Argentina’s Javier Milei says his ‘regime of freedom’ not ready to drop currency controls

Argentina’s president Javier Milei has said he is not ready to lift the country’s currency controls, arguing that a fixed date for scrapping the measure is incompatible with his “regime of freedom”.

In an interview with the Financial Times, the libertarian economist argued that, for the controls to be scrapped, the country’s rampant inflation had to fall further, among other economic conditions.

“We are not communists, we are libertarians,” Milei told the FT. “There is a philosophical question behind this, which is that I cannot set dates because I don’t think like a central planner. We think in terms of a regime of freedom.”

The controls, imposed by a previous government in 2019 amid an economic crisis, fix the peso at an official rate and limit individual and company purchases of foreign currency, creating a black market for the US currency and deterring foreign investment.

Milei, who devalued the official rate by more than 50 per cent on taking office in December last year, had previously said he hoped to scrap the controls in mid-2024.

The Argentine president has vowed to turn the heavily regulated South American nation into one of the world’s freest economies as part of a radical plan of shock therapy to slash spending and shrink government.

He has balanced the budget, ending years of deficits funded by central bank money printing, and brought down monthly inflation from a peak of 26 per cent last December to 4.2 per cent in August. However, prices have still risen by 237 per cent over the past 12 months.

The price of black market dollars has fallen since July, narrowing the gap with the official peso rate of 980 and leading some economists to suggest the government should seize the moment to scrap the currency controls altogether.

The official rate is devalued by 2 per cent a month, a depreciation that has been outpaced by the rise in consumer prices this year. This has led exporters to complain that almost all of the competitiveness gains from December’s 54 per cent devaluation have now been wiped out.

The country’s economy has contracted for three consecutive quarters.

But, when asked if it was the right time to remove the controls, Milei said, in the joint interview with his economy minister Luis Caputo at the Casa Rosada presidential palace in Buenos Aires: “No, not yet.”

Caputo also questioned the urgency of scrapping the restrictions, saying that while he did not want “to underestimate people looking at currency controls . . . it almost seems childish to focus on whether [they] end in two months, three, five or eight. That doesn’t matter”.

When he travelled abroad with the president, Caputo added, “we always see investors in the real economy and honestly, nobody asks about currency controls”. 

Milei argued the previous government had created an excess of pesos — which he described as a “money overhang” — by printing money and not allowing Argentines to buy dollars freely.

He said the controls could “be lifted when the ‘money overhang’ has ended”, and added that three conditions needed to be met “simultaneously” to do so.

One condition was a fall in monthly inflation to less than 2.5 per cent, compared with August’s 4.2 per cent.

The other conditions would involve domestic banks selling their extensive holding of short-term Argentine government bonds to fund increased lending to companies and provisioning for the pent-up demand for dollars that has built up under the controls.

Milei expressed frustration with investors who demanded to know when the controls would be scrapped, arguing that meeting the conditions largely depended on private sector behaviour.

He added that scrapping the capital controls was not dependent on a deal with the IMF, which Argentina owes $43bn. “We have already begun lifting some of the regulations that make up the controls. And we’re doing all of that by ourselves,” he said.

“If someone comes and gives us a lot of cash, well then yes, we’ll open [the controls] tomorrow. But we are working as if that isn’t going to happen . . . it’s as if we were extremely risk-averse.”

But Caputo added that the government was still considering whether to start negotiations with the IMF on a replacement loan package, which would include fresh cash “to increase net reserves” that would “help to lift the [exchange] controls”.

The economy minister denied the currency was overvalued. “We can’t expect the real exchange rate to be as low as it was during Argentina’s worst economic crisis in history,” he said.

“We believe we must gain competitiveness not by devaluing [again], which is what Argentina has always done,” he added. “The solution is growing, achieving a [fiscal] surplus and lowering taxes.”

Caputo argued that the economy was improving as Milei’s policies took hold and the effects of the “disastrous” monetary policy of the previous Peronist administration had faded. He said the Peronists had printed pesos equivalent to 13 per cent of GDP in their final year in office to fund government spending.

“So this hurry, this anxiety [to lift currency controls] is a mistake and we are not going to make that mistake,” Caputo said. “The most important thing for Argentina is to lift controls when this doesn’t cause stress for our people.”