It may seem contradictory, but sometimes when things go too well they can have unwanted or expected effects on the economy. This is precisely what can happen to Argentina in the coming months as capital controls are lifted and the peso with total freedom against the dollar is allowed to fluctuate. The miracle of the Argentine economy is already generating some pressure on the weight (which for now continues to devalue month by month by order of the Central Bank). But not only that, the great risk is that The growing energy surplus of Argentina (A blessing for the entry of currencies and income) appreciates the change rate of a very devalued weight and ends up eroding the competitiveness of the rest of the country’s sectors, including the powerful agriculture sector. This would be a kind of small -scale Dutch disease caused by the activity explosion of a single oil and gas deposit. However, investors have already begun to warn of the possible impact of this scenario that would make exports of other goods and services difficult in the country.
Vaca Muerta’s oil production already exceeds 420,000 barrels of daily crude oil, an activity explosion that is leading to the total production of Argentina to touch the 800,000 barrels of oil per day. On the other hand, gas extraction is also growing at high speed. In this way, a country that until recently depended on gas and oil imports to supply its domestic demand, has achieved, in 2024, the largest energy commercial surplus in almost two decades. This achievement is the result of a combination between The rise of production in Vaca Muerta and the economic reforms promoted by the government of Javier Milei. An economic miracle that has transformed the country’s financial landscape and that, according to Bloombergpromises to be even greater in 2025.
This miracle is causing A strong entry of dollars in Argentina’s economy (increased gross reserves)which will undoubtedly generate upward pressure on weight when the Argentine currency fluctuates with total freedom. The entry of dollars is a blessing for a country that has billions of debt maturities in foreign currency. But At the same time it can become a problem for the country’s productive fabric that is not dedicated to oil and gas. Selling goods and services Made in Argentina will be more difficult if this dollar entry appreciates the weight.
The increase in oil and gas production, driven by a greater number of perforations in the fields of the huge site of Vaca Muerta, is providing the Central Bank for a reliable source of income in dollars, independent of the appreciation of the weight in recent months , as confirmed to Bloomberg in different interviews with Pablo Goldberg, Blackrock, and Ricardo Adrogue, by Barings LLC.
Taking into account the solid perspectives of energy exports, the Argentina’s exchange rate control program “should not be, in principle, a reason for concern,” says Adrogue, who leads the barings sovereign debt team and global currencies. However, there are other investors and experts who believe that energy exports can be a double -edged sword.
Investors pay attention to the agenda of President Javier Milei with his exchange policy (this year he will end the exchange rate) since he could hinder efforts to increase the reserves of the Central Bank. That cash received by the Central Bank for oil and gas sales is crucial so that the authorities can pay the creditors and, eventually, raise capital controls, which makes every dollar count. In July, the country must face more than 4,000 million dollars in bond maturities, for example, these analysts explain that optimism the future of an Argentina that has managed to overcome the risk of hyperinflation and now enjoys an economic recovery that It seems to earn a week by week.
The great energy surplus
Goldberg, debt portfolio manager of emerging markets in Blackrock, hopes that Argentina expand its energy surplus, which has already reached a record not seen in 20 years, in 2025, which reinforces optimism among investors. “We will continue to see a very strong growth of the energy balance,” he said. “This is a structural change that is transforming the commercial balance of Argentina.”
Even so, the record in the 2024 commercial surplus has not prevented some on Wall Street from warning about the risk that the combination of a stronger weight and the end of the recession lead to a growth of imports higher than that of exports . One of the concerns is how the authorities of Buenos Aires are maintaining the weight change rate against the dollar. Recently, the Government announced that it will reduce the monthly depreciation rate of 1% currency in February, from the current 2%. With a monthly inflation of 2.7%, the weight is likely to continue appreciating.
Asset managers warn that this combination of policies could encourage an increase in imports on exports, eroding the flow of dollars to the country. Currently, Central Bank analysts project a foreign reservations deficit between 4,300 and 6,600 million dollarsaccording to the Grupo Cohen firm, so energy exports are key to financing that deficit. However, the current weight exchange rate reflects that deficit, which means that reducing it or directly eliminating it will involve an almost automatic appreciation of the weight.
The energy surplus can cover that deficit. This year is expected to increase the figures seen last year, which were already historical. In 2024, Argentina registered an energy surplus of 5.7 billion dollars, thanks to the expansion of the pipelines of shale oil (shale oil extracted from its great formation) that allowed a substantial increase in oil exports and a significant reduction in exterior gas purchases. According to the Ministry of Energy, The country reached a production of 256 million barrels of PetróleOr, the highest since 2003, and a natural gas production that was not seen since 2006. The trend is clear: Argentina is ceasing to be a net importer of energy to become a key actor in the international hydrocarbons market. This year, forecasts are even better, which will mean an increase in the entry of dollars into the economy.
These dollars that enter into the economy of Argentina are later exchanged, in many cases, by Argentine pesos, since the weight remains the currency in which salaries are paid or taxes are met. A greater entry of dollars next to an increasingly reduced weight offer can generate this dangerous appreciation. Above all, it is dangerous because the main commercial couples of Argentina are suffering a strong depreciation of their currencies, such as Brazil and Real. Brazilians could reduce their imports from Argentina their weight rises with intensity.
Milei, in an interview with Bloomberg News in Davos, Switzerland, said that inflation continues to slow capital. “The question is speed,” said Milei. “Obviously, the more financing we get, the faster we can leave.”
Bond prospects
The potential of a stronger weight probably limits the rebound of Argentine bonds in dollarswhich have registered three digit returns since the arrival of Milei to power more than a year ago, according to data collected by Bloomberg. “It is difficult to see that Argentine bonds rise much more from here,” said Jeff Grills, head of debt of emerging markets at Aegon Asset Management.
Others, however, as Blackrock Goldberg, see more margin for profits. “There seems to be a flow of good news or positive catalysts that could continue to benefit the asset”he commented. A new agreement with the IMF, a legislative majority for Milei in Congress and the end of capital controls would contribute to it, Goldberg added.
For now, investors must trust Milei’s word that they will dismantle exchange and capital restrictions. “These controls not only restrict freedom, but also go against property rights,” said the president. “As a libertarian, I respect the life and property of people, and of course, I will eliminate them.” This leaves an important lesson: sometimes not even making the most efficient and adequate decisions (according to economic theory) all risks are eliminated. Argentina’s success is accompanied by some risks that can still make this nascent miracle.
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