BUENOS AIRES, May 2, 2025 (AP) — Argentina's Central Bank reported Thursday that gross international reserves reached $28.1 billion at the end of March, while the monetary base contracted 8% compared with a year earlier — the tightest monetary policy stance in two decades and a clear signal that President Javier Milei's team is prioritizing inflation control over short-term growth, even at the cost of a severe credit crunch.
The reserve figure, up from $24.1 billion when Milei took office in December 2023, reflects a combination of IMF disbursements totaling $3.2 billion in the first quarter, agricultural export dollar purchases of $4.2 billion, and strict import compression that reduced the trade deficit to $340 million from $1.8 billion a year earlier.
"The BCRA stopped being the Treasury's ATM," said Federico Sturzenegger, the Central Bank president appointed by Milei in January, at a press conference in the bank's historic headquarters. "That single decision changed Argentina's inflation dynamics more than any exchange-rate policy. For 15 years, the Central Bank printed pesos to finance the deficit. That ended on December 10, 2023."
The monetary base contraction — meaning the BCRA has allowed the supply of pesos to shrink in real terms as demand for currency absorbs liquidity without replacement — has produced painful side effects across the economy. Private sector credit has contracted 14% in real terms over the past year, hitting small and medium enterprises particularly hard and forcing many to rely on informal lending at rates exceeding 60% annually.
Small business owners reported that banks have no pesos to lend, while suppliers demand cash upfront. The credit crunch is suffocating businesses that have operated for generations.
For the first time in years, peso-denominated instruments carry positive real interest rates. Central Bank certificates (LELIQs) currently yield 42% annually, above the 38% implied inflation rate over the next 12 months based on market expectations derived from bond spreads.
The dollarization debate that dominated Milei's campaign has receded from official discourse. Sturzenegger told reporters Thursday that full dollarization "is not on the current agenda" because liquid reserves cover only a fraction of the pesos in circulation.
Former Central Bank president Martín Redrado said that at the parallel exchange rate, Argentina would need roughly $65 billion in freely usable reserves to dollarize. With $28 billion, and a chunk of that in yuan swap lines and other non-convertible arrangements, the arithmetic doesn't work. Anyone promising dollarization is selling fantasy.
What has emerged instead is an informal "creeping dollarization." Argentine savers increasingly hold dollars — estimates suggest 70% of household savings are now dollar-denominated. Businesses price long-term contracts in dollars. The peso survives as a transactional currency but loses ground as a store of value.
The key risk, analysts said, is fiscal backsliding. If political pressure from October's midterm elections forces the government to resume central bank financing of the deficit — a practice that was routine under previous administrations and helped drive inflation to 211% — the monetary discipline of the past 16 months could unravel rapidly.
The BCRA under Milei is a study in restraint — fragile, imperfect, but fundamentally altered from the institution that printed money to pay for populist spending. The question is whether that restraint survives the first electoral setback. History suggests it won't.
