Argentina’s government blames local banks, big industry, and the establishment for the third currency run of its administration. Milei sees it as a political attack on his economic plan. Heidentifies his scapegoats for the turbulent conditions affecting monetary markets at the end of the month. In addition to the well-known “Kukas” (which are relatively straightforward to identify) and the recent criticism directed at Vice-President Victoria Villarruel, there exists another layer of accountability regarding the dollar’s 14 percent increase solely in July, marking the third currency crisis under the libertarian administration. Milei exhibits unwavering certainty.
There are banks conspiring, and it is not limited to financial institutions; according to the official narrative, members of the círculo rojo establishment are said to be lurking behind the scenes. Individuals who believe that the exchange rate is trailing, that Argentina lacks competitiveness, that domestic costs are decreasing at an insufficient pace, and that intervention in the exchange rate is essential to alter the current situation. Conversely, a dollar valued at approximately 1,380 or 1,400 pesos represents the peak exchange rate conducive to the functioning of the real economy in Argentina, as it renders imports more costly and enhances competitiveness relative to foreign rivals. To incite a direct response, all private negative forces converged on a unified demand for currency, initiating a chain reaction in the official exchange rate market and propelling the dollar into the upper half of the floating currency band, nearing a Champions League level of 1,450 pesos (the band ceiling as determined for August).
Milei articulated his position during the late Thursday night streaming session hosted 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,” stated the President. He further noted that banks must now operate “as banks” since the state has ceased injecting pesos into circulation to address the traditional fiscal deficit, which has led to increased anxiety among them and a tendency towards semi-coupmongering behaviors aimed at restoring the previous status quo.
A few hours earlier, Economy Minister Luis “Toto” Caputo and Central Bank Governor Santiago Bausilli were discussing this matter in a different streaming session, offering an alternative perspective. The minister indicated that the dollar appreciated due to the Economy Ministry’s purchases of dollars over the past five weeks, utilizing funds from the fiscal surplus, thereby increasing demand. A few minutes later, on the same programme, Bausilli discussed the acquisition of dollars by foreign banks, without identifying them as coup-mongers, in compliance with directives from their headquarters mandating them to secure positions in dollars for July. This followed the June 27 guidance from a well-informed source: the notable JP Morgan report advocating for a withdrawal from bonds and a reallocation to dollars until Argentina’s exchange rate and political uncertainties stabilize. That would occur subsequent to the midterm elections on October 26.
In essence, the events of last week may be more straightforward to elucidate, albeit highly technical in nature. The government has opted to discontinue its Lefi (Letras Fiscales de Liquidez) bonds, a financial instrument established last year by the Treasury to restore the balance of the Central Bank and manage the liquidity of the banking system. The government ultimately viewed them as a mechanism to exert pressure on local financial institutions to maintain the demand for pesos. The banks sought an alternative instrument to supplant this bond, as they were disinclined to forgo potential profits, being financial institutions ultimately focused on profit maximization rather than operating as non-profit organizations or foundations. Nonetheless, a consensus was not reached between the financial institutions and the economic team, which took a firm stance between July 14 and 15, resulting in a significant increase in interest rates. The banks adhered to the guidance of JP Morgan and gravitated towards the dollar, even at a significant cost. Unrelated to coups. Merely a complete conjecture, a crucial component for any capital market in nations with ambitions for growth. There are no personal grievances directed towards Milei, Caputo, Bausilli, and the remainder of the economic team.
The President maintained a different interpretation, persistently categorizing the banks and the primary representatives of Argentine industrialists within the círculo rojo establishment, a group he has consistently opposed, never comprehended, and which at various junctures attempts to exert pressure on him regarding his decisions. Occasionally through the fluctuations in the exchange rate, as observed recently. At other times, various political or financial mechanisms have been employed, such as the fiscal package approved by the Senate, which Milei vetoed and is now set to return for further debate in Congress.
The recent turmoil in exchange rates was merely one aspect of the ongoing conflict with the círculo rojo establishment. The government expressed dissatisfaction with the data indicating stagnant demand for registered labor in the private sector, despite the implementation of new mechanisms in the Bases II law aimed at extending trial periods and mitigating the repercussions of labor litigation. The presidential reflection indicates that businessmen failed to capitalize on the government’s political initiative at the beginning of the year to integrate this chapter of labor reform into Bases II, thereby complicating the social dimensions of the economic plan.
No significant developments to report. Milei has expressed skepticism towards the círculo rojo establishment since April 2023, when he was invited to the Foro del Llao Llao at the onset of his presidential campaign. This prestigious hotel, constructed by Alejandro Bustillo in Bariloche, serves as the annual gathering place for a select group of the nation’s most influential businessmen, who convene to reflect and engage with politicians. Milei arrived in a suit, embodying the essence of a victor, as he faced prominent figures including 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 faced 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 principal businessmen, with whom he had engaged in countless discussions over nearly a decade, were labeled by the libertarian as members of “the caste” and, consequently, adversaries. He organized a counter-summit of IDEA, deliberately boycotting the traditional event in Mar del Plata during that electoral year.
No advancements have been observed following Milei’s ascension to the Casa Rosada. From the outset, he asserted that the principal entrepreneurs in the sectors of food, beverages, and mass consumption had violated his trust, subsequently inflating their prices by pegging the dollar’s value at 2,000 pesos in April 2024, with projections of a rise to 3,000 by midyear. Given that the forecast did not materialize, he attributed responsibility to them for the two currency fluctuations observed last year in February and June. Milei posits that during that period, a significant portion of the círculo rojo establishment engaged in a prevalent strategy characteristic of the era of stringent Kirchnerism—preemptively adjusting prices in anticipation of future currency runs, thereby safeguarding their financial positions ahead of time. This was once referred to as “pricing punk,” a pricing strategy grounded in the notion that there is no tomorrow. If the only option is to speculate for worse times, it is preferable to act promptly.
In essence, the businessmen who assessed the extent of devaluation alongside the unavoidable inflation fundamentally doubted Milei’s capacity to achieve any measure of success during his presidency, or at least that was Milei’s own observation. Upon observing that food prices have increased beyond the anticipated inflation rates, with a slight decrease now, the President expressed a profound sense of betrayal—well beyond the “no la ven (they just cannot see it),” as articulated by Milei in various public discussions. A definitive validation of a long-held suspicion and belief – that there exists a lack of trust towards him, which is reflected in their actions. That positioned them as contributors to the issue from the onset of his presidency, bordering on a collusion – a rebellious collusion. He has experienced similar sentiments lately regarding another sector crucial to his economic strategy. His personal decision to compel the prepaid health schemes to revert their pricing nearly to the levels present upon his entry into the Casa Rosada prompted a deep reflection on his own credibility regarding the ideological necessity of deregulation and market freedom, allowing an invisible hand to equilibrate prices.