The Argentine peso closed 2024 as the currency with the highest appreciation in real terms in the world, thanks to the monetary policies of libertarian Javier Milei. Dubbed “superweight” by the press, Argentina’s currency registered an appreciation of 44.2% in the first 11 months of the year, according to data from the Bank for International Settlements (BIS) analyzed by Argentine consultancy GMA Capital. The performance is much better than that of the Turkish lira, which ranked second in the world, with 21.2%.
Defined by the government, the appreciation of the official exchange rate is being replicated in parallel markets (legal and illegal) in which Argentines buy dollars, since access to the official exchange rate is restricted to the population.
The strength of the peso is perceived by the population of Argentina as the prices of products in dollars soar in the domestic market. A Big Mac sandwich, for example, went from $3.80 a year ago to $7.90 today.
Argentines have approved the upward trend. Between December 2023 and October 2024, they saw their average salary in dollars almost double, after seven years of practically constant depreciation, reaching US$990 (R$6,133.45), at the parallel exchange rate.
“Public opinion is extremely sensitive to the dollar. A cheap dollar allows the middle class to travel abroad and creates a feeling of stability”, analyzes Lucas Romero, director of the consultancy Synopsis, to the British newspaper Financial Times (FT)adding that previous governments occasionally relied on a strong peso to gain an advantage during electoral periods.
The FT report published on Friday (27) attributed the current appreciation of the Argentine currency to “a side effect of Milei’s effort to stabilize an economy that was on the verge of hyperinflation when he took office a year ago”.
The British publication highlights that, along with a severe austerity program, Milei maintained the strict exchange controls he inherited, which guaranteed a practically stable peso in 2024. His policy focuses on increasing the country’s competitiveness through deregulation, tax reduction and improved access to credit.
The Argentine president also hopes that the shortage of foreign currency will be reduced in the coming years, as large investments in national reserves of lithium, shale and gas result in an increase in exports.
Challenges
Analysts interviewed by Financial Times warn that among the threats to maintaining the appreciation of the Argentine peso in 2025 are the rapid depreciation of the Brazilian real and a possible US tariff wave under the command of Donald Trump, considered an important ally by Milei. “If the new US administration imposes big tariffs on China, it will trigger a wave of devaluations in emerging markets,” Robin Brooks, a senior fellow at the think tank Brookings Institution, said on X this month.
Over the past 54 years, the average exchange rate in Argentina has been 1,510 pesos per dollar, in inflation-adjusted terms. Currently, the rate is 1,050 pesos per dollar, as analyzed for the FT by the director of Equilibra (an economic think tank in Buenos Aires), Martín Rapetti.
According to the analyst, the Milei government would “probably” be able to sustain its current exchange rate policy in 2025, with a recent tax amnesty leading to an influx of dollars into the economy. Still, Rapetti considers it “highly unlikely” that Argentina will sustain such a high weight beyond next year.
The acid test for the peso should happen when Milei suspends exchange controls and floats the currency, a measure that he promises to put into practice by the end of 2025.