Breaking the Mold: Argentina's Drastic Currency Devaluation

Argentina's bold economic reforms continue as President Javier Milei devalued the peso by a staggering 54%, pushing the official exchange rate from $366.5 to $800 pesos per US dollar. This drastic move is part of Milei's commitment to implementing radical policy changes to revitalize the struggling economy and break free from its constant fiscal deficits.

Argentinean Peso (source: tradingeconomics.com)

To address these challenges, Argentina’s central bank will now aim for a monthly devaluation of 2% of the Argentinian peso. Below are the measures Milei has taken to achieve this.

Measures taken:

• Currency: An unexpected devaluation of the peso to AR$800, instead of the expected AR$650-700.

• Import Taxes: Increased from 7.5% to 17.5%, alongside the termination of the import authorization program

• Export Taxes: Introduction of a 15% tax on non-agricultural exports. Exporters are allowed to sell 80% of earnings through the official FX market and 20% through the blue-chip swap

Overall, Milei's administration is gearing up for a challenging period, with soaring inflation coming in at 160.9% in November 2023. Milei warned of 20-40% stagflation per month for the coming months while he initiates these changes. Nevertheless, the International Monetary Fund (IMF) has praised Argentina's bold initial actions foreseeing their potential to “stabilize the economy and set the basis for more sustainable and private-sector led growth”.

Argentinean Inflation Rate (source: tradingeconomics.com)

As the economic changes in Argentina continue our team will closely monitor these developments. Rest assured, we are committed to keeping you informed of any updates that may have an impact on your individual circumstances.

For a more detailed understanding or to address any specific inquiries, feel free to reach out to us at 604-643-0101 or at cashgroup@cgf.com.