The multiple crises announced by Nouriel Roubini, the well-known economist in the United States, hit the world after the wars in Ukraine and Israel, as well as the blockade of maritime traffic in the Suez Canal, upset the markets. Now, experts announce that the peso, Argentina’s currency, has seen an extraordinary rise, becoming the strongest in the world. It has climbed 25% against the US dollar in the past 3 months, the biggest jump among all 148 world currencies.
Four months into his term, Argentine President Javier Milei has achieved an exceptional feat in a country long ravaged by runaway inflation: he has stabilized the currency. In fact, not only did the peso stop falling day by day, it rose sharply, according to Bloomberg.
Argentina’s President Javier Milei has yet to dollarize the economy as he promised, but he has managed to do something that is possibly more shocking: strengthen the peso. This currency was one of the most devalued auctions of 2023, and yet it has now become the top currency against the dollar, according to Business Insider.
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Over the past three months, the peso has risen 25 percent on the blue-chip swap market, one of Argentina’s main foreign exchanges. According to Bloomberg, this is the biggest gain among the 148 currencies it tracks against the US dollar.
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It is a welcome side effect of Mila’s many reforms. The president won the election promising a massive economic overhaul, and in many ways he kept his word. These included extreme austerity measures, with capital spending falling by 85% in the first quarter of 2024.
Hyperinflationary conditions in Argentina are the driving force behind the approach, with the 12-month rate hitting 276.2% in February: the worst in the world. But at the same time, the strategy has plunged the Argentine economy into a deep recession, and protests against his spending cuts have become frequent. Compared to a year earlier, the economy contracted by 3.6% in the first two months of 2024, the Financial Times wrote.
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It’s also ironic that Milei ended up leading the peso from tougher times, given his strong disdain for the currency last year. “The peso is a currency issued by Argentine politicians, so it can’t be worth bad things,” he said during the election, when it hit more than 1,000 against the dollar in freely quoted markets.
Instead, Milei rallied supporters to the idea of ditching the peso and making the US dollar Argentina’s official currency, as many in the country were already using the dollar as more reliable tender.
Milea likes to call his budget cuts “the biggest in human history.” They almost certainly exaggerate, of course, but not by much. The cuts it has imposed amount to the equivalent of nearly 4 percent of the country’s economic output, an adjustment so aggressive that central bank officials estimate it is larger than 90 percent of all the world’s in recent decades.
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“The big news in Argentina is that the person in charge is not worried about paying the political costs associated with austerity – that’s unusual,” said Javier Casabal, head of research at AdCap Grupo Financiero in Buenos Aires. “The government’s aim will continue to be to break the spiral of inflation.”
Which leads to the next big risk: that inflation isn’t falling as fast as Milei’s team imagines. This would not only annoy Argentine consumers, but also increase the value of the currency in inflation-adjusted terms.
Since the peso began to stabilize in January, it has risen about 72 percent after adjusting for inflation, an indicator that Argentine investors watch closely as it measures changes in the currency’s real purchasing power. “Under this government, economic policy is starting to become rational,” said Carlos Perez, director of consultancy Fundacion Capital.
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