Argentina’s Precarious Equilibrium:

A Forensic View of Reform Risk and Investment Signals.

How headline progress conceals structural tension, and what The SAVI Group will monitor before committing significant capital.

Argentina’s economic narrative has shifted dramatically since President Javier Milei imposed shock therapy; monthly inflation has fallen, the Treasury now registers a primary surplus, and sovereign bonds have enjoyed a powerful rally. Yet beneath these optical gains lies a delicate balance that can easily break. Three forces bind the system in uneasy suspension: a central bank balance sheet laden with remunerated peso liabilities that are still backed by negative net reserves; a real economy that continues to contract while poverty deepens, eroding political capital; and legal as well as institutional resistance that threatens to stall pivotal reforms. A single external or domestic shock—an abrupt decline in commodity prices, an adverse court ruling, or a deposit flight once capital controls are relaxed could shatter confidence, force a disorderly devaluation, and reverse the fragile progress.

The numbers tell the story. Consumer prices that were rising twenty-one percent month on month in December 2023 slowed to 1.5 percent in May 2025, the lowest pace in five years. At the same time, the Monthly Economic Activity Estimator showed a contraction of four point two percent year on year in April 2025, and private composite gauges have printed negative year on year readings since January 2024. Poverty surged to fifty-three percent in the first half of 2024, the worst level since the crisis of two decades ago, and surveys indicate that real wages are still failing to catch up with prices. The social fabric is therefore fraying even as headline inflation improves.

External balances offer scant reassurance. The central bank moved from sizeable foreign‑currency purchases in early 2024 to net sales of approximately one billion seven hundred eighty million dollars in March 2025, its weakest month of the current programme, according to its exchange‑market report. Net reserves remain around negative six point four billion dollars, a constraint that keeps Argentina shut out of voluntary markets despite tighter spreads. Fitch Ratings notes that the modest reserve gains of 2024 have already been reversed in 2025 as carry trades unwind, underscoring how thin the external cushion remains .

Fiscal optics look stronger: the government reached what it calls “déficit cero”, delivering primary surpluses through eight consecutive months. Much of that adjustment, however, reflects the suspension of pension indexation and repeated delays in cutting energy subsidies, measures now under legal and congressional challenge. The president’s recent veto of a seven percent pension increase, equivalent to 0.9% of gross domestic product, illustrates how little room exists inside the fiscal envelope. Every new court injunction or spending bill threatens to reopen the gap.

Monetary engineering adds a further layer of fragility. Between May 2024 and July 2025, the central bank reduced the stock of remunerated liabilities from approximately 32 trillion pesos to 24 trillion pesos. Yet, more than sixty percent of that stock now sits in callable overnight repos, not the longer-dated instruments it replaced. Servicing those liabilities still costs the bank about two trillion six hundred billion pesos each month, money that will be printed unless fiscal surpluses sterilise it. Real Instituto Elcano calculates that credible dollarisation or even a comprehensive easing of capital controls would require an immediate reserve build‑up of thirty‑five to forty billion dollars to back those peso assets. Without that buffer, any large‑scale shift by banks or depositors into dollars risks triggering a peso run similar to Turkey’s lira crisis, but with no lender of last resort in the target currency.

Legal and institutional headwinds compound the challenge. Labour‑market chapters of the administration’s mega decree remain suspended by federal courts; provinces such as La Rioja are in external default while others face double‑digit yields; energy‑tariff hikes have been postponed again; and recurrent strikes, student protests, and violent clashes outside Congress illustrate social push‑back. Each event chips away at projected savings, slows deregulation, and raises the political cost of remaining on the current course as the October 2025 mid-term elections approach.

Winners and losers are emerging clearly. Large grain exporters benefited from a temporary “soy dollar”, delivering billions of dollars in export proceeds that briefly supported reserves. Banks capture high real returns on repos while shifting duration risk to the central bank. Energy majors enjoy an investor-friendly regulatory tide backed by the International Monetary Fund. In contrast, fixed-income households, pensioners, and minimum-wage earners have seen real transfers frozen or vetoed; public researchers and civil servants face layoffs and budget cuts of over twenty percent; and small import‑dependent firms struggle with lending rates that peaked near ninety percent annualised and with uneven access to foreign exchange.

Taken together, these elements form the genuine Achilles' heel of the stabilisation effort. Call it the peso time bomb lodged inside a political minefield. Overnight liabilities that can be liquefied at will sit on a balance sheet that lacks net hard currency; the social contract is stretched thin by falling real incomes; and institutional opponents are testing each reform in court. The self‑reinforcing spiral is easy to imagine: a legal setback or a commodity price shock rattles confidence; depositors and banks race for dollars; the central bank prints pesos to honour repos or devalues abruptly; inflation expectations jump; support for austerity evaporates; and the surplus disappears just as external markets close again.

Is there a credible exit ramp? Only a sequence that front loads reserve accumulation through larger IMF disbursements, bilateral swap lines, and voluntary debt for reserves exchanges; that ring fences bank balance sheets by lengthening repo maturities and converting part of the stock into indexed Treasury paper; that cushions the poorest households through narrowly targeted cash transfers costing less than one half of one percent of gross domestic product; that shares adjustment with provinces under enforceable spending caps; and that advances reforms in legally secure tranches can convert the present reprieve into durable stability. Absent that matrix of actions, the plan remains one shock away from collapse.

Outlook: Signs to Watch and The SAVI Group’s Stance

Argentina’s stabilisation thus rests on a narrow ridge. Inflation is falling; bonds have rallied; yet the underlying vulnerabilities, a central bank with negative net reserves promising convertibility to a banking system stuffed with overnight pesos; a real economy still shrinking; and institutions that can thwart cost savings could combine into a self-reinforcing spiral if confidence falters. The path to resilience requires front loaded reserve accumulation through larger International Monetary Fund tranches, bilateral swap lines, and voluntary debt for reserves exchanges; a lengthening of repo maturities and a partial swap into indexed Treasury paper to ring fence bank balance sheets; narrowly targeted social transfers financed by subsidy rationalisation to prevent further erosion of political capital; binding provincial spending caps linked to bridge financing; and a legal timetable that advances only those reforms with high constitutional durability.

The SAVI Group will watch four objective signals before reclassifying Argentina from opportunity under observation to opportunity ready for commitment. First, single-digit monthly inflation must translate into a sustained annual rate below thirty percent, supported by continued fiscal surpluses that are achieved without accounting maneuvers. Second, net reserves must turn positive and trend toward the International Monetary Fund target path, demonstrating that the central bank is rebuilding a buffer instead of defending a negative position. Third, the share of remunerated liabilities locked in overnight repos must fall materially, with clear evidence that interest costs are declining in peso terms and being sterilised through genuine demand for Treasury instruments. Fourth, the reform agenda must survive both judicial scrutiny and the forthcoming legislative elections, signalling that legal guarantees offered to investors today will endure beyond one political cycle.

Should these conditions take shape, an economy that grows after the present contraction, an exchange market liberalised without triggering another disorderly devaluation, and visible ground‑breaking on large RIGI projects, we will be prepared to move from observer to participant, allocating long-duration capital in sectors such as renewable energy, critical minerals, and logistics infrastructure. Argentina’s promise remains vast; its equilibrium, for now, remains precarious; our posture, therefore, remains neutral yet keenly attentive to the data that will show when prudence can give way to conviction.