U.S. Dollar Reachs $1300 Mark once more as Week Commences under Official Supervision
The government of Argentina announced a significant policy shift in July 2025, implementing a permanent reduction in agricultural export taxes. This move, initiated by President Javier Milei, is set to have far-reaching impacts on the Argentine economy, particularly on the exchange rate, bonds, and stocks.
Exchange Rate: The reduction in export taxes on major agricultural products like soybeans, corn, sunflower seeds, beef, and poultry could potentially lead to an increase in agricultural exports and output. This may result in improved foreign currency inflows due to higher export volumes, potentially alleviating pressures on the official exchange rate and increasing foreign exchange availability in the market.
Bonds: The fiscal revenue reduction created by the tax cuts raises concerns over fiscal sustainability. If the government compensates by raising other taxes or increasing borrowing, it could influence sovereign bond yields. Improved agricultural output and export growth might support economic growth and improve investor sentiment, potentially benefiting bond prices. However, fiscal uncertainty could also increase risk premiums on Argentine debt depending on market confidence in fiscal management.
Stocks: The reduction in export taxes benefits producers and agribusiness firms by increasing their net profits and export competitiveness, which could positively impact stock prices in the agricultural sector. Improved agricultural sector performance may attract investor interest and boost equities tied to exports and commodities.
Details of the Tax Reductions: - Beef and poultry withholding tax reduced from 6.75% to 5% - Corn and sorghum from 12% to 9.5% - Sunflower seeds from 7.5% to 5.5% - Soybeans from 33% to 26% - Soybean by-products from 31% to 24.5%
The overall effect depends on the government's ability to balance fiscal revenues and maintain macroeconomic stability while fostering export growth. The policy marks a clear step toward gradual elimination of export taxes and is expected to raise agricultural output, with mixed implications for fiscal revenue and economic indicators.
Key Market Indicators: - The official wholesale exchange rate increased to $1293.68, showing a growth of $13.36 from the close on Friday. - The S&P Merval index has recorded two consecutive weeks of gains. - Sovereign dollar bonds operated with a majority of gains, with the Bonar 2029 (+1.24%) and the Global 2041 (+1.15%) leading the way in the bond market. - Country risk closed at 734 basic points on Friday, July 25. - A technical agreement had been reached with the International Monetary Fund (IMF) for the first review of targets. - Several Argentine stocks traded on the New York Stock Exchange (ADRs) experienced growth, including Edenor (+6.9%), Loma Negra (+2.2%), and Cresud (+2%). - Sociedad Comercial del Plata (+8.6%), Edenor (+8.5%), Transportadora de Gas del Norte (+5.2%), and Metrogas (+4.4%) stood out in the panel of companies with the highest volume of operations. - Since the beginning of July, the official wholesale exchange rate has accumulated an increase of 7.6%. - It is expected that this week the Board will approve the agreement, and the US$2,000 million will be disbursed. - In the informal market, the dollar blue was traded at $1320 in the porteño city.
The precise quantitative impacts of these changes remain difficult to assess at this early stage, but it is clear that the permanent reduction in agricultural export taxes is expected to have a significant impact on the Argentine economy.
Company: The reduction in agricultural export taxes could potentially boost the profits of agribusiness firms, attracting more foreign investment.
Finance: Improved investor sentiment and increased foreign exchange availability, due to higher export volumes, might influence sovereign bond yields and bond prices positively, but fiscal uncertainty could also increase risk premiums depending on market confidence in fiscal management.
