Argentina’s banks load up on liquidity before weekend’s election

Argentine banks, taking nothing for granted in the run-up to this weekend’s presidential election, are loading up on the most liquid assets to ensure they could accommodate a potential surge in peso withdrawals.

No-one is forecasting a run on deposits in the aftermath of the vote pitting Economy Minister Sergio Massa against libertarian lawmaker Javier Milei — indeed, nothing of the sort happened after October’s first-round vote. But after being caught off-guard by a jump in demand ahead of that ballot, made worse by last-minute government restrictions that left piles of cash stranded at the country’s main airport, they want to be prepared.

Speculation is rampant in Argentina that a currency devaluation is all but inevitable in the days or weeks after the vote, so it’s possible savers will rush to pull their peso deposits to buy dollars on the black market ahead of the change. That’s especially true if the winner is Milei given his plan to scrap the peso and replace it with the dollar in a bid to tame inflation that’s running at more than 140 percent.

Argentine financial entities increased their holdings of one-day term notes in pesos (called “pases”) by 47 percent in the past month and a half, bringing it to the highest level in almost two years. Meanwhile, they cut holdings of 28-day term notes in pesos (Leliq) by 10 percent.

Banks had been forced to import dollars in September and October to cope with savers pulling from accounts denominated in that currency. The peso went into free-fall, dropping to 1,000 per dollar on the black market Argentines use to skirt controls.

The government allows savers to hold accounts in dollars, and many do so as a way to protect against inflation and a 90 percent drop in the value of the national currency over the past four years.

As things stand now, lenders feel they still have enough greenbacks on hand to meet any surge in demand, according to Andrés Borenstein, an economist at the Econviews consulting firm in Buenos Aires.

Argentines withdrew 4.5 percent of their savings in dollars and 10 percent of their savings in pesos in October, according to data from the Central Bank. But most of those withdrawals were in the early part of the month. After the October 22 first-round vote, peso and dollar deposits in the nation’s financial system stayed put.

Both Massa and Milei have shifted toward more centrist positions as the run-off vote approaches, which could also be bolstering confidence in the economy.

“We don’t know what the winner will do,” said Diego Chameides, the chief economist at Banco Galicia, Argentina’s largest private bank in terms of assets. “The uncertainty of policies that could be implemented by the two presidential candidates makes it preferable to have that extra liquidity.”