Argentina’s Treasury announced plans to intervene in the currency market as the nation’s assets decline, reflecting a series of political and economic challenges faced by President Javier Milei in the lead-up to a crucial vote on Sunday. The decision marks a departure from a government that has consistently lauded the peso’s ability to float freely within designated bands, occurring after several weeks of attempts to stabilize the weakened exchange rate.
Authorities elevated interest rates to manage public debt more effectively, consistently adjusted reserve requirements, and imposed stricter foreign exchange restrictions on banks. Finance Secretary Pablo Quirno stated on his X account Tuesday that the Treasury will engage in the FX market to enhance its “liquidity and normal functioning.” Sovereign notes experienced a decline across the curve, with securities maturing in 2035 falling by 1.6 cents on the dollar, reaching their lowest levels since April, as indicated by pricing data compiled by Bloomberg. The currency experienced a decline of 1.6 percent, recovering from earlier losses that reached 2.8 percent relative to Friday’s close, as trading activity picked up following the liquidity drain caused by the US holiday on Monday. The government faces challenges in alleviating pressure on the currency while simultaneously addressing corruption allegations in the lead-up to the regional election in Buenos Aires Province on September 7.
A bribery scandal involving Milei’s sister, Karina Milei, is generating apprehension regarding the president’s reputation, as a judge intervened on Monday to prevent journalists from disseminating potentially damaging audio recordings, following a complaint lodged by the administration. The recent upheaval illustrates the fragility of investor confidence, occurring merely 18 months into the Milei Presidency, as noted by Walter Stoeppelwerth, chief investment officer at local brokerage Grit Capital Group, in a report on Tuesday. “A significant number of investors are interpreting this electoral period as an assessment of President Milei’s effectiveness during the initial two years of his administration.” Another setback for Milei’s administration arose from the local election in Corrientes Province on Sunday, where the government-backed candidate secured a fourth-place finish. The underperformance substantiated concerns that Milei’s approach of contesting local elections independently, without forging alliances, may indeed prove counterproductive.
Currently, focus is shifting towards the upcoming vote on Sunday in Buenos Aires Province, a region that constitutes almost 40 percent of the national population and has a historical tendency to support the opposition Peronist movement. Investors are interpreting this as a significant indicator of the forthcoming developments in October, when the entire Argentine electorate will participate in the elections to refresh a substantial portion of Congress. Strategists at Morgan Stanley view elections as a short-term obstacle for the economy, reforms, and the market; however, they still identify appealing valuations, as the ongoing momentum for reform appears not to be fully reflected in pricing.