars obtained via the purchase or sale of securities in bank accounts
– Transaction limits: Foreign investors are limited to 200 million pesos — less than US$190,000 — per day for purchases and sales of securities and must give prior notification to the country’s Central Bank
– One-day parking: Investors are obliged to keep assets in their portfolio for an entire day before selling them in exchange for dollars
– Savings and expenses: The government imposes taxes and a maximum of US$200 on foreign currency purchases for savings purposes and on credit card payments abroad
– Dividends: The government prevents multinational companies from transferring dividends abroad
– Imports: The government has reduced time limits around accessing dollars, with importers now waiting an average of 30 days for payment, compared with 180 days before. Still, there is no immediate access to dollars

Easing or tightening?

New regulations issued last month by the Central Bank of Argentina prohibit banks from selling abroad corporate bonds purchased with dollars obtained in the capital market. Another more recent measure shortened the period during which agricultural exporters can sell their foreign currency if they want to benefit from an export tax cut of as much as seven percent.

The Central Bank also reduced the rate of peso depreciation to one percent from two percent per month, hurting exporters, who are forced to sell their dollars in the official market at a price that lags the rate of inflation, which is around 2.2 percent per month. To mitigate this, the government made significant tax cuts on some exports in January.

Since June, the Central Bank has increased sales of foreign reserves in an effort to prevent the parallel exchange rate from weakening further and widening the gap to the official rate. Sales amounted to US$619 million in the first half of January alone, totalling US$1.6 billion in the past six months.

Milei and investors fear that lifting controls could trigger a sharp depreciation in the peso. That in turn could drive up local prices and disrupt the ongoing disinflation process. Annual inflation fell to 118 percent from 211 percent during Milei’s first year in office, marking his primary achievement and a key factor for the upcoming midterm elections.

Argentina’s net international reserves remain low, hovering around US$28.7 billion, similar to when Milei took office. Net reserves, which discount the institution’s short-term liabilities, stand at minus US$4.5 billion, according to Grupo Cohen estimates.