President Javier Milei’s government said it’s planning to swoop in to prop up the nation’s currency as a widening political scandal shakes investor confidence and threatens to deliver him a setback in next month’s legislative elections.
The decision, which marks a shift for a government that has championed free-market economics and allowing the peso to float within established bands, is the latest bid to halt a selloff that has rattled its financial markets.
As investors pulled back from Argentine assets, the government has taken several steps to try to halt the peso’s slide, including imposing liquidity restrictions on banks and paying interest rates of as much as 76 percent to persuade investors to roll over maturing government debt. Yet none of that took the pressure off the peso, which continued to drop on Tuesday despite the government’s plans to intervene.
Bond prices also fell, with notes due in 2035 down by almost two cents to 61 cents on the US dollar, the lowest since April, according to pricing data compiled by Bloomberg.
The declines reflect increasing investor concern about Milei’s ability to continue pushing through reforms. That’s in part due to reports of a bribery scandal surrounding Milei’s sister that’s tarnishing him ahead of a key local vote Sunday in Buenos Aires Province, which is seen by investors as a bellwether for national midterms on October 26.
It’s “an example of the fragility of investor confidence,” Walter Stoeppelwerth, chief investment officer at local brokerage Grit Capital Group, wrote in a report on Tuesday. “Most investors are viewing this election cycle as a referendum on President Milei’s performance in the first two years of his term.”
The movements mark a stark shift for Milei, a libertarian economist who took office in December 2023 and drew global attention for deep spending cuts and reforms aimed at rejuvenating an economy that’s been mired in crises for decades. That fuelled optimism across markets, pushing bond and stock prices higher.
But the government recently has been battered by challenges in Congress and a public outcry over the reports of possible corruption. While a judge blocked journalists on Monday from releasing damaging audio recordings, it has tarnished his standing with voters heading into next month’s elections.
Local elections that are seen as a harbinger of the legislative races have reinforced concerns that the president may be dealt a setback. On Sunday, the government-backed candidate finished in fourth place in a local election in the Corrientes Province.
Attention is now shifting to the upcoming vote in Buenos Aires Province, which makes up nearly 40 percent of the country’s population and has consistently voted for the opposition Peronist movement. It’s being seen by investors as a key signal of what’s to come in October, when all of Argentina heads to the polls to renew a large chunk of Congress.
On Tuesday, Secretary of Finance Pablo Quirno surprised markets by posting on his X account that the Treasury will wade into the foreign-exchange market to contribute to its “liquidity and normal functioning.” The move failed to halt the drop in the peso, which was down 1.6 percent Tuesday.
The decision deepens investors concerns about the country’s ability to raise international reserves before payments are due on dollar-denominated bonds in January. Argentina’s Treasury holds US$1.7 billion in foreign-currency deposits it can tap to prop up the currency market, down nearly US$300 million since August 11, according to the Central Bank.
However, expectations are that the government’s interventions are likely to prove brief and are aimed at shoring up financial markets ahead of the coming elections.
“Today’s move is a new chapter in the strategy they’ve been implementing — increasing reserve requirements and intervening in futures to keep FX below the upper band,” said Pedro Siaba Serrate, Head of Research & Strategy of PPI Argentina. “It naturally has a temporary objective until the midterms.”
by Nicolle Yapur & Ignacio Olivera Doll, Bloomberg
