The government and the dollar are like Mike Tyson: the plan lasts until the first punch comes in.

“Everyone has a plan until they get punched in the face.” Mike Tyson, one of the greatest heavyweight boxers of all time, famously said that everything you plan for months can be ruined in a second. Football manager Alfio Coco Basile said something similar when criticized for not adhering to tactical order. “Listen, I keep my teams looking good on the field. The problem is that when the game starts, the players move around.”

Events, accidents, the unexpected, happen, say Tyson and Basile. And in economics, let's not even talk about it. In fact, another example happened yesterday (and counting...) in Argentina.

The Central Bank entered the repo cycle, offering banks the opportunity to deposit their surplus pesos there at 36% per annum. This is a higher rate than the 29% it paid with the LEFI (Liquidity Fiscal Bonds, which served their purpose of facilitating the elimination of the BCRA's interest-bearing liabilities) and which the monetary authority itself operationally discontinued on July 10.

But yesterday, it turned out that the monetary authority not only validated a higher interest rate than it had a few days ago, but also intervened in the rate, something it said it wouldn't do.

The monetary authority intervened in futures and also lowered the one-month dollar position below the spot market value. Banks sold dollars and used pesos to take advantage of the rate hike approved by the Central Bank to buy futures.

The magnitude of their participation was such that in the previous days, Repos operations hadn't reached $500 billion. Yesterday, they were $4.39 trillion. They increased 238% in a single day. The good news: the dollar fell. Yesterday, the official exchange rate reached $1,300 mid-day and closed at $1,280. However, the market was left with a bitter taste in its mouth. It was confirmation that the government was erasing with its elbow what it had announced almost a month earlier , on June 9, when it announced, within the framework of the launch of Phase 3, the elimination "of the notion of the monetary policy interest rate, typical of schemes such as inflation targeting. Instead, the interest rate will be determined endogenously by the market, in line with a regime centered on monetary aggregates."

This, which is highly technical and understood by only a handful of economists, is part of a scheme in which the government aims to fix the amount of money in the economy to lower inflation, and for the exchange rate and interest rate to "float" (or be determined endogenously).

The problem is that either removing the LEFIs in a flash, or pretending that interest rates or the dollar are determined by supply and demand, creates immediate difficulties and frictions that yesterday demonstrated the government's unwillingness to address, because it would mean taking unnecessary risks in the face of an election year.

"We need a market maker; the Argentine market doesn't have the capacity to withstand a Central Bank move," an experienced economist told Federico Sturzenegger a few days ago regarding these recent measures to eliminate the LEFI (Federal Reserve Banks). Many economists in the City recognize the Minister of Deregulation's ability to engage in dialogue and listen to them, even when he doesn't agree with them, something they don't find today with other members of the economic team , whom they know from their time in the private sector on Wall Street. Quite a few believe someone made a mistake.

The Central Bank reported this Monday that the monetary base increased from $33.1 trillion on July 8 to $43 trillion on July 10. This 10 trillion peso avalanche into the economy is explained by the $15 trillion drop in the LEFI stock. The Ministry of Finance will absorb $5 trillion in bonds in today's auction , but $10 trillion is left over: half went to reserve requirements and the other half to the Central Bank's Repos and to purchase the Lecaps it sold on Friday; the surety rates fell from 30% to 15%, and the dollar rose.

So was there a macroeconomic or financial programming error in the $10 trillion increase in the monetary base already included in the series published on the monetary authority's website?

Something similar happened last year, before the announcement of Phase 2, with monetary expansion. Javier Milei channeled some criticism at the time.

This past Thursday, the day the increase in the monetary base was reflected, the Central Bank implemented two measures to counteract the non-neutral effect of the measure: it allowed banks to hold 30% of their assets linked to the dollar in addition to their foreign currency positions and carry over the excess integration between July and October to the following month's position. But since this wasn't enough, the monetary authority sold Lecaps, which lowered bond prices and raised rates to offset this excess peso holdings.

Late Tuesday, Luis Caputo blamed the banks in X: "The banks were supposed to exchange the lefi for lecaps. But the banks, afraid of losing daily liquidity, didn't go all out and preferred to make instalments. Since everyone over-invested at the same time, it was clear that this was going to lead to a drop in the short rate, so the Central Bank began to absorb this excess liquidity [...] But in the meantime, since these pesos are settled next Friday, the BCRA absorbed 5 trillion in the last 3 business days, while the priority always was, is and will be, to ensure that there are no surplus pesos, in order to consolidate the disinflation process that we are going through."

No problem. The banks were supposed to exchange the Lefi for Lecaps. But the banks, fearful of losing daily liquidity, didn't go all in and preferred to invest in instalments. Since they all overflowed at the same time, it was clear that this would lead to a drop in the… https://t.co/Vo6LfPPqWZ

— totocaputo (@LuisCaputoAR) July 16, 2025

The market is shocked when the Central Bank says one day that the rate will be endogenous and then does the opposite a month later. It's less concerned about the rise of the dollar because it's ultimately a self-adjustment mechanism in a floating exchange rate regime and in a scenario where some US$10 billion in privately held securities will have to be refinanced next year. Buying reserves would allow for a further reduction in country risk and market access. If the government has done anything to date, it's adjusted and changed its plan. That's when it gets hit.