The tug-of-war with the dollar is taking its toll: inflation is expected to pick up in August and activity is showing signs of stagnation.
The IMF staff report released Friday confirmed that the organization supports the government's economic direction, but also clearly highlighted the remaining challenges . These include a call for greater fiscal effort to access voluntary financing, and a persistent concern: the weakness in reserve accumulation.
Despite having reduced the reserve target by USD 5 billion, the Fund questioned legislative initiatives that would increase public spending without offsetting revenue, such as the pension increases being pushed by the opposition . The organization warned that these measures could lead to an increase in the deficit of around 1.5% of GDP.
Until a few weeks ago, the dollar was moving within the ranges agreed upon by the IMF and the Ministry of Economy. However, the recent jump to $1,380 left it dangerously close to the $1,450 ceiling. The official reaction was swift: interest rates in pesos above 60% per year and a sharp increase in bank reserve requirements to 40%.
A (somewhat lengthy) summary of the program's first review with the IMF following its approval by the Board. Reserve reinforcement
?? Disbursement of USD 2 billion to the Treasury, which will continue recapitalizing the BCRA through the repurchase of Treasury Bills…
According to the government, these measures should ease exchange rate pressures. Max Capital summarized it this way: " The Lecap (Lecap) offer a unique opportunity today. The government is firmly committed to maintaining the exchange rate ceiling, even beyond the elections ." With positive real rates and a contractionary monetary framework, the Ministry of Economy is committed to stabilizing the exchange rate at all costs.
The inflationary impact of July's exchange rate jump was minimal, something unprecedented for the Argentine economy. The index reportedly remained around 1.6%, the same as in June. But August promises a different scenario: sectors such as the automotive industry have already implemented 5% increases, and supermarkets have begun receiving new price lists.
According to Andrés Borenstein (BTG Pactual), monthly inflation could hover around 2.2%, which would represent a pause in the disinflationary process . However, the economist clarified that "this is not a change in trend," as the fiscal and monetary anchor persists. Even with this slight increase, the government maintains its expectation of continuing to lower inflation in the coming months.
Monetary tightening also has consequences for economic activity. High interest rates and credit restrictions are affecting both household consumption and business investment. According to various indicators, the economy is showing a downward trend, failing to break through the ceiling reached in 2017.
A Fidelitas report warned of rising delinquency rates: personal loans went from 4.1% to 5.6% in one year, and credit cards from 1.9% to 3.8%. Bounced checks also increased, now exceeding 60,000 per month, impacting the payment chain.
In this context, investors are closely watching two key dates: the Buenos Aires elections on September 7 and the national legislative elections on October 26. For many, a government victory would consolidate the economic direction and pave the way for Argentina's return to international markets.
IMPORTANT ?????In July, tax revenues showed a year-over-year increase of +4.8% in real terms, even considering the end of the PAIS Tax. The main factors behind this increase in revenue are:
– Foreign Trade (+43.8% yoy…
— totocaputo (@LuisCaputoAR) August 1, 2025
Luis Caputo took aim at Kirchnerism for the bond freeze: "We pay with market purchases, we don't use a single dollar from the IMF, but the fear of Kuka still weighs heavily." However, market insiders warn that, beyond political risk, the concern is the accumulation of reserves and the debt-payment capacity.
The exchange rate jump temporarily closed the dollar-denominated BONTE window, leaving the government with fewer tools to strengthen reserves. Even so, Caputo assured that USD 1.5 billion has already been purchased in block transactions.
The immediate challenge will be to stabilize the economy, consolidate the fiscal surplus, and deepen structural reforms: eliminating the "cepo" (the currency controls), redesigning the tax system, restoring external credit, and advancing macroeconomic consolidation. The government is betting that, if this course is maintained, the change will be irreversible.
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