The Argentine Government Under Javier Milei Begins a New Phase of Its Monetary Program
The Argentine government of Javier Milei this week began a new phase of its monetary program that addresses the main demand of international investors and the IMF: the accumulation of international reserves and, along with it, the modification of the exchange rate bands that keep the market under intervention. How far the change will go is the big question for analysts.
According to Adcap Grupo Financiero, in this new plan, which begins in January 2026, “the only missing piece is the elimination of the capital controls that still remain.”
Starting January 1, 2026, the exchange rate bands that set a ceiling for the dollar and the peso will be adjusted monthly in line with inflation data—an announcement that had an immediate impact on the local market, with a rise in the dollar’s exchange rate. In addition, bonds rose in international markets and country risk fell, a signal of approval from foreign investors.
Avoiding a Run on the Peso and a Sharp Devaluation
The projection of local economists is that by 2026, inflation in Argentina will be between 20% and 25%. The control of the fiscal deficit and income from exports should increase the inflow of dollars into the economy and thus help to raise the reserves of the Central Bank, providing ammunition for the government to support the peso—which it has been doing for two years—against the dollar.
With broad majorities in Congress, President Milei and his government are staying the course: avoiding a devaluation while progressively meeting their commitments to creditors and the IMF.
In their initial analysis, the experts at Banco Mariva are optimistic about the chances that this new plan will not lead to an increase in inflation, but with conditions: maintaining a budget surplus and a restrictive monetary policy.
“First, maintaining a budget surplus. This is because the elimination of deficit monetization and the stabilization of public debt would allow the demand for monetary liabilities to be met through the sale of private sector assets to the central bank, which would facilitate the accumulation of international reserves without inflationary pressures. Second, maintaining a restrictive monetary policy to avoid having to sterilize increases in the monetary base if the growth in money demand is lower than the central bank’s projections.”
The initial analyses show that the new phase of the Milei government’s plan will be a small but gradual change, a gesture toward international investors aimed at buying time.
Projections for International Reserves
Cohen’s first report on the change analyzes the evolution of reserves and their current state: “In the main scenario, the BCRA projects an increase in the monetary base from the current 4.2% to 4.8% of GDP by December 2026, consistent with reserve purchases of up to 10 billion dollars. No less relevant, the daily execution amount will be aligned with a participation of up to 5% of the traded volume, which currently stands at around 400 million dollars per day, to preserve the normal functioning of the market.”
On January 9, 2026, the Treasury will have to make principal and interest payments on Bonares (under Argentine law) and Globales (under foreign law) totaling approximately 4.2 billion dollars. It is estimated that the government’s reserves currently stand at around 1.5 billion dollars. To meet this challenge, the Milei government could resort to a bond-backed loan (REPO) with international banks. It also has in place the currency swap agreement signed with the U.S. Treasury.
