Argentines are convinced that even if the United States gives huge financial assistance, it can't prevent its own currency "Argentine peso" from falling into catastrophic devaluation again.
According to Bloomberg News, on October 16, local time, U.S. Treasury Secretary Bescent announced at a press conference that the U.S. has once again intervened in the Argentine foreign exchange market, providing support by selling U.S. dollars and buying back pesos. In addition, he also said that the United States is considering reaching private agreements with a number of international banks to double its total aid to Afghanistan to $40 billion.
This intervention by the U.S. Treasury Department did stabilize the exchange rate in a short period of time, preventing the peso from falling below the "1 dollar to 1,400 pesos" mark again in the foreign exchange market.
But unlike the first time, the news has not "terrified" the market, and has not brought the previous "stimulating effect". investors generally no longer believe the government can keep the exchange rate, so continue to crazy buy dollars to safeguard the value and take the short-term exchange rate recovery as a good opportunity to sell the peso.
The market wagered that Argentina’s President Miller would allow the peso to further depreciate after the parliamentary elections on 26th of this month. Earlier, in order to keep the exchange rate stable, the Argentine government continued to raise the interest rate, and the short-term interest rate has soared to an astonishing 157%, with the intention of “drying” the liquidity of the peso on the high-interest market.
"Besent's words are becoming less and less effective now. The time to hold the exchange rate is shorter each time than last time." Ezequiel Asensio, an asset investment manager who has worked in Argentina's financial market for more than 30 years, told Bloomberg,"The investment market doesn't trust Besante at all. Even if he does throw money into it, few people are willing to follow suit."
On September 22, local time, Bessent first pledged to help Millie, and the peso rose only briefly.But the good prospect did not last long, and since September 29, the peso entered a downward path of almost daily depreciation.As of October 16, the peso had weakened for the second consecutive trading day, and the short-term interest rate had subsequently dropped slightly from the highs.
U.S. President Donald Trump has more openly suggested that if Miles loses the election, the U.S. could withdraw its support. This statement is widely interpreted by the Argentine market and public opinion as interference in its internal affairs, intended for Miles to assist the election.
In fact, the prospects for the reform of the free market in the ruling party since the defeat of the key district elections in early September have been continuously concerned by all sectors in Argentina.The markets are concerned that the mid-term congressional elections expected on 26 may interrupt the reform process of the Argentine government and not even rule out the risk of a policy reversal.
And this political uncertainty has obviously accelerated the wave of "selling pesos and buying dollars" that started a few months ago. According to the data of the Central Bank of Argentina, since April this year, when Argentina lifted the restrictions on personal foreign exchange purchases, as of August, the total unofficial net purchases of US dollars had reached US $18 billion, equivalent to an average of about US $400 per person.
In addition, according to estimates from the Bank of Argentina, Argentine savers buy about $300 million a day to secure value.
Lucio Arrocha, a macroeconomic and foreign exchange strategy analyst focused on the Argentine and Latin American markets, noted that the markets generally believe that the depreciation of the peso is inevitable.
“The level of Argentina’s dollar reserves is not enough to cope with an imminent capital flight,” Arosha said.
Other analysts pointed out that the current foreign exchange purchases, bets and hedging behaviors of the Argentine people are easily reminiscent of the large-scale speculative strategies adopted in the international market by the Soros hedge fund where Bessant worked in his early years.
This is not the first time in history.In 1992, the British government attempted to defend the British pound’s exchange rate to fulfill the European exchange rate mechanism’s promise, but due to the limited foreign exchange reserves, the pressure of market speculation and the need to significantly raise the central bank’s interest rates to support the exchange rate, this severely inhibited economic growth.The Soros Fund accurately predicted that the British government would not be able to support it, and decided to do a massive work out of it, ultimately earning approximately $1 billion.
“All Argentinians, investors, and analysts believe that exchange rates need to be adjusted and that economic activity will not take place as long as interest rates and exchange rates remain at current levels,” the analyst said.
Because of this, the peso is widely considered to be overvalued, and one of the key reasons is that its exchange rate fails to fully reflect the rising inflation level in Argentina. Since Argentina partially liberalized its foreign exchange control in April, the official exchange rate and the market exchange rate have become close, but the consumer price has increased by 12% in the same period.
Under this overestimation and inflationary pressure, the markets are generally suspicious of the continuity of government intervention and how long this will not last," said Miguel Kiguel, the former Argentine Treasury Secretary, who said the market is currently generally expecting the government to maintain the intervention to the general election, but where it will go after the election, no one can predict.
At the same time, the Argentine government's intervention measures to curb capital outflows have further aggravated the domestic credit crunch. With the contraction of peso liquidity in the financial system, local financing costs have risen significantly. On October 15th, the Argentine government only successfully extended less than half of its maturing local currency debt, while the yield of bonds of the same maturity has now exceeded 100%.