Argentina’s Good News Marathon Continues

2024 closed with historic twin surpluses. Will reducing export taxes boost trade while putting pressure on fiscal performance? For now, the government has achieved a major success with its debt swap, confirming that the country is growing at an accelerated pace. Just a bit longer until the new currency anchor makes its debut—and possibly a new Monetary Policy Rate, too?

Dear ArgenGrowther,

Every week, we present the key data from the past week and delve into various aspects of our beloved Argentina to assess their impact, understand what's happening, and make better decisions. The newsletter is divided into four main sections:

1. Brief Reflection

2. Data

3. Understanding What's Happening in Detail

4. Actionable Items

Brief Reflection

The Argentine government remains firmly at the helm. The long-demanded reduction in export taxes has finally arrived, offering regional economies an opportunity to invest and grow. This move is being celebrated loudly. But it’s a different story for the agricultural sector—export taxes remain high. Producers and markets will soon deliver their verdict on this measure, expected to drive a greater influx of foreign currency from exporters.

Looking ahead, 2025 promises to be a very different game for a government shifting its focus away from tackling macroeconomic issues and inflation as its primary battles. With the country growing, the spotlight will turn to the Ministry of Deregulation and ARCA, which is expected to lead tax reduction efforts and cut red tape. These reforms aim to enhance competitiveness, attract investments, and ensure sustained growth.

Meanwhile, Javier Milei continues his international roadshow. The global spotlight remains on Argentina’s economic experiment, which increasingly earns trust. Could the midterm elections unlock large-scale foreign investment inflows?

Currency controls appear to be nearing their end, but the government is cautious, confidently setting the pace and direction. “Confidence” is now a keyword in discussions about Argentina. A country long associated with uncertainty now earns the trust of markets, businesses, and international observers.

Could Argentina become a top destination for doing business? Is the country closer than ever to proving it has truly changed? Today, the answer seems to be another “yes.”

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Is Argentina's Economic Shift Positive or Negative?

Spoiler alert: Positive growth. The Strong Peso is back in play during a week when the Central Bank did not purchase foreign currency. The Trade Balance gives us remarkable data, further reinforced by growth. More? Wages continue to recover, and the streets are enjoying a peaceful vacation.

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Understanding What’s Happening in Detail: Argentina’s Economic Landscape

Dollar and the Strong Peso: A New Phase

The reduction in export taxes made waves this week. After a volatile day, the Strong Peso gained ground, appreciating 10 pesos per dollar. With a lower crawling peg, reduced export taxes, and firm government control, the sentiment feels similar to the beginning of 2024—bold measures are setting the tone against market pressures.

Now, at 10%, the exchange rate gap may not last long. The Central Bank (BCRA) has recently been buying large volumes of dollars (though it paused this week), reinforcing the sterilization strategy under the zero-monetary-issuance policy. By January 16, the BCRA had already used USD 619 million for market interventions, with USD 325 million spent in December alone to sterilize pesos.

The reduction in export taxes brings much-needed relief to sectors battered by international price drops and heavy tax burdens. This adjustment in the export exchange rate is just the start of broader efforts to boost competitiveness for regional economies and agriculture.

Dollar futures reflected government strategy, adjusting sharply after the confirmation that the crawling peg would drop from 2% to 1%. Under Milei's administration, coverage has never been cheaper.

Rebuilding Public Accounts: Fiscal Risks and Opportunities

Tax reforms, including removing the "PAIS" tax and export tax cuts, signal bold moves but reduce government revenue. These measures represent a fiscal cost of 0.13% of GDP—a significant figure given the 2024 budgetary surplus of 0.3%. According to IARAF, this tax reduction accounts for 42% of the surplus.

The government must find alternative revenue sources to support Direct Real Investment while ensuring the primary surplus remains untouched. Flexibility in the financial surplus could be key, especially as January’s financial surplus is expected to fall short due to bond payments.

Central Bank of Argentina (BCRA): Expectations for Rate Cuts

The market eagerly anticipates a reduction in the Monetary Policy Rate (TPM). While the extent of the cut remains unknown, the focus continues on improving the BCRA’s balance sheet and securing fresh funds to push net reserves into positive territory.

Despite the challenges, including a USD 2 billion shortfall in IMF reserve targets, the Central Bank’s approach inspires confidence.

National Public Sector: Reforming Taxes for Growth

The government has made a pivotal move by reducing distortionary export taxes, a decision that aligns with its free-market principles. These changes represent a significant step toward fostering competitiveness and supporting the agricultural sector. The updated tax rates are as follows:

• Soybeans: reduced from 33% to 26%

• Derivatives (oil and flour): reduced from 31% to 24.5%

• Wheat: reduced from 12% to 9.5%

• Barley: reduced from 12% to 9.5%

• Sorghum: reduced from 12% to 9.5%

• Sunflower: reduced from 7% to 5.5%

However, these reductions come with conditions. To access these lower tax rates, exporters must liquidate their foreign currency earnings within 15 days of submitting their “sworn export sales declaration.” This policy is expected to accelerate the inflow of foreign currency, providing short-term liquidity for the economy.

Debt Auctions: Extending Debt Duration for Stability

The Argentine government successfully extended the maturity of its peso-denominated debt, achieving a significant milestone. Through a well-received debt swap, the government exchanged bonds maturing in 2025 for a basket of bonds maturing in 2026. The acceptance rate for this operation reached an impressive 64% of the total debt set to mature between May and November 2025.

This maneuver effectively cleared 14 trillion pesos in obligations originally scheduled for 2025, reallocating them to 2026. Consequently, the average life of peso debt maturities improved dramatically—from 0.54 years to 1.51 years.

In simpler terms, the government delayed payments, easing immediate fiscal pressures. This represents a significant victory, granting more room to maneuver on debt management and associated interest rates.

It’s important to recall that Javier Milei’s administration inherited a troubling scenario in which 70% of peso debt had a one-day duration. Nearly all debt obligations required daily rollovers, which was a precarious situation. By spreading payments over time, the administration has significantly improved financial stability.

High Interest Rates: A Double-Edged Sword

However, this success is accompanied by a challenge: the government pays relatively high interest rates on its debt, even in favorable economic developments. With the crawling peg reduced to 1%, inflation slowing, and a potential reduction in the Monetary Policy Rate (TPM) on the horizon, current TIREA rates of 29% to 30% appear elevated.

This explains the strong participation of private bondholders, who exchanged 53% of their holdings during the swap. Extending the duration and locking in a 30% TIREA for investors in fixed-rate instruments offers a highly attractive opportunity.

In perspective, the capitalization rate for the swapped debt previously averaged a 3.94% monthly effective rate (TEM). Following the debt swap, this rate dropped to 2.2% TEM for the new portfolio, a substantial improvement.

These rates are attractive to instruments like Lecaps and Boncaps, which remain highly appealing under current conditions. These instruments could deliver significant returns if the government’s economic strategy stays on course.

Economic Activity: Sustained Growth Across Sectors

Argentina’s economic recovery continues to gain momentum, with hard data reinforcing earlier signals from leading indicators. The country’s GDP grew by 0.9% in November 2024, confirming that the macroeconomic crisis is over.

Several sectors are driving this growth, with energy emerging as a key contributor. Beyond agriculture, the natural gas sector has experienced a record-breaking year. In 2024, Argentina produced over 50 billion cubic meters of natural gas, representing a 5.4% year-over-year increase. Vaca Muerta, the crown jewel of Argentina’s energy resources, accounted for 50.1% of this production.

Deregulation Boosts LPG Market and Exports

Recent government actions have deregulated the LPG market to align prices with international levels, free up bottlenecked loading points for distributors, and eliminate mandatory quotas for producers. These reforms are expected to strengthen the energy sector’s growth trajectory.

Meanwhile, reducing export taxes could boost the agricultural sector. Recent rainfall has also relieved farmers, improving prospects for an industry that remains a cornerstone of the economy.

According to the Ministry of Deregulation, the government is committed to fostering exports by removing bureaucratic obstacles. As the Minister put it:
"For exports, we’ve lifted all the burdens the Argentine state imposed on our food producers. From now on, we won’t demand anything from them. The state will only issue certificates required by importing countries, effectively ceasing to be an obstacle and instead becoming a facilitator."

2025 Growth Projections: Positive Momentum

Economic activity in November 2024 exceeded levels seen in the same month of 2023. The pace of recovery, when compared to Argentina’s most recent major crisis, is remarkable.

Looking ahead, preliminary data for December suggests that 2024 closed with 5.5% year-over-year growth. Month-over-month growth for December is estimated at 1%, setting a strong tone for 2025.

Argentina’s growth story continues to draw international attention. This week, Salesforce’s CEO announced a USD 500 million investment in Argentina, signaling confidence in the country’s economic transformation. Additionally, India has become one of the main buyers of YPF’s LNG, and the Río Negro liquefaction plant project is closer to becoming a reality.

Trade Balance: Historic Surplus Achieved

Argentina’s trade balance for 2024 has delivered record-breaking results, with a USD 18.899 billion trade surplus—the highest nominal surplus in the country’s history. December 2024 alone contributed USD 1.666 billion, extending Argentina’s streak to 13 consecutive months of trade surpluses.

One of the most significant contributors to this surplus is transforming the energy trade balance. For the first time in nearly twenty years, Argentina recorded no gas imports in December 2024, reflecting the increasing strength of the country’s energy sector.

Here’s how the numbers break down:

• Exports: USD 9.574 billion

• Imports: USD 3.742 billion

• Monthly surplus: USD 5.832 billion

These figures underscore Argentina’s growing ability to generate foreign currency and support its macroeconomic stability.

The Streets: Wages Outpace Inflation, Relief for Households

November 2024 marked the eighth consecutive month of wage recovery in Argentina. The wage index increased by 3.8%, outpacing the month’s 2.4% inflation rate. This trend has provided much-needed relief for households, particularly when wages are compared to the basic food basket, which remains more affordable.

However, not all household expenses have improved. Energy tariffs have substantially increased, covering over 90% of electricity costs. This adjustment represents the highest coverage level in recent years as the government reduces subsidies in line with its fiscal goals.

At the same time, the government continues to prioritize support for the most vulnerable populations. The Universal Child Allowance (AUH) has retained its purchasing power at constant prices, ensuring that social assistance programs remain effective.

Imported Goods: A Gradual Return to Normalcy

With the elimination of SIRAs (the import approval system) and the widespread deregulation of various sectors, distortions in the pricing of imported goods are beginning to be corrected. This has improved access to many imported products, benefiting consumers and businesses.

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Actionable: Opportunities for Investors and Stakeholders

This week marked a shift in focus from financial markets to the real economy as government actions took center stage. While Argentina’s country risk index continued to decline, bonds experienced some volatility and ended the week slightly down. Meanwhile, the Merval stock index rebounded, reflecting growing optimism.

The reduction in export taxes and the successful debt swap were well-received, setting a positive tone for the near term. The dollar’s recent rally faces new challenges, and the Strong Peso is well-positioned to counteract these pressures.

Shifting Yield Curves in the Peso Market

This week brought significant changes to the peso yield curve, with compressed rates across the board. Compared to the previous week:

• The negative slope in the short and medium segments of the curve became more pronounced.

• The entire curve shifted to lower levels, with monthly effective rates (TEMs) returning to levels seen two weeks ago.

For treasury managers and investors, CER instruments remain attractive, offering real returns above 5% annually. These instruments provide an excellent opportunity to secure positive returns while improving macroeconomic stability.

Hard-Dollar Bonds: Value Amid Pressure

The reduction in export taxes has added pressure to the government’s fiscal accounts but has not altered the broader investment outlook. Hard-dollar bonds continue to offer significant value.

The BoBoreal026 (BPY26) is an attractive option for those seeking shorter-term investments, offering approximately 7% annual returns in dollars. Longer-dated sovereign bonds yield above 10%, and the steady decline in Argentina’s country risk index suggests further price appreciation in the bond market.

However, it’s important to note that Argentine risk is not for all investors. While the potential returns are high, these instruments remain sensitive to economic and political developments.

Credit Rating Agencies: Recognizing Progress

Rating agencies are beginning to acknowledge Argentina’s progress. This week, Moody’s upgraded the country’s sovereign debt rating. While this change is minor in practical terms, it signals to international markets that Argentina is moving in the right direction.

If you’ve enjoyed this analysis, please share your thoughts, comments, and feedback. Let’s keep the conversation about Argentina’s transformation alive.

Nau Bernués
Founder, ArgenGrowth

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