Argentina has lifted its exchange rate cap as part of an economic strategy under President Javier Milei, backed by millions in loans from the IMF and other financial institutions. A floating exchange rate will be implemented, potentially leading to immediate devaluation and inflation. Experts are divided on the long-term effects, with concerns about the economy’s stability and rising external debt.
Argentina has launched a significant economic strategy by lifting the cap on its exchange rate under President Javier Milei. This decision follows substantial loans from the International Monetary Fund (IMF) and other financial institutions, introducing a floating exchange rate effective next week. The new regime will operate with minimal central bank intervention as long as the peso remains below 1,400 per dollar, potentially leading to immediate devaluation and inflationary pressures.
The central bank has experienced significant losses in reserves, dropping nearly 4.9 billion dollars in 2025 and closing with about 24.7 billion dollars recently. Private analysts suggest net reserves could be even more concerning at negative 9.5 billion dollars. The government’s strategy is bolstered by 20 billion dollars from the IMF, alongside additional funding from the World Bank (12 billion dollars) and the Inter-American Development Bank (10 billion dollars).
With this infusion of reserves, Argentina is poised to implement a floating exchange rate that is expected to lead to corrections in the official rate. As public prices for the dollar reached 1,097.50 pesos, economists predict an increase in inflation following the adjustments. The government anticipates this measure will cause a surge in inflation, which was recorded at 3.7% for March. Experts warn of a possible economic shock but recognize potential long-term benefits if managed correctly.
Some economists express skepticism about this new exchange scheme. While Leonardo Piazza from LP Consulting views it as a necessary bold move, economist Pablo Tigani from Fundación Esperanza points to the risky implications of currency freedoms. He cautions that this approach could lead to uncontrolled inflation and excessive reliance on foreign currency, exacerbating Argentina’s already significant external debt of 276 billion dollars, with 41 billion held by the IMF.
The lifting of the exchange rate cap in Argentina marks a critical shift in the country’s economic policy amidst dwindling foreign reserves and inflationary pressures. While the IMF loans provide necessary short-term relief, experts warn of substantial risks associated with potential inflation and currency volatility. Long-term effects remain uncertain, as the new floating exchange rate system could stabilize the economy or lead to further instability depending on government actions and market responses.
Original Source: efe.com
