It has now been a month since the government lifted the currency controls which have dominated (many would say restricted) the Argentina economy for more than a decade.
Announcing the end of the “cepo cambiario” (“exchange control”), President Milei declared: “We’ve removed the last thorn which has been causing us deep pain, which was an aberration that should never have existed.”
He added: “Today we are freer. Today there is no longer an ‘official dollar’, there is only one dollar, which is the market dollar.”
As I write, his words do indeed seem to ring true: the official dollar stands at 1,158 pesos, the blue is at 1,165, and the MEP (the rate you get using your foreign bank card) is at 1,149.
Despite its libertarian philosophy the government has retained the 30% charge on Argentine bank cards used outside the country, in an attempt to stop the flow of tourists overseas.
Those lucky locals who had money in their pockets went abroad for their summer holidays in January and February, as the beaches of Brazil work out cheaper than Mar del Plata (and to be honest, they much more appealing: think Cannes rather than the Costa del Sol).
As the peso has stabilised and even strengthened, the cost of living in Argentina has soared compared to that of our neighbours in Bolivia, Chile and Brazil, as I reported in my last blog of 2024.
As anyone who has had a holiday in Argentina over the last decade and a half will know, the economy has been underpinned by the dollar because of the eternal instability of the Argentine peso.
Those with extra cash at the end of the month would convert their pesos into dollars: the traditional means by which locals would save to send their kids to school or university, to buy a house or a car… while most of the population were just scrimping to get by.
The cepo cambiario was introduced in 2011 towards the end of the first period of populist Peronist Cristina Fernández de Kirchner’s government, in an attempt to stop the flight of capital and put a brake on the value of the dollar, thus controlling inflation, at a time when the official dollar was 4.7, the blue at 6.4.
The following year, the government imposed charges on the use of Argentine bank cards abroad (because crafty Argentines, adaptable as they are, realised they could travel out of the country for a cheap holiday by being charged at the official rate).
By the end of 2015, when Cristina’s successor Daniel Scioli lost to Mauricio Macri in the Presidential stakes, the official dollar was 9.8, and the blue 14. (Just take a while to think about those figures, only a decade ago… and shed a tear for Argentina.)
Macri initially lifted the cepo and achieved a fairly stable economy, cutting back services in similar ways to what Milei has done.
But as many free market libertarians have discovered, if the public has no money to spend the economy shrinks….
When the August primaries of 2019 indicated he would fail to win re-election, Macri slapped the cepo back on and started throwing money at the problem.
He duly lost to Alberto Fernandez, (no relation to Cristina, though she was his Vice President and some would say puppet master during his 2019 to 2023 government).
When Macri handed the mantle to Alberto in December 2019, the official dollar was 60, the blue at 68.
There followed arguably the most disastrous Presidency since Fernando de la Rua, who fled the country by helicopter after the 2001 financial crisis, and the parallel economy really exploded.
By mid-term in December 2021, the official had risen to 103 pesos to the US$, the blue to 204.
Only the Lebanese pound devalued more than the peso during 2023, while inflation topped 211%, higher than Venezuela.
In 2024, inflation cooled to 117.8%: not something to be celebrated in most countries, but good news for Argentina (most of that inflation was incurred during the early months of the Milei government: since May 2024, monthly inflation has always been less than 5%).
The cepo actually had the reverse effect of what was intended: creating a brutal parallel economy, driving up the value of the blue dollar, and actually limiting the entry of new investment: foriegn companies wouldn’t invest in such an unstable economy, unsure of when or if they could ever get their money out again.
And it didn’t prevent the flight of capital: there’s an estimated US$271,247 billion held outside the formal economy, according to Argentina’s national statistics bureau.
Economist Juan Valerdi warns that the government “needs liquidity in the economy, but if it prints money, it fears people will run for the dollar rather than boost economic activity.”
I’m not an economist myself, but living in Argentina I do feel there is a new mood of confidence in the stability of the peso, and though prices are high hopefully that will settle down by the end of the year, when Milei will be halfway through his term.
Mid-term elections are starting across the country, and crucially in Buenos Aires city, and Milei’s party has strengthened its position.
Macri has been firmly consigned to third place (or worse), while the Peronists, returning as the official opposition, don’t even have an obvious Presidential candidate for 2027.
There was a strikingly low turnout in BA (less than 50% even though voting is compulsory), perhaps reflecting a feeling that while many people may not fully buy into Milei’s project, in the words of one of his heroes Margaret Thatcher, they grudgingly feel that “There is no alternative.”
Here are handy links to all my other blue dollar articles (six in total):
- What’s a blue dollar? February 2022.
- How much does a dollar cost in Argentina? November 2022.
- The unstoppable rise of the blue dollar October 2023.
- Don’t cry for the blue dollar just yet August 2024.
- Could this be the death of the blue dollar? January 2024.
- How expensive will it be to visit Argentina in 2025? December 2024.
