The Institute of International Finance highlighted that Argentina is in a favorable position to eliminate currency controls under an extended IMF program, following the example of Egypt, which has achieved deep unification in its currency market. This measure would help restore economic stability and promote growth in the South American country.
According to the IIF report titled 'The Mystery of the Parallel Exchange Rate: What Argentina Can Learn from Egypt,' Argentina has moved towards a more flexible exchange rate regime with stricter fiscal and monetary policies, which has restored market confidence and reactivated foreign capital flows. On the other hand, Egypt has signed an Extended Fund Facility program with the IMF for $8 billion over three years, after devaluing its currency, reducing the exchange rate gap, and eliminating restrictions.
In the Argentine case, while shock therapy has helped stabilize the economy and rebuild reserves, the report points out that the appreciation of the real exchange rate is a concern due to a crawling peg rate below inflation, despite rapid disinflation in the country. Wall Street banks emphasized that Argentina is in a good position to lift currency controls under the negotiation of a new program with the IMF.
The IIF report, composed of financial entities such as Santander, Standard Bank, JP Morgan, Wells Fargo, among others, highlights that although some restrictions on access to the currency market in Argentina have gradually been lifted, low external liquidity and high inflation are factors that have led the government to maintain controls. In light of the planned reduction of the crawling peg starting in February, the report warns that it could generate external imbalances and complicate the future liberalization of the currency market in the country.
