Argentina Needs a Free-Floating Peso, Opposition Leader Says

Patrick Gillespie
·3 min read
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(Bloomberg) -- Argentina’s next government needs to unwind currency controls and let the exchange rate trade freely, according to Buenos Aires Mayor Horacio Rodriguez Larreta, one of the main opposition leaders seen as a likely presidential contender next year.

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“You have to aim for that,” Larreta said in an interview on the sidelines of the C40 World Mayors Summit in Buenos Aires. “What you have to do and how fast depends on the situation. You’d have to see how much foreign reserves the central bank has when you take over. Today it’s practically zero.”

Under pressure by dwindling international reserves, Argentina has been implementing a cobweb of currency controls and different exchange rates under the government of President Alberto Fernandez, who took power in late 2019. The approach led to about a dozen different rates overlapping, increasing the bureaucracy for companies and consumers and reducing the incentive for foreign investors to bring dollars into the country.

Read More: Argentina Spawns FX Rates in Desperate Move to Avoid Devaluation

A free-floating rate, as proposed by Larreta, would be a reversal of the strategy, which failed to cool annual inflation heading toward 100% but helped prevent a damaging devaluation. Argentina had multiple exchange rates for several periods of its history, as the wide use of the US dollar in day-to-day transactions makes the free-floating of its currency more prone to volatility.

Hear More: Bloomberg reporters discuss Argentina’s multiple exchange rates and political outlook

Larreta is one of Argentina’s top opposition leaders and polls show him as one of the front-runners ahead of the October 2023 presidential election. While he wouldn’t confirm his candidacy during the interview or say when he might decide, Larreta spoke with a presidential tone about fixing the economy, by far the main concern of Argentines.

“The first message to calm inflation is political before economic,” Larreta said. Politically, the next government must “achieve an agreement broader than what’s needed to win an election. Broader doesn’t mean unanimous, but yes broader -- without that there’s no economic recipe that’d work.”

Read More: IMF Warns Argentina of Ad-Hoc FX Rates Amid 100% Inflation

The C40 conference is an event gathering mayors of the world’s leading cities taking place in Buenos Aires this week.

Other comments by Larreta:

On economic plans in next government:

  • “It definitely has to involve a quick stabilization plan -- quick means that you have to outline it quickly and clearly, it doesn’t necessarily mean all measures have to be taken quickly.”

On economic policies:

  • “The fine print details are going to be defined according to the situation that we’d receive in December of next year. Today you can’t write the fine print if you don’t know if you’re going to get a country with 100% inflation, 50% inflation or 200%”

On whether Fernandez is likely to finish his term in December 2023:

  • “Make it to the end of the mandate, yes. They’ll end badly like they are today. 100% inflation, it’s a disaster. I don’t see a way that inflation improves a lot because there’s no plan to improve it, but he has to finish his mandate.”

On Argentina returning to international capital markets in 2024:

  • “I don’t know about 2024, Argentina has to begin a process of reconstruction with the change of government, reconstructing credibility, trust -- the faster that trust is reconstructed, the faster you can return to markets.”

(Adds comment from Larreta on possibility of Argentina returning to international capital markets in last bullet point)

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