MercoPress. South Atlantic News Agency

BOFA report predicts relative stability in Argentina until mid-term elections

IMF “disbursements should be used primarily to pay the IMF itself,” the BOFA reckoned

A Bank of America (BOFA) report released this week forecast that Argentina's Libertarian administration of President Javier Milei would be lifting the so-called exchange rate stocks in December this year. By that time, the rate was projected to stand at AR$ 1,400 = US$ 1. The study also deemed a US$ 20 billion from the International Monetary Fund (IMF) plausible, to endorse Milei's “chainsaw” State spending cuts policies amid greater exchange rate flexibility.

The BOFA also predicted that the IMF would not allow a large devaluation before the October mid-term elections. However, the Argentine peso's deterioration against the US currency is expected to deepen later this year. The exchange rate will remain “strongly controlled” during most of the year, but a shift in the Government's economic strategy should be enacted by December. “We see an acceleration of depreciation after the elections and the unification of exchange rates at [AR]$ 1,400 in December, as a result of the elimination of exchange controls,” the BOFA's technicians wrote.

The paper also foresees a gradual lifting of the currency exchange restrictions, beginning with measures distorting production controls. “The Central Bank will accelerate the removal of restrictions after the October mid-term elections, leading to the unification of multiple exchange rates in December,” the BOFA predicted.

The report also noted that the IMF will push to reduce the dollar blend scheme for exporters and put limits on the Central Bank's intervention in the financial dollar markets. As per the BOFA analysts, the Argentine government should be clinching the agreement with the IMF by March, so as to have it approved by Congress the following month.

Should the ruling La Libertad Avanza fail to muster the necessary legislative support,
the BOFA did not rule out Milei's issuing an emergency decree (DNU).

Regarding disbursements, the Government would fetch between US$ 11 and US$15 billion, but BOFA foresees the IMF could grant up to US$ 20 billion, depending on the size and pace of public spending cuts combined with the necessary exchange rate flexibility. IMF “disbursements should be used primarily to pay the IMF itself,” the BOFA reckoned.

Despite Milei's praiseworthy policies, the BOFA foresaw an additional reduction in public spending of 1% of GDP between 2026 and 2027. “This can be achieved by saving some of the additional revenue as GDP recovers and by further cutting energy subsidies,” the BOFA explained while remaining optimistic about possible improvements in Argentina's international credit ratings given the country's current course to “a 'virtuous circle'.”