Speech by the Deputy Governor of the BCRA at the IAEF Congress, May 13, 2025

The Deputy Governor of the BCRA, Vladimir Werning, participated in the 42^nd Annual Congress organized by the Argentine Institute of Finance Executives (Instituto Argentino de Ejecutivos en Finanzas, IAEF), titled “Argentina 2025: Strategies for a Competitive Future,” held in Buenos Aires on May 13, 2025.

The speech is transcribed below.

Thank You Words

Good morning. I would like to thank the IAEF for having invited me to the 42^nd Congress and for this new opportunity to share the perspectives of the Board of the BCRA. I would also like to thank all the participants who support the economic policy reforms by making complex decisions within the private sector.

I would like to share an idea with you today: having completed Stage 1 (of “zero fiscal deficit“) and Stage 2 (of “zero monetary issuance“), the start of Stage 3 (of “zero foreign exchange gap“) opens up important opportunities. While the previous two stages defined an incomplete macroeconomic framework, Stage 3 gives final shape to the fiscal, monetary, and foreign exchange framework.

This foundational framework prevents demand imbalances, which have historically crystalized into recurrent crises. In the future, these measures will be reviewed and strengthened by making changes in supply aimed at improving efficiency and competitiveness. The country will derive benefit from these opportunities to the extent that the private sector adapts quickly to the changes already introduced and to the signs of future changes.

Introduction: from “controlled demolition” of risks to construction of opportunities

It has been a year since I shared the perspectives of the Board of the BCRA with you in this forum. Hence, it is natural to review that initial diagnosis.

This review provides insight into how the objectives established a year ago laid the foundations of the current objectives of removal and relaxation of currency restrictions, simplification, and unification of exchange rates. The ultimate goal is to achieve these objectives while minimizing possible financial, economic, or social shocks. This result highlights the importance of following steps while implementing a macroeconomic program (in addition to its overall design) to help the economy converge to its balance.

I will also share the current diagnosis and agenda to visualize more clearly the economic path for the rest of 2025. The year 2025, like 2024, will be acknowledged as a pivotal year for structural advances, unlike in the past when the electoral calendar compromised or restrained economic decisions.

However, before going into the details, I propose a conceptual reflection.

During Stages 1 and 2 of the program in 2024, economic policy was challenged by a situation comparable to “controlled demolition” due to incalculable distortions and restrictions to economic freedom that triggered the crisis in 2023. As a result, the main important measures aimed at addressing the risk of economic collapse. In the face of multiple risks, it was difficult to expand the expectations and decisions of the private sector.

On the contrary, Stage 3 of the program begins a period of several opportunities, and the main economic policy measures tend to significantly extend the expectations and decisions of the private sector. In Stage 3, the ambitious stabilization program based on sound macroeconomic principles has rapidly evolved into a sustainable growth program. This program is based on a currency competition regime (operational) and more economic freedom (tangible). In short, a new phase of opportunity development has begun.

Reinforcing reserves: adequate liquid assets are key to lift the foreign exchange clamp

Last year, I began my presentation at this forum by explaining the history of the BCRA’s remunerated liabilities, including the Lebacs, Leliqs, and reverse repos. They were created after the collapse of Convertibility in 2002 to restore a monetary policy tool. However, their subsequent misuse justified issuing a death certificate for these BCRA liabilities in 2024. It was done that way, and together with the death certificate for other BCRA’s monetary liabilities (bids and puts), the objectives of Stage 2 were achieved.

Unlike the 2002 transition, the solution to the 2024 monetary problems was part of a strategy that aimed to honoring all existing commitments and contracts. In other words, the recovery of monetary policy tools to regulate monetary liabilities was addressed in 2024 without resorting to shortcuts. I am referring to the shortcuts that were used to move beyond the Convertibility crisis and the crisis that had occurred a decade prior to the launch of Convertibility. These shortcuts always harmed Argentine depositors.

In 2025, the progress of Stage 3 (toward a “zero exchange rate gap”) represents a quantitative and qualitative improvement for the BCRA’s balance sheet. In terms of importance, it is like Stage 2 of 2024, which eliminated surplus liabilities (peso overhang), but it now aims at rebuilding missing assets (dollar underhang).

• The IMF funds received by the Ministry of Economy have been used to repurchase Non-Transferable Bills in dollars that were recorded at the BCRA balance sheet. This operation reduces the Treasury’s debt and, at the same time, provides the BCRA with an important foreign exchange tool to lift the foreign exchange clamp from financial strength.

The BCRA’s liquid reserves will continue to grow in 2025 with new disbursements from multilateral organizations. Moreover, the confidence gained thanks to the implementation of Stage 3, and the fall of the country risk of more than 350 basis points since its announcement will allow the BCRA to expand its new repo facility with more international private banks. Soon, the decline in country risk will also create opportunities for the Treasury to access additional sources of dollar liquidity to refinance its external liabilities when beneficial.

• Reduction of country risk is an objective to achieve of Stage 3. Its recent improvement is encouraging despite the adverse global context due to a tariff dispute. It means an acknowledgment of the removal and relaxation of currency restrictions to strength the external balance and economic growth expectations. It is important to highlight the progress achieved this week in the tariff negotiation process between the US and China. It is expected that global markets come to normal and Argentine country risk fall on an accelerated basis to the extent that adverse external scenarios are resolved.

• Meanwhile, to further increase availability of liquidity, the BCRA has taken new measures to prudently deregulate the foreign exchange market. These changes provide the Treasury with additional means to borrow funds from abroad (if the external financing has an investment horizon of more than six months).

Today, the Treasury can evaluate this expanded menu of options without urgency thanks to the elimination of the fiscal deficit, the BCRA’s increased liquidity, the new exchange rate policy, and the significant repatriation of residents’ dollarized savings.

Some comparative figures illustrate the potential impact of recent measures as regards the access to foreign currency liquidity. During the second year of the stabilization and economic opening attempt prior to the current one (2016-2017), registered holdings of non-residents of fixed-income instruments in the local market were close to USD27,000 million. In contrast, the current technical position in the domestic market is significantly higher: these holdings do not exceed USD2,000 million. More importantly, today’s liquidity needs are significantly lower than they were back then. This evidences the economic fundamentals of the current program compared to the previous one, due to the zero deficit and zero issuance policy (which is reinforced by the new funds already available to the BCRA).

Lifting the foreign exchange clamp: promotion of growth with external balance

The absence of a fiscal deficit also increases the supply of liquid dollars available to the private sector. This supply not only strengthens the balance of payments in the short term. It also reinforces the private investment process, which, together with trade openness, will allow to lower costs, improve infrastructure, increase productivity, and expand export capacity in the medium term. I would like to highlight two characteristics of this process.

• First, lifting restrictions on capital outflows removes a barrier to capital inflows and economic growth. Stage 3 boosts economic recovery at a time when the level of economic activity is close to exceed its historical ceiling (reached in 2017). In fact, the Argentine economy has not grown steadily since 2011, and it is not a coincidence that we have lived most of the time with a foreign exchange clamp since that year.

• Second, the flexibility will allow this growth cycle to develop without relevant external imbalances. This value is not inherent to the exchange rate band regime. It is the result of combining flexibility with a restrictive bias of fiscal and monetary policies. In other words, it is due to the general balance established by the macroeconomic framework.

In this regard, it is useful to contrast the current situation with the last stabilization attempt (2016-2017). In 2017 (with a fiscal deficit), the economy grew by less than 2% over 12 months and had a current account deficit of over 4% of GDP. Today, the economy is expanding by over 6% (without a fiscal deficit), and market analysts forecast that the current account deficit will not exceed 1% of GDP.

The Minister of Economy, Luis Caputo, expressed this reality with a forceful statement: “We have never lived through or seen an economic program or situation like the current one.”

The international scenario may always present new uncertainties. Therefore, the U.S. Treasury Department offering to provide financial support to Argentina gains importance in the event of an important deterioration of the external scenario. The last time the U.S. Treasury granted funds from its Exchange Stability Reserve was to Mexico in 1995.

This international financing aid recognizes the extraordinary national commitment: I am referring to President Javier Milei’s commitment to an economic development program based on sound macroeconomic principles and greater economic freedom. A clear evidence of this commitment is the recent decision taken by the Ministry of Economy to continue reducing taxes for the productive sector and raising the primary fiscal surplus target above what was agreed upon with the IMF (from 1.3% to 1.6% of GDP) during an election year.

Macroeconomic Measures to Support Economic Growth

The announcements on April 11 introduce fundamental changes for the functioning of the foreign exchange market, which is crucial for the country’s trade and financial integration:

• Controlled exchange rate flexibility (exchange rate band regime): determines an exchange rate that helps the economy to adjust unexpected external shocks.

• Exchange rate simplification (elimination of the “blend” dollar): facilitates trading and hedging in the foreign exchange market, and in local agricultural futures markets as well.

• Unification of foreign exchange markets (access to the free foreign exchange market): removes liquidity segmentation and clarifies the market’s signals of changes in relative prices.

• Removal of foreign exchange controls (foreign exchange clamp): is broad and deep, and involves the following changes:

• • Removal of controls to natural persons (including maximum amount, cross restriction, Communication A7340, among others).
• • The total normalization of the current account allowing the payment of imports of all types of goods and services from their origin (SMEs), arrival at the port, and their provision (services). In other words, it is the normalization of foreign trade.
• • Lifting restrictions on the payment of profits in the future (balance sheets starting in 2025), as well as restrictions on the payment of interest on commercial and financial intra-company debts, among other concepts.

The BCRA will soon complement these measures by issuing BOPREAL Series 4. This will allow to regulate outstanding foreign obligations related to several concepts (stock of dividends and retained profits accumulated until December 2024, commercial and financial debt services with related institutions and commercial debts accumulated until December 12, 2023).

Microeconomic Measures to Guide the Banking System

Alongside macroeconomics measures, the BCRA is implementing deregulation and supervisory measures aimed at deeply transforming the banking system. The goal is to encourage banks to offer competitive services that promote the growth of savings in domestic currency (in the formal sector) and expand and reduce the cost of financing (for the productive private sector).

To this end, the BCRA has been working at a regulatory level (together with the National Securities Commission (Comisión Nacional de Valores, CNV); the Customs Control and Collection Agency (Agencia de Recaudación y Control Aduanero, ARCA); and the Financial Information Unit (Unidad de Información Financiera, UIF)). Since the last presentation in this forum, it is important to highlight the following:

• Promotion of credits in pesos: since 2024, the BCRA has implemented significant measures to deregulate minimum and maximum interest rates, granting more flexibility and operational freedom to the financial system.

• Normalization of the prudential system of minimum reserve requirements: backing of deposits has increased, as reflected by the growth of banks’ current accounts at the BCRA (growing from 2.5% in 2023 to 12% in May, forecasting 15% by the end of the year).

• • The gradual removal of subsidies which reduced current account balances and generated distortions in lending rates.
• • The minimum reserve requirements with national sovereign bonds system was simplified to increase efficiency and streamline interest rate transmission mechanisms.
• • The gradual consistency of applicable rates for items with similar characteristics.

Additionally, given the importance of the high concentration of domestic savings in foreign currency, it is worth noting the progress on two other aspects:

• Operability in currency competition: it boosts the use of dollar-denominated payment instruments for business transactions in the domestic market. This includes introducing the USD debit card, an interoperable QR code for debit card payments in pesos and dollars, scheduled DEBIN (which allows account holders to pay for goods or services in fixed installments, either in pesos or dollars, with a single authorization.)

• Boosting credits in dollars (following prudential criteria): gross financing to the private sector showed a significant recovery (growing by USD18,500 million—3.2% of GDP—between January 2024 and January 2025). Relevant measures include the following:

• • Removal of restrictions to financing in foreign currency for large exporters (June 2024).
• • Removal of the additional minimum cash requirement obligatory for banks which grant financing in dollars to agricultural companies stockpiling over 5% of their annual production (October 2024).
• • Granting of loans in dollars to non-exporters with funds from external sources (issuance of local corporate bonds or foreign lines of credit).
• • The restriction on using dollar deposits for this type of financing will remain applicable (February 2025).

Immediate results: an exchange rate transition without monetary shocks

The lifting of the foreign exchange clamp has been a priority since the beginning of the economic program. However, the Charter of the BCRA requires the Board of the BCRA to take the necessary steps to normalize the foreign exchange rate market to fulfill its mandate of safeguarding price stability. The existence of two factors that could gain strength in a scenario of exchange rate flexibility proposed additional challenges:

• First, the use of the dollar as a unit of account for the entire economy. The consequence of high nominal value makes it difficult to adjust relative prices between tradable and non-tradable goods (increasing the latter in view of the changes in the exchange rate).

• Second, the recent exit from a regime of high inflation and financial repression. This regime supports the indexation of prices by macroeconomic factors (expectation of the dollar in the future) without considering microeconomic conditions (supply and demand) because it does not impose a real financial cost on the accumulation of stocks.

Considering this reality, the BCRA’s Board of Directors concluded that adopting a more flexible exchange rate policy without first establishing a position of financial strength and institutional credibility (a suggestion repeatedly made by private sector professionals) would contradict the BCRA’s primary mandate. Therefore, reorganization of liabilities (Stage 2) and assets (Stage 3) on the balance sheet were a prerequisite for removing the foreign exchange clamp to minimize the risks of exchange rate pass-through to inflation.

Considering the main objective of monetary policy, the results of the transition of the exchange rate regime are encouraging. The visible economic impacts associated with the transition have been limited:

• So far, the exchange rate has remained floating, with a bias towards the lowest band. Overall, price volatility in different markets (spot and futures of exchange rates, liquidity and domestic credits, and spot and futures of goods and services) has not affected the ongoing disinflation process.

• In particular, interest rates on more liquid instruments in pesos that had risen prior to the change of regime normalized and inflationary expectations on financial instruments are consistent with the disinflation process.

Therefore, a balanced macroeconomy and the use of appropriate monetary and exchange rate tools contributed to remove uncertainty about the capacity of the economy to operate with a fluctuating peso without anchoring macroeconomic expectations.

Although inflation expectations, as measured by the consensus of economic analysts of the Market Expectations Survey (REM) and published by the BCRA, have shown a moderate increase, there are multiple mitigating factors:

• First, the consensus shows a falling trend in monthly inflation expectations.

• Second, medium term forecasts of the Market Expectations Survey (REM) are self-correlated with short-term inflation data and therefore they tend to rapidly adjust to observed data. For instance, since May 2024, the expected inflation rate for the following 12 months has decreased more than 60 p.p. (from 88% to 26%). This is likely to happen anew, given the data anticipating a low pass-through.

• • Retail inflation in the City of Buenos Aires, far from increasing against March (3.2%), it slowed down in April (2.3%). This evidence dismisses the initial fears of most economists who forecast an interruption in the falling trend of inflation.
• • High-frequency price indicators for the first weeks of May, monitored by the BCRA and economic consultants, suggest that April’s downward inflation trend will continue next month.
• • The financial market adjusts expectations through prices every day (unlike the REM, which adjusts monthly). It discounts implied inflation rates (B/E) that have fallen back to levels prior to the exchange rate announcements.

The new exchange rate regime allows each market-specific supply and demand to determine prices of goods and services. These variations in microeconomic conditions may cause some prices to increase and others to decrease. However, the restrictive fiscal and monetary policies that currently determine the macroeconomic balance do not justify a generalized and sustained increase in prices. On the contrary, the positive financial costs in real terms resulting from this balance will encourage greater efficiency in the private sector in determining balanced prices and managing business flows.

Additional challenges: the BCRA’s agenda

The economic outlook is favorable in 2025. Nevertheless, the Board of Directors of the BCRA expects to address additional communication, regulatory, and operational challenges to continue improving the monetary and exchange rate framework.

•Regarding monetary policy: the BCRA has managed to establish strict control over the number of pesos in the economy by eliminating the monetary surplus (Stage 1 and 2 of the program). Currently, a restrictive monetary policy bias prevails (as reflected in changes to reserve requirements and to the loan-to-deposit ratio in the system). To keep expectations anchored in Stage 3, communication should evolve in the following directions:

• • Nominal anchor (amount of money vs. inflation targeting): Inflation-targeting regimes require the central bank to focus on calibrating the interest rate. Conversely, the BCRA’s communication channels should reinforce the idea that the current regime aims at controlling the amount of money that allows to determine interest rates for supply and demand.
• • Bi-monetary aggregates (re-monetization vs monetary overhang): Money demand collapsed in 2023, but macro equilibrium was re-established, and stock imbalances were eliminated in 2024. With economic growth, the imbalance is in the process of being corrected in 2025. The communication channels of the BCRA should reinforce the value of this remonetization process in pesos and dollars, as long as the latter’s trend does not adversely affect the continuity of the inflation reduction process.

• Regarding exchange rate policy: the BCRA does not purchase dollars at exchange rates within the exchange rate band in the short term. Although the BCRA is empowered to do so, it is committed to buying foreign currency only when the exchange rate converges to the lowest band. This pursues two specific and fundamental purposes:

• • First, to strengthen the credibility of the exchange rate band at the beginning of the new exchange rate regime.
• • Second, to facilitate the price-setting process in the foreign exchange and goods markets immediately after the peso floats.

• Regarding the integration and development of the payment and finance systems: the BCRA will promote competition and interoperability of the traditional payment infrastructure and e-wallets. These changes will be implemented according to a conceptual framework of open finance. This framework aims to ensuring that users benefit from improvements in the efficiency and cost of the service.

• Regarding supervision of banking intermediation: the BCRA continues to focus on improving the following aspects:

• • The operating efficiency of the system: by promoting improvements in transactions and market conventions that encourage greater predictability, efficiency, and integration of different areas of financial intermediation.
• • The regulatory efficiency of the BCRA: by eliminating distortions of its own regulations, such as those that could arise from overlapping domestic and international liquidity requirements.
• • The general legal and tax efficiency: by collaborating in professional areas to identify distortions to system efficiency arising from the legal and tax frameworks. For example, the financial system is subject to a remarkably high level of provincial gross income and municipal taxes. The gross income average rate of 8% applied to the financial sector is twice as high as the 4% rate applicable to the next economic sector bearing the highest tax burden. There is no reason for this. This distortion merely reflects the low visibility of this tax on the costs faced by users of the financial system (depositors and borrowers), as well as the relatively lower effort required to control its collection to the financial system.

Conclusions: A Big Turnaround in the Balance of Structural Risks

The recently announced exchange rate regime aims at improving the macroeconomic framework while minimizing transition risks. In 2024, the Board of Directors of the BCRA faced significant uncertainty when proposing going forward to Stage 3 of the stabilization program. The financial resources and credibility obtained at the beginning of 2025 enabled the acceleration of the lifting of the foreign exchange clamp and the implementation of exchange rate flexibility. At the same time, the process of definitively reducing inflation was conducted in an orderly way.

The path towards economic normalization is long and depends on changes promoted by the public sector and the private sector’s answers to changes in price signals. The conviction and pragmatism in the economic policy decision-making processes that produced the results of the last 18 months will remain essential to assessing policy options.

The Board of the BCRA is committed to continuing to work prudently on improving the monetary, exchange rate, and banking system regimes required to establish the definitive basis for currency competition. Progress will occur with the expectation that such a regime will consolidate the process of price stabilization and economic growth. It will also contribute to preserving external balance, facilitating the compliance of commitments, and promoting progress on changes aimed at consolidating principles on economic freedom.

Thank you