Javier Milei’s presidency faces hurdles due to persistent exchange controls that deter foreign investment. Despite easing efforts, strict regulations remain as the country prepares for midterm elections. Investment inflows have plummeted, and negotiations with the IMF hinge on the removal of these controls. The restrictions include transaction limits, mandatory bank accounts, and currency purchase restrictions. Recent measures have further tightened regulations, affecting economic dynamics and reserves.
Javier Milei’s presidency has seen persistent exchange controls that continue to deter foreign investment in Argentina. Despite efforts to ease these restrictions, many remain unchanged as Milei navigates the political landscape leading into 2025. Investors are increasingly concerned that these controls will persist until the midterm elections, especially after recent changes have tightened regulations further.
Negotiations with the International Monetary Fund (IMF) for a new program are contingent on lifting these controls, which have been implemented for six years and set to expire under the current $44 billion deal by December. Futures pricing in the local Rofex market predicts the Argentine peso will depreciate at a government-set rate, which is lower than current inflation rates.
Investment inflows have significantly slowed, reaching only $89 million in 2024, the lowest in two decades. Current account deficits are also rising, reaching $952 million, three times that of September. Only six significant foreign investments occurred in 2024, all under a tax incentive program, with expectations for a mere $1.4 billion in foreign investment for 2025.
The likelihood of controls being lifted before the midterm elections appears slim. The government is cautious of allowing inflation to spiral out of control, leading to a reluctance to adjust controls to avoid volatility. Milei indicated that all controls would be removed by January 1, 2026, depending on receiving new funds from the IMF, posing a dilemma for both parties.
The primary restrictions facing investors today include:
1. Cross-restriction Rule: Investors can’t buy dollars for 90 days around parallel market transactions.
2. Mandatory Bank Accounts: Investors must deposit dollars from securities transactions in bank accounts.
3. Transaction Limits: Purchases and sales by foreign investors are capped at 200 million pesos daily, with prior notice to the Central Bank.
4. One-day Parking: Assets must be held for one day prior to dollar conversion.
5. Savings and Expenses: Foreign currency purchases for savings are taxed, with a maximum of $200.
6. Dividends: Multinational companies cannot transfer dividends abroad.
7. Imports: Importers experience reduced dollar access time but lack immediate funds.
Recent Central Bank regulations have tightened controls further by restricting banks from selling corporate bonds internationally and reducing the sale period for agricultural exporters. Additionally, peso depreciation rates have slowed, impacting exporters negatively. The Central Bank has been selling reserves to manage the parallel exchange rate, preserving the official rates.
Fears remain that lifting currency controls could lead to a rapid depreciation of the peso, causing inflation to rise again amidst ongoing disinflation efforts, which saw annual inflation drop from 211% to 118% during Milei’s tenure. Argentina’s net international reserves are low, hovering around $28.7 billion, continuing to pose challenges in the economic landscape.
In conclusion, Javier Milei’s administration faces significant challenges in lifting currency and capital controls that hinder foreign investment into Argentina. Despite potential plans to remove restrictions, the uncertainty around political dynamics, investor appetite, and the ongoing negotiations with the IMF complicate the path forward. As Argentina navigates its economic hurdles, close attention will be needed to developments in both currency policies and investor confidence.
Original Source: batimes.com.ar
