Argentina must aim to let the peso float, says Rodríguez Larreta

Argentina’s next government needs to unwind currency controls and let the exchange rate trade freely, according to Buenos Aires City Mayor Horacio Rodríguez Larreta, one of the main opposition leaders seen as a likely presidential contender next year.

“You have to aim for that,” Rodríguez Larreta said in an interview on the sidelines of the C40 World Mayors Summit in Buenos Aires. “What you have to do and how fast depends on the situation. You’d have to see how much foreign reserves the Central Bank has when you take over. Today it’s practically zero.”

Under pressure by dwindling international reserves, Argentina has been implementing a cobweb of currency controls and different exchange rates under the government of President Alberto Fernández, who took power in late 2019. The approach led to about a dozen different rates overlapping, increasing the bureaucracy for companies and consumers and reducing the incentive for foreign investors to bring dollars into the country.

A free-floating rate, as proposed by Rodríguez Larreta, would be a reversal of the strategy, which failed to cool annual inflation heading toward 100 percent but helped prevent a damaging devaluation. Argentina had multiple exchange rates for several periods of its history, as the wide use of the US dollar in day-to-day transactions makes the free-floating of its currency more prone to volatility.

Rodríguez Larreta is one of Argentina’s top opposition leaders and polls show him as one of the front-runners ahead of the October 2023 presidential election. While he wouldn’t confirm his candidacy during the interview or say when he might decide, He spoke with a presidential tone about fixing the economy, by far the main concern of Argentines.

“The first message to calm inflation is political before economic,” Rodríguez Larreta told Bloomberg News. Politically, the next government must “achieve an agreement broader than what’s needed to win an election. Broader doesn’t mean unanimous, but yes broader – without that there’s no economic recipe that’d work.”

Other comments by the City mayor:

– On economic plans in next government:
“It definitely has to involve a quick stabilisation plan – quick means that you have to outline it quickly and clearly, it doesn’t necessarily mean all measures have to be taken quickly.”

– On economic policies:
“The fine print details are going to be defined according to the situation that we’d receive in December of next year. Today you can’t write the fine print if you don’t know if you’re going to get a country with 100 percent inflation, 50 percent inflation or 200 percent”

– On whether Fernández is likely to finish his term in December 2023:
“Make it to the end of the mandate, yes. They’ll end badly like they are today. 100 percent inflation, it’s a disaster. I don’t see a way that inflation improves a lot because there’s no plan to improve it, but he has to finish his mandate.”