Argentina is all or nothing. Just a few weeks ago, the country seemed to be on the edge, and today, the market buys anything light blue and white. There's strong celebration because economic activity is starting to pick up, and we're climbing out of the hole. Additionally, today, the import exchange rate will drop by 10%.

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1. Data

2. Understanding What's Happening in Detail

3. Actionable Items

4. Brief Reflection

Financial ArgenGuide:

#data

What does all this mean?

Positive or negative? Spoiler alert: Go Argentina! It's one of the best weeks of the year for Argentine assets. The Treasury places debt for one year, and the RIGI shows no signs of slowing down. Still, they keep moving the goalposts for lifting the currency controls, and the country won’t seek debt refinancing until January 2026. Will it be enough?

Understanding What's Happening in Detail 

Dollar and the Strong Peso. Another week of appreciation for the strong peso, which will face new downward pressure after it was finally confirmed that the PAIS tax will drop by 10% tomorrow. With an import exchange rate with a surcharge of only 7.5%, will the gap we’ve seen between the MEP and the import exchange rate remain?

The peso will remain strong, and the government will continue to outmaneuver the market. According to BCRA data, USD 326 million was allocated to secondary market sales in July.

Interest rates are converging, although there’s still some way to go before the planned 2% monthly devaluation. It seems there will be currency controls for a while.

From the BCRA’s side, we’ll see how the drop in the import exchange rate impacts currency purchases. This week, we saw a total sales balance due to the Province of Buenos Aires's demand for dollars to pay its debt, resulting in a selling Friday for the BCRA of 238 million dollars.

Remember that seasonality plus the quota system will put much pressure on currency accumulation in the coming months. Don’t be surprised to see a Central Bank with a more frequent negative balance.

Each passing week, the probabilities of the MEP converging with the official rate increase. A government that shows strength and a market that starts to buy into it indicate this. At the same time, we believe the country's competitiveness gains will come from a tax cut, not from devaluation.

Recomposition of Public Accounts

Did the government let a chart slip, and they realized it too late? A few editions ago, we wrote that Milei mentioned that for lifting the currency controls, it was necessary for BM = BMA (Monetary Base = Broad Monetary Base). In a presentation in New York, the government showed that this would only be achieved in December 2026. Currency controls for a long time.

The government is strongly betting on a tax amnesty that, according to them, is not for revenue purposes. This week, the Ministry of Economy started a streaming cycle, where the main MECON leaders have been asked various questions about tax amnesty, foreign trade, and more. You can watch the first edition:

Although it’s a new communication mechanism, we see favorable points in their effort to communicate better and stay close to the people, especially after the titanic task they’ve been carrying out in the recomposition of public accounts. What was a consolidated deficit of Government + BCRA, strongly negative in recent years, has turned positive. We’ll leave the absolute numbers aside to avoid fainting.

Financial surplus = Less debt

Fiscal surplus = Contractionary fiscal policy

Contractionary budgetary policy = Less economic activity

Contractionary monetary policy = Less economic activity

Debt and Auctions

In another week of auctions, the highlight is that the government managed to place a bond for almost a year at a rate of 3.88%. It’s been over five years since a fixed rate bond was placed for a year, a victory for the government here. The fixed rate is 3.88% for a year, which is interesting if one believes the government and inflation decrease along with devaluation. Without an appetite for dollar-linked bonds, the market does not need coverage against potential devaluation. The Treasury continues to build up the cushion in the BCRA, adding $0.86 trillion, bringing the total to $17.5 trillion. Nice cushion.

Economic Activity

According to ICA data, the July green seems to be consolidating, marking a positive monthly variation of 0.4%. This also appears to be supported by expectations: 9 out of 10 entrepreneurs project an improvement in the country’s economic situation within the next 12 months, according to a survey conducted among 240 executives of IDEA member companies.

As the President said several months ago, are we coming out of the hole with credit? For now, it seems that banks are slowly returning to their original business, and credit to the private sector is gaining ground in the financial system’s composition. There’s still a lot of work to be done in financial education, as Ualá’s report shows us well. For example, only 2 out of 10 respondents consider access to credit in the country to be good. For growth to consolidate and overcome the barriers that the government has faced for years, financial education must be transversal to all economic actors.

That banks are functioning as banks has its downside; private sector credit in pesos has been rising sharply.

The RIGI effect continues week by week; in the mining sector, new projects and investments are announced once again. This time, international hotel chains also joined the bandwagon and hoped to reach their destination with multimillion-dollar investments in the country’s main tourist spots. Did they read the new regulations? (See deregulations.)

The current situation at the country level is as follows:

🟢 Already joined: Salta, Jujuy, Mendoza, San Juan, Río Negro, Chubut.

🟡 In the process of joining: Catamarca, Neuquén, Chaco, Corrientes, Tucumán, Santa Cruz, Entre Ríos

🔴 Would reject the RIGI: La Rioja, La Pampa, Buenos Aires, Formosa, Tierra del Fuego

⚫️ Haven’t sent the project yet: San Luis, Córdoba, Santiago del Estero, Santa Fe, Misiones.

Last week, we paid special attention to energy, given its magnitude for the country’s future. Today, we “only” leave you with a chart that shows what the energy trade balance will look like until 2030:

Vaca Muerta is making a big difference for now, and this trend is expected to continue in the coming years. Neuquén produces almost twice as much crude oil as the rest of the country.

More economic activity = More inflation

Deregulations

Another week of progress in this regard. A section that didn’t exist becomes one of the most relevant. Bureaucratic obstacles to the importation of steel, aluminum, and construction materials were removed, and, at the same time, progress was made in the digitalization of Repostock, a paper procedure that very few companies used. This is a strong point to continue reducing the Argentine cost (as the government likes to say) and improving competitiveness in the industry. Now, it will be easier to import; for industrial production, it is released and authorized if it meets international standards: ISO (international), DIN (Germany), ASTM (USA), and EN (EU).

Obstacles to the commercialization of yerba mate were also removed. Regulations from 1998 were repealed, requiring documents to be issued to transport and industrialize this crop.

Hotel and tourism activity costs are reduced. Through Decree 765/24, President Milei clarified the scope of intellectual property rights for content reproduction in private settings. The Decree modified a 1934 regulation that created the absurdity of charging rights for the mere existence of televisions in hotel rooms (even if the room was empty), making services more expensive. The Decree also modernizes the commercialization of reproduction licenses, authorizing those programmed for public content broadcasting. For example, you could buy a Spotify license designed for commercial use that couldn’t be offered before.

The government states that clarity on property rights is the cornerstone of a free economy. Since last Thursday, party halls and hotels will no longer have to pay the Argentine Society of Authors and Composers of Music (Sadaic) for playing music at private events.

The much-questioned automotive registries are also receiving their dose of debureaucratization. Starting this week, there will be less bureaucracy, you will be able to choose where to do the procedure, and fewer costs will be associated with vehicles and their transfers. This will result in estimated savings of more than $36 billion for the Argentines per year.

On the other hand, through DNU 70/23, the restrictions on choosing a healthcare provider were removed, which now includes prepaid plans and social security providers that chose to join the system. No intermediaries are needed; the change is very quick at this link: https://www.argentina.gob.ar/servicio/realizar-opcion-de-cambio-libre-eleccion-de-obras-socialesprepagas

Summary of part of what the government has been doing in the area of deregulation:

• Eliminating the obligation to register rental contracts with the agency to access tax benefits.

• Elimination of the Real Estate Transfer Tax (ITI).

• Eliminating the Certificate of Transfer of Automobiles (CETA) for the vehicle seller.

• Reduction from 5 to 2 of the sworn statements that agricultural producers must submit with the result of the harvest production.

• Elimination of the Argentine Republic's import system (SIRA) for economic and financial training (CEF) as a preliminary step to buying goods from abroad.

• Elimination of the Registry of Charcoal Operators (RECAR).

• Simplification of worker registration: through the “My AFIP” application, the worker registers with the agency by entering only 7 data points.

The Street

Do people see it? Confidence in the government is growing according to the indicator measured by the Universidad Torcuato Di Tella (UTDT), and it is above 50%. Not only that, but dollar deposits are rising rapidly, with tax amnesty on the horizon.

Do the bills support the existing optimism? Confidence is there, and the bills show it. Deposits are rising sharply week by week, and this trend is likely to continue throughout the year.

Inflation

One of the government's goals in reducing the PAIS tax is to deal another blow to inflation and achieve a monthly rate below 3%. As the following FMyA chart shows, wholesale prices decoupled from the official dollar in 2023 and followed the parallel dollars. Consequently, logic would indicate that there would be downward pressure on prices after the measure takes effect and sufficient time passes for logistics to have an impact.

Food inflation would close around 3.5% in August, and supermarket inflation around 4.6%. This is far from the 2% that the government is aiming for, and I think the goal of achieving inflation that starts with 0 or 1 in September is very difficult to achieve.

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Capital Markets - Actionables

It was a great week for Argentine assets in general. Strong rises and good volume in the main stocks and bonds. Is the market eager for Argentine risk and pays to see it, or is it because it’s starting to see that the economy is reacting? As we often say, finance anticipates the real economy; is the rise beginning to appear in market assets and the real economy?

The confirmation of the PAIS tax reduction and its supposed price impact has not yet been reflected in the CER bonds, which still have a “high” breakeven inflation rate of 3.4% monthly on average for 2025 and 3.5% for the remainder of this year. This is also related to the validation of fixed rates slightly higher than what the Treasury traded in the market in the auction. Lecaps can be very interesting for treasury management, with returns above 3.5% monthly across almost the entire curve.

We mentioned that political noise would create moments of volatility that could be taken advantage of. Surely, last week’s event won’t be the last, and this week’s rise could evaporate if the political dance doesn’t keep pace.

The hard dollar sovereign bond curve moved strongly, although there still seems to be a long way to go if the country continues to order and rebuild its public accounts. For risk lovers, there is a lot of profitability ahead if things go well. It also seems that the downward path will take time, given that fresh money is not in the government's plans. According to the Minister of Economy, Argentina will only seek to refinance its debt in January 2026 to do so at a single-digit rate. It would be logical if the surplus is maintained until then. The country is macroeconomically and BCRA-ordered; refinancing at a single digit would be achievable (and even expected).

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Brief Reflection

The reduction of the PAIS tax from 17.5% to 7.5% will take effect tomorrow, Monday, September 2; the government is doing what it says and boasts about it. Shall we take their word for it? Risky. Complying with this tax cut doesn’t mean they’re fulfilling other promises or not moving the goalposts. Currency controls are, in my view, the main one.

Every week that passes, the RIGI gains strength, and activity confirms that it is starting to grow month by month. Are we done chasing carrots? It seems so; a change in the menu is necessary. Important: if you declare your assets, you can pay with a debit card in dollars linked to the CERA account, which is good for the government here.

Now that we have confirmation of the PAIS tax reduction, how will the government replace the revenue it used to receive from there? This is one of the biggest questions today and leaves us with many questions about the sustainability of the fiscal surplus. Will the anchor of the economic program remain firm despite this? Reducing State employees and Government Agencies seems part of the solution, but is it enough?

In the meantime, the market is starting to pay for what it sees and what’s coming. According to what was mentioned in the Ministry of Economy’s streaming by the Minister, Luis “Toto” Caputo, the government sees the country risk indicator as a lagging indicator (https://tudashboard.com/que-es-un-indicador-lagging-y-leading/; https://www.investopedia.com/terms/l/laggingindicator.asp), meaning that they expect the country risk to decrease after the macroeconomy and fiscal numbers are consolidated. What does this mean? According to the minister, country risk won’t decrease based on expectations that everything will go well, it won’t pay to see. Those already familiar with Argentine risk and its defaults today pay after seeing (and even then). They’re not worried about country risk because they don’t plan to incur debt or refinance it. Now, how will the 2025 debt be paid? Will the surplus be enough, or will the OOII step in? Many questions, few answers.

As we affirm every week, we continue to believe that competitiveness gains will not come from devaluation but from a tax cut that will translate into real fiscal competitiveness in a globalized world in a country with great natural resources and incredible human talent (otherwise, how would we survive in this ever-changing country?). Today, they’re moving the fresh money goalposts, but they’re giving us a feast of deregulations and less bureaucracy. Will it be enough to kick-start growth? The Argentine risk premium is shrinking. Therefore, corporate profits should do the same. Is the Argentine business community ready to make less profit? 

Argentina needs a highway for doing business, not a street full of potholes. Are we getting closer? Today, strongly yes.

See you next week, Vamos Argentina!

If you liked it, I invite you to write to me, comment, share this short column, and reflect on our living moments.

Nau Bernués
Founder, ArgenGrowth

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