The Essential Currency and Capital Controls for Javier Milei’s Administration
Javier Milei’s presidency continues to grapple with stringent currency and capital controls, which hinder foreign investment in Argentina. With an expiring $44 billion IMF deal, future bilateral negotiations depend on easing these restrictions. Current predictions indicate ongoing peso depreciation and concerns regarding inflation volatility ahead of the midterm elections. Investment forecasts for 2025 remain low amid rising deficits, reflecting the cautious atmosphere surrounding Argentina’s economic reforms.
More than a year into Javier Milei’s presidency, Argentina maintains strict capital controls that pose significant challenges for foreign investors seeking participation in its markets. While Milei has attempted some easing of these restrictions since his election, he demonstrates limited signs of swiftly dismantling these rules, which have been enforced for six years. Recent weeks have even seen a tightening of certain restrictions.
How and when Argentina will relax these controls is crucial for its ongoing discussions with the International Monetary Fund (IMF) regarding a new program to follow the current $44 billion agreement, which expires in December. Current futures pricing in the local Rofex market indicates that investors foresee continued depreciation of the peso, roughly at the one percent monthly rate established by the government—lower than the current inflation levels. Concerns have arisen that these restrictions may persist until the midterm elections, which Milei is expected to leverage for voter support.
According to Pilar Tavella, a strategist at Balanz Capital Valores, “The market is not pricing in the lifting of currency and capital controls before the elections.” The president’s previous success in enacting a suspension of primaries in August has influenced investor sentiment. As a result, foreign direct investment has dwindled, with Central Bank data showing inflows of only $89 million in 2024, which is the lowest level recorded since 2003. Additionally, private sector current account deficits have surged to $952 million, tripling from a September shortfall of $342 million.
In 2024, there were merely six significant foreign investments related to the RIGI program, aimed at attracting foreign capital through tax, customs, and exchange-rate incentives, each project under $10 billion. For 2025, financial institutions like Grupo Mariva predict only $1.4 billion in foreign investment, signalling continued investor hesitancy. Analysts assert that the government is unlikely to lift these controls until after the midterm elections, as it seeks to avoid possible inflationary volatility.
In early February, Milei asserted that currency controls would cease by January 1, 2026, hinting that their removal might proceed faster if the IMF dispenses new funds to Argentina, creating a classic scenario of intertwined responsibilities. The primary restrictions currently affecting investors include stringent cross-restriction rules for dollar purchases, mandatory dollar deposits in bank accounts, transaction limits on foreign securities purchases, requirements for asset holding duration, a cap on foreign currency purchases for personal savings, barriers on foreign dividend remittances, and delays in accessing dollars for imports.
Recent regulatory changes from the Central Bank prohibit banks from selling abroad corporate bonds bought with foreign capital and have adjusted time constraints affecting agricultural exporters. Furthermore, the Central Bank reduced the rate of peso depreciation, which has adversely affected exporters, who face a selling price lower than the inflation rate. During the first half of January alone, the Central Bank’s foreign reserve sales totaled $619 million, continuing their efforts to stabilize the exchange rate.
Concerns regarding potential significant peso depreciation loom large for Milei and investors, as it could escalate local prices and disrupt the current disinflation trajectory. Despite a reduction in annual inflation from 211 percent to 118 percent under Milei, Argentina’s net international reserves stay precariously low at approximately $28.7 billion, with net reserves reflecting a negative $4.5 billion after short-term liabilities are accounted for, based on Grupo Cohen’s analyses.
The persistence of Argentina’s strict capital controls under President Milei presents substantial obstacles for foreign investment as he navigates critical negotiations with the IMF. While Milei aims for a gradual phasing out of these restrictions by 2026, the immediate future appears clouded by upcoming elections and dire investment statistics. The continuing low levels of foreign direct investment and significant deficits underscore the challenges faced by Milei’s administration as it seeks to stabilize the Argentine economy amid inflationary pressures.
Original Source: www.batimes.com.ar
