A guru’s forecast on the dollar: will Javier Milei’s government devalue?

Since the strong devaluation of December last year, Javier Milei’s government applies a 2% monthly adjustment to the official dollar, which has generated an increase in market tensions. This system of micro devaluations, known as “crawling peg“, keeps the exchange rate out of date in relation to inflation, which has already accumulated 94.8% in the year.

The LCG consulting firm has warned that the official dollar continues to lag behind inflation, which could lead to a new abrupt correction of the exchange rate. From the futures market, expectations point to a possible adjustment between December 2024 and February 2025, although it is anticipated that it will be a marginal increase.

Debate among analysts: Abrupt devaluation or gradual adjustment?

Faced with this scenario, the debate returns on whether it is necessary to apply a new devaluation to correct the accumulated distortions. Some experts suggest that the government could opt for a more aggressive adjustment of the exchange rate to avoid losing competitiveness, while others believe that the solution would be a gradual increase in the *crawling peg* to align it with current inflation.

What is clear is that any movement in exchange rate policy would have important economic and political implications. On the one hand, an abrupt devaluation could affect purchasing power and fuel inflation; On the other hand, keeping the exchange rate artificially low could generate a significant loss of competitiveness.

Javier Milei: promises and political tensions

President Javier Milei has been clear in his campaign promises: not to devalue, not to issue money and to control inflation. However, current economic tensions are putting these commitments to the test. According to analyst Salvador Di Stefano, Milei faces a difficult dilemma: meet his electoral base, especially the young people who supported him, or give in to market pressures.

Di Stefano warns that agricultural producers, in particular, are expecting a devaluation, which could lead them to go into debt in pesos under the expectation that the value of the currency will fall against the dollar. This scenario represents a considerable financial risk, since if the devaluation does not occur as expected, producers could be trapped in a spiral of debt.

Financial risks and strategic decisions

Di Stefano emphasizes that borrowing in pesos at rates of 50% annually, expecting a devaluation of 30%, is a risky financial decision. According to their calculations, this strategy involves paying 15% in dollar terms, which could cause serious harm to those who trust that the peso will devalue significantly.

The analyst’s warning is clear: given the exchange rate uncertainty, it is better to liquidate assets such as soybeans instead of assuming debt in pesos with the expectation of an exchange rate correction. Di Stefano closes his analysis with a forceful phrase: “If you expect a devaluation, you are making a mistake.”

Argentina’s economic future

Argentina’s exchange rate policy is at a critical point. The government will have to balance its political commitments with the economic pressures of the market and rising inflation. While the possibility of a sharp devaluation is on the table, there is also the option of continuing with the “crawling peg” and gradually adjusting the exchange rate. However, uncertainty remains high, and the decisions made in the coming months will be key to defining the country’s economic future.

This scenario is especially delicate for agricultural producers and other export sectors, which are directly affected by exchange rate fluctuations. As the debate over devaluation continues, the only thing clear is that the Argentine economy faces significant challenges that will require both short- and long-term solutions.