Argentina’s peso plunges as Javier Milei touts dollarisation

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Argentina’s peso has tumbled against the dollar as voters and markets brace for a possible victory by Javier Milei, a radical rightwing economist who wants to dollarise the economy, in elections on October 22.

Argentina’s official exchange rate has been fixed at 365 pesos to the dollar since August. But on Monday its black market exchange houses — where Argentines go to convert their savings into dollars — were charging 945 pesos a greenback, a 7.4 per cent increase from Friday.

The gap between the official and unofficial rates has widened to 165 per cent, the largest on record.

The peso has already lost 71 per cent of its value against the dollar on parallel exchange markets over the past 12 months amid Argentina’s worst economic crisis in two decades. Annual inflation hit 124 per cent in August.

Analysts said a strong poll performance by Milei, who has made scrapping the peso to stamp out inflation a central part of his presidential campaign, had increased the pressure on the exchange rate. Milei’s libertarian Libertad Avanza is leading in the polls, followed by the ruling centre-left Peronist coalition and centre-right opposition Juntos por el Cambio.

In a radio interview on Monday, Milei advised Argentines against keeping their savings in investment instruments denominated in pesos.

“Never in pesos, never in pesos,” he said. “The peso is a currency emitted by Argentine politicians, so it can’t be worth excrement, because those pieces of trash don’t even work as fertilisers.”

About 13.6tn pesos were currently held in term deposits, said Amilcar Collante, an economist at La Plata national university.

“Those pesos are currently contained by the system, but if people hear Milei say ‘after the election we are going to dollarise, so get rid of them’, that generates more demand for dollars,” he added. “What might work well for him electorally is very harmful for market expectations.”

Argentina’s government has ploughed billions of dollars of its foreign currency reserves into legal parallel exchange markets this year to prop up the peso, with about $1bn spent in September.

But with the central bank now out of firepower — its reserves excluding liabilities are about $5bn in the red — the government has been forced to ease interventions, according to Fernando Marull, founder of Buenos Aires-based economic consultancy FMyA.

“The pressure was so great that what they were doing was no longer working, so they have stopped,” Marull said.

He added that the pressure on the exchange rate was unlikely to let up before the election. If polls are borne out, what happens after will depend partly on Milei’s attitude towards the peso.

“If he [moderates] his statements, we may be able to anchor the peso. If he keeps telling people to get rid of them, it loses all anchors.”