Milei retained the controversial exchange rate system with a so-called “crawling peg" which, up until Monday, had prevented the peso from falling more than 1% against the dollar per month.
“It was a way to keep the dollar in check so that a depreciation wouldn’t spill over into prices,” Carlos Pagni, a prominent political columnist, wrote Tuesday in Argentina's La Nación newspaper. “From a political perspective, Milei’s government made a commitment to a single issue — reducing inflation. This is the way to win votes, retain power, and eventually increase it."
Why release ‘the trap’ now?
The peso's artificial peg to the dollar had become increasingly expensive for the central bank to defend — since mid-March, it hemorrhaged some $2.5 billion.
“Maintaining that pattern increased Argentina’s vulnerability,” said Ignacio Labaqui, a senior analyst at risk consultancy Medley Global Advisors. “It no longer served as an anchor against inflation and it wasn't good for accumulating reserves.”
To prevent a possible run on the peso after scrapping the controls, Milei had to replenish the central bank's precariously low reserves. Despite the IMF's reluctance to increase exposure to
its biggest debtor, Milei scored major new lines of credit after months of negotiations — an upfront $12 billion Tuesday from the IMF, billions more from multilateral banks and a
$5 billion credit swap line with China. (a Reuters article today says Argentina is set to receive $28 billion in 2025 alone)