What does it mean that Milei ended Argentina's strict controls on currency and capital?

BUENOS AIRES, Argentina (AP) — The International Monetary Fund disbursed on Tuesday the first installment of Argentina’s new $20 billion loan program after President Javier Milei removed most of Argentina’s strict capital and currency controls. For years, the restrictions had set the official exchange rate and barred companies and individuals from moving money freely.

After clinching the IMF deal last week, Milei felt confident enough to take the gamble of dismantling controls as he seeks to steer the nation’s notoriously volatile economy toward the revival that he promises will follow the pain of austerity.

At a press conference beside visiting U.S. Treasury Secretary Scott Bessent, Milei was ebullient as he proclaimed Monday, when the controls lifted, the Argentine version of President Donald Trump’s “Liberation Day.”

“After 15 years of capital controls, we have cast off the anvil to which we were chained,” he said.

Argentines have been scrambling to understand what this means for them, their radical libertarian president and the wider world.

What are currency controls?

First implemented in 2011 during the populist administration of then-President Cristina Fernández de Kirchner, the half-dozen critical regulations limit access to foreign currency as a safeguard against capital flight.

Until Monday, the restrictions — popularly known as “el cepo” or “the trap” — made it almost impossible for companies to send profits abroad and for Argentines to purchase dollars. Foreign investment dried up. The central bank burned through its precious currency reserves to shore up the peso, creating multiple exchange rates and a vast black market.

Preferring to save in stacks of $100 bills stashed under mattresses than in their own chronically depreciating currency, middle-class Argentines sold their pesos on the black market rate, which was 1,375 pesos to the dollar last Friday, compared with an official rate of 1,097 pesos.

Milei retained the controversial exchange rate system with a so-called “crawling peg” which, up until Monday, had prevented the peso from falling more than 1% against the dollar per month.

“It was a way to keep the dollar in check so that a depreciation wouldn’t spill over into prices,” Carlos Pagni, a prominent political columnist, wrote Tuesday in Argentina’s La Nación newspaper. “From a political perspective, Milei’s government made a commitment to a single issue — reducing inflation. This is the way to win votes, retain power, and eventually increase it.”

Why release ‘the trap’ now?

The peso’s artificial peg to the dollar had become increasingly expensive for the central bank to defend — since mid-March, it hemorrhaged some $2.5 billion.

“Maintaining that pattern increased Argentina’s vulnerability,” said Ignacio Labaqui, a senior analyst at risk consultancy Medley Global Advisors. “It no longer served as an anchor against inflation and it wasn’t good for accumulating reserves.”

To prevent a possible run on the peso after scrapping the controls, Milei had to replenish the central bank’s precariously low reserves. Despite the IMF’s reluctance to increase exposure to its biggest debtor, Milei scored major new lines of credit after months of negotiations — an upfront $12 billion Tuesday from the IMF, billions more from multilateral banks and a $5 billion credit swap line with China.

Lifting the controls ended the system of parallel exchange rates, letting the peso float freely within an initial range of 1,000-1,400 pesos per dollar. After markets opened Tuesday, the peso stayed stable, around 1,230 pesos per dollar, not far from the unofficial rate of 1,285.

How does this affect ordinary Argentines?

Milei ended a $200 monthly cap on dollar withdrawals, scrapped transaction fees and unraveled other restrictions, allowing Argentines with bank accounts to buy dollars freely for the first time since 2019, when former center-right President Mauricio Macri reimposed the controls that he had lifted with great fanfare just a few years earlier.

While Argentines can now withdraw dollars from banks, they still can’t exchange pesos for over $100 per month in cash, a move to discourage black market trading. Argentines rushed to log into their bank accounts Tuesday and traded pesos for dollars before the Argentine currency’s value could fall further. Some squirreled away the U.S. currency while others snapped up dollars to sell straight away on the informal market at a slightly favorable rate.

But workers without bank accounts — in Argentina’s massive informal sector — and others without savings felt no real difference in their days.

“I know that there are people here who are obsessed with buying dollars and are guided by its ups and downs,” said Lionel Almeida, 20, who was emptying trash cans downtown. “Not all of us have the money for that.”

But in a nation where decades of crisis have given rise to a whole population of amateur economists, almost everyone interviewed on the streets of Buenos Aires had strong opinions about ending “el cepo.”

“You can’t live by controlling exchange rates,” sad María Portela, 73, a doctor’s office receptionist. “I like freedom.”

How does this affect companies?

Most capital controls on companies in Argentina remain in place. Foreign firms will be able to repatriate profits from 2025, but not their trapped earnings from previous years.

“It’s a very positive first step in the sense that exchange rate restrictions are a strong barrier to investment and growth,” Labaqui said. “Companies should now have greater certainty when it comes to investing in the country.”

Ending the controls also boosts exporters, like grain and soybean farmers, who had been hobbled by an overvalued peso.

“Tell the farmers that if they need to sell (their goods) they should do it now,” Milei told El Observador radio station Monday.

What does it mean outside Argentina?

Bessent traveled to Buenos Aires in the middle of global market turmoil over Trump’s tariffs to shower Milei with praise.

Standing beside Milei after their meeting, the Treasury secretary said he had come to “convey the optimism we feel in the United States about this new Argentina.” He added: “In many ways, Milei and the MAGA movement share a common path.”

Despite Milei’s bond with Trump over their shared stake in the far-right’s global culture war against left-wing politics and “wokeness,” the Argentine leader’s legacy depends far more on his power to deliver a miraculous outbreak of economic normalcy in crisis-stricken Argentina, after the 22 past IMF programs collapsed in disaster for the nation of 46 million and for bondholders and lenders the world over.

This week marks a milestone for Milei, economists agree, but say it’s far too soon to declare that the worst is over for South America’s second-biggest economy.

“If investors continue to have the same favorable views of Argentina’s prospects, things might continue to hum along,” said Monica de Bolle, senior fellow at the Peterson Institute for International Economics.

“But that’s always the problem with Argentina, isn’t it? It’s completely dependent on how investors feel about the country. And you can’t run an economy like that.”