Maintaining the flow of speculative capital in Argentina with measures such as reducing the crawling peg to 1% is reminiscent of the action of Ginseng; both seek to artificially maintain a condition that would otherwise be unsustainable. Just as it ensures blood flow, updating the crawling peg prop up the carry trade by synchronizing a controlled exchange rate policy with high interest rates in dollars.
This artificial and momentary stimulus, like its biological counterpart, may create an illusion of potency, but it does not resolve the underlying structural causes, leaving open the possibility of collapse once the effect wears off.
The keys to keep pedaling
In this column, on January 7, it was mentioned that the sustainability of the “carry trade” or “financial bicycle” depended on two key factors:
- Reduction of monthly crawling peg from 2% to 1% (now confirmed by the BCRA).
- Getting fresh (Trump) dollarsstill pending the inauguration of the elected president of the United States.
Both measures reflect the two technical adjustments essential to avoid a massive capital flight with the proceeds from the application of this strategy that generated extraordinary profits in 2024.
Carry trade highlights of the year
Investments in pesos offered extraordinary returns in real terms thanks to a 2% monthly crawling peg and a restrictive monetary policy. Some examples:
- Treasury Bonds in Pesos: The TO26 bond yielded 236.6% in pesos, equivalent to 176% in dollars considering the exchange rate evolution.
- Banking Sector Stocks: Banks such as Grupo Financiero Galicia, Banco Supervielle, Banco Macro and BBVA led the increases in the Merval index, with increases of more than 300% in pesos. The Merval increased 127% in dollarsreaching levels not seen since 2018.
- UVA fixed term: Adjusted for inflation, this tool generated a return of 150% in pesos, equivalent to more than 90% in dollars.
Implicit risks of continuing with the same strategy
Without dollar income, a devaluation would be inevitable. Remember the devaluation requested by the IMF from Sergio Massa in 2023. To achieve an equivalent dollar, it would need to be devalued 50%. However, if Milei obtains external funds, companies with access to international credit in 2025 could carry out this “minimum” action:
- Take loans at 7% per year in dollars.
- Enter them and convert them to pesos.
- Invest them in fixed terms at 31.5% annually (TEA: 34.47%).
This operation would generate profits based on the difference between rates, adjusted for the exchange rate variation (TEA: 12.68%). Although this practice is common in international markets and in Argentina was a historical world record in 2024in emerging economies implies significant risks, including potential exchange crises such as those experienced by the current economic team itself in 2018.
The other side (1) of the “sweet silver 2024”. Impact on the real economy
In 2024, the Argentine economy experienced a significant crisis that severely affected the industrial sector and small and medium-sized businesses. According to data from the National Productive Front, around 16,500 SMEs closed their doors during the year, with 10,000 closures between January and July, and an additional 6,500 between July and October (ámbito.com November 10, 2024). This phenomenon had a direct impact on unemployment. Registered salaried jobs were reduced by 220,178 (2.2%), according to SIPA data. The information comes from the latest report from the Vector Consulting, by Eduardo Hecker. (ámbito.com December 16, 2024). The unemployment rate in Argentina was 6.9% in the third quarter of 2024, affecting a total of almost 1.5 million Argentines, another 2,534,000 are underemployed. Despite the improvement compared to the second quarter of 2024, the number of unemployed has increased by more than 280,000 people compared to the same period last year (Source: Indec, December 18, 2024).
The other side (2) of the “sweet silver 2024”: fiscal costs of the carry trade
To attract speculative capital, the government must offer generous interest rate spreads in dollars, which increases the fiscal and quasi-fiscal costs of the State and may negatively affect the financial costs of private companies. According to the Ministry of Finance, Argentine public debt grew by 92 billion dollars in 2024, reflecting the impact of exchange rate appreciation, deferrals of financial fiscal deficits and the “nationalization of monetary regulation instruments of the BCRA.”
Structural slippages and challenges to overcome
- Exchange appreciation: The overvaluation of the peso encourages imports and foreign tourism, harming the local industry.
- Increase in debt: The increase in public debt combined with a collapse of around 3% of GDP, leaves the economy weakened and exposes it to imponderable external shocks.
- The economic trilemma: According to Mundell-Fleming, a country cannot simultaneously maintain a fixed exchange rate, free movement of capital and independent monetary policy.
- Black swans: Unexpected disruptive events could destabilize markets, exposing the vulnerabilities of this strategy.
Outlook for 2025
The future of the carry trade will depend on internal and external factors:
- At the local level: Managing the exchange rate, controlling inflation and reducing country risk will be key to maintaining investor confidence.
- On a global level: The monetary policies of the Federal Reserve and other central banks will directly influence international interest rates.
Luis Caputo faces the challenge of extending the carry trade beyond the 2024 limits. His success will depend on his technical capacity and his ability to anticipate and manage an increasingly volatile global environment.
Like Ginseng, lowering crawling peg from 2% to 1% provides an artificial, temporary and deceptive stimulus. A structure that is far from healthy is sustained in a sick organism. While initial results may appear successful, reliance on a transient stimulus does not address the underlying problems. As with Ginseng, the real danger lies in ignoring the warnings of a system that is showing signs of exhaustion, while pursuing a momentary illusion of strength. Thus, the challenge lies not in maintaining the unsustainable, but in building a genuinely robust and sustainable model that does not depend on ephemeral patches.
Director of Esperanza Foundation. Graduate Professor at UBA and private universities. Master in International Economic Policy, Doctor in Political Science, author of six books.
Source: Ambito

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