Source: Nexofin

The initial relief from international organizations did not succeed in reversing the bleeding of reserves

Following the national address by the president on April 11, the gross reserves of the Central Bank increased from 24 billion to 38 billion dollars in just ten days. Meanwhile, net reserves rose from a deficit of 7 billion to 6.4 billion. Although this latter figure remains modest, by mid-April it appeared that the government had managed to halt the depletion of foreign currency, thanks to the support from the disbursements from the IMF and the World Bank.

However, since the presidential announcement, reserves continued to deteriorate. Between April 16 and the market close on Friday, May 30, gross reserves fell from 38.612 billion to 36.854 billion dollars, while net reserves dropped from a peak of 1.741 billion to -2.310 billion. This means that the Central Bank lost more than 1.750 billion dollars in gross reserves and returned to negative territory in net reserves, deepening a dynamic that calls into question the sustainability of the initial rebound. The drop was particularly pronounced in the week of May 21, with net accumulated losses nearing 4 billion dollars in just ten days. The most alarming figure was recorded on Friday, May 30, when net reserves plummeted by 1.477 billion dollars in a single day, a sign of growing fragility, despite official efforts to sustain the exchange rate and contain devaluation expectations.

With the opening of dollar purchases for individuals, the apparent stabilization began to show cracks. In April alone, one million individuals purchased a combined total of 2.048 billion dollars, averaging 204.8 dollars per person, while 309,000 people sold just 111 million, at a much lower average of 36 dollars each. This marked asymmetry between purchases and sales reveals that devaluation expectations persist in society, even after the official announcement and the backing of multilateral organizations. Far from dissipating, the retail demand for dollars shows that savers continue to protect themselves against a potential exchange rate correction. In turn, this dynamic anticipates an even greater risk for the second half of the year, when access to the foreign exchange market will also be opened up for legal entities and companies, which could exert further pressure on the Central Bank's reserves and again strain the foreign exchange front.

Source: Own elaboration with information from BCRA

In addition to saving, many analysts attribute the increase in demand for foreign currency to the strong outflow of dollars for tourism. Outbound tourism grew by 67.6% year-on-year, driven by the departure of 8.4 million Argentine residents from the country, while the influx of foreigners dropped by 25.4%.

This entire situation poses a particularly risky cocktail in a context where the government uses the official exchange rate as an anchor to contain inflationary expectations, while also needing to meet reserve accumulation targets and face debt commitments. In parallel, the demand for dollars from individuals (specifically the dollars the government should be accumulating to pay its external debt) peaked in April at its highest level since October 2019, when nearly 4.3 billion dollars were purchased, despite the fact that a monthly cap of USD 10,000 per person was imposed during the final phase of Mauricio Macri's government. The magnitude of current demand, in a scenario of even stricter controls, reveals the persistent pressure on the external front and the complex challenge facing the economic team to maintain the exchange scheme without being forced into a correction of the exchange rate.

An increasingly fragile equilibrium

Ultimately, the initial relief provided by the disbursement of multilateral organizations seems to have quickly dissipated in a landscape of increasing uncertainty. The sustained loss of reserves, persistent demand for foreign currency from the private sector, and the lack of clear signals regarding a long-term strategy raise doubts about the sustainability of the current scheme. As long as confidence in the economic direction is not restored, the government will continue to face constant pressure on the foreign exchange front, with increasingly narrow margins to avoid a drastic correction of the exchange rate.