Morgan Stanley Predicts Potential Peso Plunge Following Argentine Elections
BUENOS AIRES – Argentina‘s peso could face meaningful downward pressure following the upcoming elections,potentially exceeding 2,000 pesos to the dollar by year-end,according to a new report by Morgan Stanley. The investment bank outlined three scenarios, all indicating an upward trend for the dollar, with the extent of the increase heavily dependent on the election results.
The report, released ahead of the crucial vote, emphasizes the need for the next management to prioritize rebuilding foreign reserves, even with the existing US$20 billion swap agreement with the US Treasury. Morgan Stanley also cautioned that full dollarization of the Argentine economy would require between US$21 billion and US$86 billion,depending on the conversion rate and reserve requirements – a substantial sum given the Central Bank’s current net reserves of less than US$10 billion,including gold.
Morgan Stanley simulated three potential outcomes, all assuming the main opposition secures around 35 percent of the vote.
Scenario 1: Continuity with Broader Majorities (La Libertad Avanza 35-40 percent) – A government with stronger support could pursue a coordinated exchange rate float,backed by the United States and renewed market access,stabilizing the dollar around 1,700 pesos by December. this scenario projects gradual easing of inflation and GDP growth of 2.5 percent for 2026.
Scenario 2: Tight Result (LLA 30-35 percent) – A closer contest would likely weaken market confidence, delay external adjustments, and push the exchange rate to between 1,800 and 2,000 pesos by year-end.Reforms would be limited, and fiscal policy would continue on its current path, albeit with less intensity.
Scenario 3: Heavy Defeat (LLA 25-30 percent) – A significant loss for the ruling coalition (trailing by 10 points or more) would trigger soaring currency pressures, potentially driving the dollar above 2,000 pesos and leading to a substantial decline in economic activity and investment.
The report also noted that dollarization “requires structural reforms and broad political backing to ensure the system’s sustainability.”
