Argentina’s central bank is burning through its foreign reserves, unloading over $1.1 billion in just three days to prop up the peso as midterm elections on October 26 spark market turmoil.
The Banco Central de la República Argentina (BCRA) hit a six-year high on Friday, selling $678 million in a single day to keep the peso from breaching its managed exchange band.
Despite the effort, the official rate teetered at 1,475 pesos per dollar, while the informal “blue” market rate spiked to a record 1,520, down over 6% this week.
Political uncertainty and fading investor confidence are driving the crisis. President Javier Milei’s austerity measures, which slashed deficits and curbed inflation from triple digits to above 2% monthly, are under strain as Congress overrides vetoes to boost social spending.
This has fueled protests and capital flight, with Bloomberg reporting $1 billion in outflows over two days. Argentina’s country risk premium, per JPMorgan’s EMBI index, soared past 1,500 basis points, the highest since August 2024, raising default fears.
Economy Minister Luis Caputo vowed to sell “every last dollar” to defend the peso, calling the dollar rush a “political attack” during a Thursday livestream on Carajo.
President Milei, citing “panic” among savers, confirmed talks for a $3 billion to $5 billion U.S. loan to bolster reserves, though details remain unconfirmed. Gross reserves stand at $39.2 billion, down $200 million from Thursday, with net usable FX at a fragile $6 billion—enough for roughly nine more days like Friday, per BancTrust & Co.
The peso, tied to a 1% monthly “crawling peg” since early 2024, has been under pressure before. In March, the BCRA dumped $474 million in one day amid IMF talks, a session Adcap Asset Management called “one of the worst” under Milei.
Reserves have climbed from a negative $11.2 billion in 2023 but remain vulnerable. Analysts warn that the current burn rate could exhaust 70% of last April’s $20 billion IMF lifeline before election day, risking a shift in the exchange band.
Markets reflect the unease: Buenos Aires’ stock index fell 0.7% Friday, bonds dropped 9.2% weekly, and futures traders bet on a year-end rate of 1,630 pesos per dollar, far past the band’s 1,526 ceiling.
The official-parallel rate gap widened to 18%, reviving black-market trades.
Milei’s minority La Libertad Avanza bloc faces a tough election, with Peronist gains in Buenos Aires primaries—by 14 points—intensifying market jitters.
The Argentine Center for Economic Policy ties the peso’s slide to these losses, predicting a “transitional” forex regime through October. Still, Milei’s deficit cuts and potential U.S. aid offer hope, alongside tightened broker controls and Caputo’s pledge to service January debt.
In Argentina’s high-stakes economic gamble, defending the peso is a dollar-by-dollar battle for political survival.
