MNI INTERVIEW: US-Argentina Deal An 'Oxygen Tank' -Ex-Official

U.S. financial support to a struggling Argentine economy provides an "oxygen tank" for President Javier Milei's government ahead of next month's elections but it is not a permanent solution, former deputy finance secretary Ramiro Tosi told MNI, arguing that the country's future hinges on how the next administration pivots on economic policy.

"We are currently seeing a clear sign of weakness in Milei's economic and political model, so everyone is waiting to see how the new government will recalibrate both areas after the elections. The agreement with the U.S. Treasury acts more like an oxygen tank, giving the government time to carry out this recalibration," Tosi, now director of finance at Suramericana Visión and professor at UNLP, said in an interview.

"If the market does not start seeing concrete signals of recalibration, the government will have to rely on this oxygen tank, but it is uncertain whether it will be full as promised, given how volatile Trump’s decisions can be."

Last week, the Argentine president met with U.S. President Donald Trump to negotiate financial aid of around USD20 billion. In April, the country had already secured an agreement of the similar size with the IMF, which included conditions such as improving fiscal and monetary policies and increasing exchange rate flexibility.

The government eased currency controls for individuals, but not for companies, and allowed the peso to float within a band, though it failed to accumulate the reserves required by the IMF. (See MNI EM INTERVIEW: Argentina To Hold Rates Amid IMF Negotiations)

PESO'S DEPRECIATION

The peso has depreciated sharply in recent weeks, and the Central Bank of the Argentine Republic (BCRA) has had to intervene heavily and reinstate currency controls to prevent market participants from exploiting the gap between the official exchange rate and parallel markets.

Tosi recalled that since Javier Milei took office in December 2023, the Argentine government sought to neutralize hyperinflation risks through a giant devaluation and a historic fiscal adjustment, which reduced the deficit and generated a surplus.

"Inflation fell rapidly in 2024, but economic activity suffered and only began showing signs of recovery at the end of the year, supported by the agricultural sector following the 2023 drought," he stressed.

In his view, inflation, which is currently around 2% per month, is unlikely to fall to 1% before March or April 2026.

PROVINCIAL ELECTIONS

Following provincial elections and the government’s unexpected defeat in Buenos Aires, financial instability intensified, with a flight to the dollar, falling bonds and stocks, and significant reserve losses, Tosi noted.

Milei was elected under promises to dollarize Argentina's economy in order to provide a "shock" to control inflation.

"I believe dollarization is now off the agenda. Dollarization is, you might say, a shock measure, a very violent one, to make inflation collapse," he explained, noting that annualized inflation has already fallen from over 200% to around 20% in 12 months.

Last month, the Argentine press reported leaked audio recordings linking the president's sister, Karina Milei, to an alleged bribery scheme within the National Disability Agency (ANDIS). The scandal further complicated Milei's situation.

According to the former deputy secretary, the effects of the political scandal are still uncertain. "All this volatility and noise clearly drew away all the media attention, and the corruption scandal was somewhat overshadowed and diluted because the whole discussion was about the dollar."