Investors are increasingly wagering that Argentina will face a significant devaluation of its currency following the midterm elections scheduled for this weekend. This speculation persists despite a substantial $40 billion aid package extended to President Javier Milei, aimed at stabilizing the economy.
Current offshore trading activities indicate that the Argentine peso might depreciate by as much as 12 percent over the next three months. This scenario could jeopardize Milei’s ambitions to control inflation, which heavily relies on maintaining a stable currency—a critical component of his broader economic reform agenda.
The electoral stakes are high for Milei and his political faction, La Libertad Avanza. Analysts suggest that if the coalition fails to secure more than 35 percent of the vote, it will complicate Milei’s ability to rally support from opposition parties for essential tax and labor reforms in the latter half of his term. Currently, the country’s economic situation is precarious, having exhausted substantial foreign reserves despite receiving extensive assistance from the International Monetary Fund (IMF) and the United States.
Notable investment firms, including Pimco and BlackRock, hold significant stakes in Argentine bonds, although both firms have remained tight-lipped about their strategies amid the looming elections. With the potential for a currency drop, the repercussions may reverberate throughout international markets, particularly as concerns mount over Argentina’s history of defaulting on its foreign debt commitments.
U.S. Treasury Secretary Scott Bessent, who played a pivotal role in orchestrating the recent financial assistance, along with the IMF—who has committed over a third of its loan portfolio to Argentina—faces an uphill battle in stabilizing the region’s economy. Despite assurances from Argentina’s Economy Minister Luis Caputo that the current currency exchange regime would remain unchanged, investor sentiment now leans towards expectations of a shift post-election.
Market analysts, including Graham Stock from RBC Global Asset Management, foresee an imminent abandonment of the peso’s official trading band, which currently ties its value to the U.S. dollar. These circumstances are perceived as unsustainable, although changing course before the elections might convey to voters that the Milei administration’s economic plan is failing.
Investor anxiety has heightened after announcements from Argentina’s central bank and Bessent regarding a credit line worth up to $20 billion intended to facilitate currency swaps. However, the terms of this agreement remain opaque. In tandem, investors are awaiting specifics on Bessent’s additional promise of a $20 billion package aimed at supporting Argentina’s debt obligations through private capital.
The market for Argentina’s dollar bonds experienced a remarkable rally, climbing from lower than 30 cents on the dollar during Milei’s initial election to figures exceeding 80 cents for certain debts this year. Yet, setbacks—particularly a disheartening performance for Milei’s party in provincial elections last September—have rattled investor confidence, prompting a sell-off until U.S. intervention reshored some stability. Currently, debts maturing in 2029 and 2035 trade at approximately 76 cents and 56 cents respectively.
Compounding these issues, critics like Thierry Larose from asset manager Vontobel emphasize that the central bank has struggled to attract enough private dollar inflow to service and repay external debts, raising further alarm about the country’s financial health. As voters head to the polls this weekend, the implications of their choices could have lasting effects on Argentina’s economy and its standing in the global financial landscape.
