The Argentine peso has seen a significant strengthening in real terms compared to other currencies in 2024, which has boosted the popularity of libertarian President Javier Milei. However, economists are questioning the sustainability of high prices in Argentina due to this currency appreciation.
The peso has strengthened by 44.2% in the first 11 months of the year against a basket of trading partners’ currencies, after adjusting for Argentina’s triple-digit annual inflation. This outpaces the gain of the Turkish lira, which comes in second place at 21.2%.
The government-set exchange rate gains have also been reflected in legal and illegal parallel markets, where Argentines buy dollars due to restrictions on accessing the official rate. This trend has been well-received by the public, as average salaries have nearly doubled in dollar terms to $990 from December 2023 to October 2024 at the parallel rate.
However, maintaining a strong peso has led to challenges for Argentina’s central bank in rebuilding its hard currency reserves as it spends dollars to support the currency. Some analysts are concerned about the potential risks of a sudden devaluation, especially with the rapid depreciation of the Brazilian real and potential tariffs from the incoming US administration.
While Milei’s stabilizing efforts have been successful so far, the significant appreciation of the peso has raised concerns about the country’s competitiveness in exports. Business leaders worry that the strong peso could impact the competitiveness of Argentine products in the global market.
Milei’s approach to stabilizing the economy has included austerity measures and strict currency controls to prevent hyperinflation. Despite the benefits of a stronger currency, there are warnings about the risks of maintaining such a high valuation in the long term.
Overall, while the current exchange rate policies have been effective in the short term, there are concerns about the sustainability of a strong peso beyond the near future. The government’s ability to maintain this policy will be tested in 2025, especially in the face of potential external economic challenges.
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The country has never previously sustained a trade surplus — which it needs to replenish its hard currency reserves — with the peso at such strong levels, and Rapetti said the mining and energy boom would not be enough to tip the balance.
The real test for the peso will come when Milei lifts currency controls and floats the peso which he has pledged to do by the end of 2025.
Nicolás Dujovne, a former Argentine economy minister, said he believed a floating peso could stay near this strength thanks to growing confidence in the country and demand for its exports — but only if Milei could keep up the austerity drive that underpinned current market enthusiasm.
“With the stronger exchange rate, the fiscal reforms become more and more important, and [losing confidence] would be a bigger problem,” he added. “Every day the game we’re playing is more demanding.”