Argentina's dollar craze cools under greenback-loving Milei

BUENOS AIRES

"Dollars, selling dollars!" a money changer shouts to people streaming past in Buenos Aires' financial district.

But there are no takers as Argentina's decades-long dollar craze finally shows signs of cooling.

Over years of high inflation and currency controls, Argentines lined up to trade their increasingly worthless pesos for dollars, propelling the U.S. currency to a record 1,500 pesos on the black market on July 12.

But as the inflation rate slows under cost-cutting President Javier Milei, from 25.5 percent in December 2023 to 2.4 percent in November 2024, the clamor for dollars has quieted, even after Milei pledged on the campaign trail last year to swap the peso for the greenback.

Experts cite several reasons for the fall in demand for dollars. Milei's biting austerity measures have cratered Argentines' purchasing power, shattering their ability to save in hard American cash, the preferred way to create a nest egg.

The experts also point to a tax amnesty launched by the government in July to encourage Argentines to deposit dollars that have been stashed under mattresses and floorboards, or tucked in safety-deposit boxes and offshore accounts.

The scheme has brought in $20 billion in deposits so far, helping ease a dollar shortage.

Meanwhile, the central bank has taken advantage of a stronger peso to build up its dollar reserves from $21 billion when Milei took power a year ago to $32 billion.

In a sign of how times have changed, the black market dollar rate, which at one point was double the official rate, is now nearly aligned with the official rate, at a little over 1,000 pesos to the greenback.

Oscar, one of Buenos Aires' many black-market money changers – they are dubbed "arbolitos,"or little trees, because they plant themselves in the street offering green notes – told AFP that business has slowed dramatically.

"Up to a year ago I was conducting around 40 transactions in a six-hour period. Now I have four, at most, in 10 hours," said Oscar.

In scenes unthinkable just months ago, most of his Argentine customers are now offloading dollars, because they need more pesos to pay bills that have soared since Milei took office and slashed energy and transport subsidies.

Experts warn the peso's strengthening against the dollar may be temporary if, as expected, the effects of the tax amnesty soon wear off or if Milei fails to secure a new cash injection from the International Monetary Fund.

The IMF said last week it was in talks with Argentina on a new program to replace a $44 billion loan agreement set to expire on Dec. 31.

Economist Hernan Letcher credited the tax amnesty with helping stabilize demand for dollars, but said that program and any new IMF cash injection are one-off measures that do not resolve Argentina's currency woes.

"The amnesty dollars aren't yours [don't belong to the state] and you have to pay back the IMF dollars," he said.

Meanwhile, the strengthening of the peso risks hurting exports to Brazil, Argentina's biggest trading partner.

Brazil's currency, the real, fell to a record low against the dollar last week over concerns about its economy.