Milei assures Argentina has firepower to counter currency run

Argentine President Javier Milei has asserted that the nation possesses adequate financial firepower to withstand any speculative attack on the peso, aiming to quell market anxieties. Following a week where the dollar's value intensified and the country's risk premium reached a three-month high before receding, Milei publicly guaranteed that all debt obligations throughout his term would be met without resorting to market borrowing.

"The exchange rate is a market price, what I am doing is ensuring that if they come to run us, we have something to face them with," Milei stated in a Radio Mitre interview. He emphasized that financing is secured until the end of his mandate, meaning these dollars will not need to be sourced from the open market. "This government will not default," he added, referencing the peso's closing rate of 1,515 in the retail market.

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The exchange rate is a market price, what I am doing is ensuring that if they come to run us, we have something to face them with. Besides, we have financing closed until the end of the mandate, so those dollars do not have to be sought in the market, this government will not default.

The President further detailed the Central Bank's strategy to bolster dollar reserves, estimating a substantial cushion of approximately US$73 billion. This includes an anticipated US$20 billion in reserve purchases, a currency swap agreement with the United States, another with China, and US$15 billion allocated for a futures position. Milei recalled past instances where speculators attempting to challenge the currency ultimately incurred significant losses.

Despite these assurances, market participants harbor doubts regarding the government's maneuverability. Concerns linger about the continued role of the United States as a "lender of last resort" post-November elections, especially given the current political climate. Additionally, Argentina's persistent demand for foreign currency and the potential long-term costs associated with swaps and futures contracts remain points of uncertainty. The central bank has been actively managing pressures on the wholesale dollar, allowing for interest rate hikes and reducing reserve purchases, while also selling dollar-linked bonds and futures to manage liquidity.

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We are preparing, reserve purchases will reach US$20 billion, the swap with the United States, the swap with China, US$15 billion for a futures position, they have already tried to run us, those who ended up running lost a lot of money.