Argentina is experiencing large pressure on its foreign exchange reserves as it is trying to cope with the covid-19 pandemic, enacting a difficult sovereign debt restructuring and keeping its currency pegged to the USD. As foreign exchange reserves are draining, currency controls – in place since September 2019 following a second run on the Argentine peso – have been tightened.


Argentina has been locked in a stand-off with private creditors for months as it attempts to restructure USD 65 billion of public debt. As Argentina missed the deadline on 22 May, the country even tipped into its ninth sovereign debt default. Though in the past weeks the country seems to be inching closer to a deal with its bondholders, up until today (after many extensions of deadlines) no deal has been agreed on. Due to the prolonged sovereign debt restructuring talks and the covid-19 pandemic, the currency peg has been under huge pressure for months, resulting in quickly declining foreign exchange reserves. As a countermeasure, the Central Bank issued tighter currency legislation in late May, despite campaign promises of current President Fernández that he would not reintroduce tough capital and currency controls. Moreover, the latest foreign exchange restrictions come at a time when plans have been unveiled to expropriate the sixth-largest Argentine agricultural bankrupt exporter, Vicentin. These events might signal that the more radical Kirchnerist faction of the ruling coalition, under current vice-president and former president Cristina Fernández de Kirchner (2007-2015), is gaining influence. 

If a sovereign debt restructuring agreement with private creditors is concluded, pressure in the exchange market should reduce. If this happens, the government is likely to lift (some) controls still in 2020 or in early 2021. Nevertheless, due to the pressure on the foreign exchange reserves, the dire economic situation and the difficult public-debt restructuring talks, a tightening of the foreign exchange controls or a prolongation of the existing restrictions cannot be ruled out. Hence, the possibility of unorthodox economic policies (e.g. more stringent currency controls as well as price controls) or a depletion of foreign exchange reserves keep our outlook for both the ST and MLT political risk categories (6/7) tilted to the downside.

Analyst: Jolyn Debuysscher – J.Debuysscher@credendo.com