Argentine Peso Plunges into Crisis Again! Will Government Face Empty Coffers After Injecting $1.5 Billion in Intervention?

Asset sell-offs triggered by political risks in Argentina continue. According to industry sources, the Argentine Treasury has intervened in the foreign exchange market for the seventh consecutive trading day, having injected approximately $1.5 billion over the previous six sessions to support the weakening Argentine Peso.

A report from Portfolio Personal Inversiones indicates that the US dollar reserves held by Argentina's central bank plummeted from $1.44 billion last Friday to just $680 million. This suggests that, at the current rate, the central bank's ability to intervene has only a few days left.

Meanwhile, the US government last month committed to a $20 billion currency swap agreement with Argentina. Argentine Economy Minister Luis Caputo is currently in the US negotiating the details of this plan. Argentine President Javier Milei and US President Donald Trump are also scheduled to meet next week, during which further details may be announced.

The recent sell-off of the Argentine Peso is linked to market expectations that the Milei administration will adopt more liberal policies after the midterm elections. However, the rapid depreciation has sparked significant panic. Although the government has intensified its intervention efforts, the more it props up the Peso, the less confident investors become in the stability of the current exchange rate, ironically exacerbating the run on the currency.

Santiago Resico, an economist at brokerage firm one618, noted that the market anticipates changes to the foreign exchange system after the elections. This implies that pressure on the exchange rate will intensify as the election date approaches. The Argentine Treasury's daily massive dollar sales are clearly proving ineffective.

Argentina's midterm elections are set for October 26th. Milei needs to secure a majority in both houses of Congress to advance his challenging economic reforms. However, his party is losing voter trust due to corruption scandals, which triggered financial market sell-offs in early September.

The Argentine public may find it difficult to maintain support for Milei's "chainsaw therapy" fiscal reforms. As Milei implements drastic cuts to social welfare and other departmental spending, a growing number of Argentines feel that the cuts have gone "too deep."