Milei is working hard for a free-floating peso, but the final leap will be the hardest
Argentine President Javier Milei keeps insisting that a freely-floating peso is just around the corner, but while he’s previously hinted that capital controls could be eliminated as early as this April, that timeline now seems to be slipping just a bit. Much depends on what kind of a deal the South American country can reach with the International Monetary Fund for a new round of funding, and upcoming elections will also affect the political and economic calculus.
“Even without the help of the IMF, we’ll lift the capital controls and they won’t exist as of Jan. 1, 2026,” Milei said in a televised interview earlier this month, doubling down on previous statements and adding that fresh funding from the bank would help accelerate that plan. There’s a bit of a catch-22, however, as the global lender of last resort is reported to want the country to first ditch the decades of restrictions and float the peso before any new funding is approved.
Adding to the complexity are legislative elections set for October, which will test the popularity of Milei’s party and serve as a referendum on continuing support for what he’s described as the largest austerity package in the “history of humanity.” Any miscalculation could cost him dearly, as unshackling the peso too early could lead to devaluation and re-ignite inflation that’s only recently been tamed. Some business sectors, meanwhile, have been arguing for a weaker currency they say would support domestic industry and boost productivity the government also needs.
Phased approach
“For Milei, the balance between electoral imperatives and the demands of stabilization and reform will not only shape 2025 but also define the long-term trajectory of his presidency and Argentina’s economic future,” Alejandro Werner, who previously directed Western Hemisphere affairs at the IMF, said in a blog post. He’s expecting the bank to take a phased approach that would see short-term support to cover 2025 obligations and then more substantial backing next year after measures to free the currency—which foreign companies also want as a prerequisite for investment–follow the election.
Milei, for his part, used a separate interview this Monday to say that a deal with the IMF was nearly final. In what became a lengthy sermon, he also firmly disagreed with any suggestion that the peso was too pricey and said instead that efforts to expand exports of natural resources like copper, lithium and uranium could actually help strengthen it over the longer term.
“The dollar is neither expensive nor cheap,” Milei said in a long-winded response to a simple question from the interviewer about the exchange rate. The eccentric economist pleaded his case in detail with his characteristic academic rhetoric that would be better suited for an advanced lecture hall than morning television. He did seemingly dismiss the narrative that an easier-to-understand metric—the so-called Big Mac index that measures the comparative price of the famous McDonald’s hamburger at locations around the world—showed that peso was overvalued, and anecdotal data does seem to support his claim.
For example, a Big Mac currently costs around 7,300 pesos in Buenos Aires. That’s $6.72 at the official exchange rate of 1,086 pesos per dollar, and $6.03 at the black market rate of 1,210 pesos. In Miami, the price of a Big Mac is $6.83 at the moment. That means that Argentina’s peso actually looks a little undervalued compared to US prices at both the official and black market rates, even though the measure is a blunt tool that doesn’t fully account for local purchasing power. Still, it’s a figure that can easily be compared around the world, and it shows that Argentines may actually be getting a deal as people everywhere, all over the world, have been dealing with inflation and rising food prices. A Big Mac may seem expensive to locals in Buenos Aires, but it’s more expensive elsewhere. Milei, in other words, has a point, with the current exchange rates in a sort of Goldilocks zone that may not succumb to much adjustment once controls are lifted.
Psychological factors
Hamburgers aside, there are broader psychological factors at play. People have been known to instinctively hoard dollars after a devaluation, and the sudden removal of restrictions could also artificially boost demand for the greenback and weaken the peso, at least at the start. That’s why his government’s long-running plan to slowly yet steadily devalue the official exchange rate each month has been central to the overall strategy.
The halving of that monthly crawl last month from 2% to 1% was interpreted by some to be a pullback from the commitment to eliminate exchange controls, when in fact it’s just the opposite. For a free float to really work, Milei needs to get Argentines back in the habit of viewing their own currency as a reliable store of value, and this increased, programmed stability is a step toward that direction. Milei himself said the move would mark a key milestone on the way to a free peso back in November. Expectations matter, and Milei has been working hard to paint a counter-narrative to the story of an ever-weakening peso, even suggesting it could rise by as much as 100% once it’s set free. That would make for a really expensive Big Mac.
With the gap between the official and black market rates having been cut in half over the past year to just 10%, Milei’s biggest challenge ahead will be navigating the conflicting calls from export businesses that want a cheaper peso and a devaluation-weary people who need to start trusting their own money again. His gradual strategy has been working so far, but the final step will be the trickiest. Milei has been slowly climbing a mountain, but the ultimate goal will require a jump off a cliff.
