In an effort to fortify international reserves amid a challenging economic climate, the government has introduced a fresh financial and monetary strategy. This initiative emerges as the country continues to grapple with elevated risk levels exceeding 650 basis points. The plan excludes direct currency purchases in the official market but incorporates measures such as acquiring debt in U.S. dollars via Central Bank operations, Treasury repo deals, and tighter control over the monetary base through the issuance of a new BOPREAL bond. Additionally, adjustments to fiscal liquidity instruments and changes in the bank reserve requirement regime are set to redefine monetary policy. Furthermore, the Treasury is implementing a new approach to replace maturing instruments with short-term bills while addressing concerns about potential risks associated with eliminating holding periods for foreign investments.
Recent developments indicate that the Central Bank (BCRA) is actively pursuing strategies to enhance stability. On Monday, it announced a new tender within its repo deals program with international banks, marking the second round this year following an initial US$1 billion placement earlier in 2025. Scheduled for this Wednesday, the operation aims to raise up to US$2 billion, though details regarding rates or participants remain undisclosed. Concurrently, the BCRA is repurchasing put contracts on bank-owned Treasury bonds, aiming to reduce circulating money and signal stability in combating inflation. A similar operation conducted last June saw the repurchase of 80% of these instruments.
Another key component involves the fourth BOPREAL tender, targeting companies whose profits or commercial debts were withheld prior to December 12, 2023. Estimates suggest approximately US$7-10 billion await transfer abroad due to previous currency controls. These actions aim to absorb pesos from the market, contributing to declining inflation rates. In parallel, significant modifications to monetary policy are underway, including the discontinuation of Fiscal Liquidity Letters (LEFIs) starting July 10, which had replaced LELIQs. This move eliminates the reference interest rate characteristic of inflation-targeting schemes, transitioning instead to a system based on monetary aggregate control where market forces determine rates.
The Central Bank also plans to adjust the bank reserve requirement regime by gradually increasing requirements for items generating more volatility. It will assess unifying reserve treatment for interest-bearing accounts irrespective of depositor type. Applying uniform reserve rules across all interest-bearing accounts could impact mutual funds' earnings from deposited balances, potentially reducing their attractiveness and prompting institutional or corporate investors to seek alternative short-term investment avenues.
To address the maturity of LEFIs, the Economy Ministry and BCRA will substitute these instruments held by the Central Bank with a portfolio of short-term bills (LECAPs) featuring secondary market quotations. Biweekly auctions will continue, encompassing fixed-rate LECAPs with one-, two-, and three-month maturities. Longer-term securities in pesos, adjusted by CER (inflation index), linked to the monetary policy rate (TAMAR), dollar-linked, or directly in dollars ("hard dollar") will diversify the maturity profile. Notably, dollar-denominated bonds with maturities exceeding one year may be subscribed monthly up to US$1 billion, accessible to both local and foreign investors. Ensuring liquidity in the secondary market, all new securities will have minimum issuance amounts, with BCRA intervention possible if necessary.
A contentious aspect arises from the elimination of minimum holding periods for non-residents investing in the Foreign Exchange Market or primary offerings from the Economy Ministry with maturities beyond six months. Critics draw parallels to 2018 under the Macri administration when "electoral trade" facilitated large inflows of "hot money" that swiftly exited post-election. Such capital enters seeking high returns but departs rapidly at signs of instability. Argentina's past experience highlights risks posed by these transient investments, as evidenced by the 2018 crisis triggered by their departure. Economist Juan Manuel Telechea expressed skepticism on X, questioning the rationale behind reviving this practice.
This comprehensive strategy seeks to bolster reserves, combat inflation, and modernize monetary policy while navigating potential pitfalls associated with foreign capital management. By integrating diverse mechanisms and adapting to evolving economic conditions, the government aims to stabilize the financial landscape and foster sustainable growth.