A customer counts Argentine peso bills before checking out in a supermarket, in Buenos Aires, Argentina January 13, 2025. REUTERS/Agustin Marcarian

By Walter Bianchi

BUENOS AIRES (Reuters) -Argentina's Treasury is rapidly depleting its dollar reserves to defend the peso, straining financial markets on Wednesday as funds from a special deal with agricultural exporters run low weeks before midterm elections.

Traders estimate the Treasury, under the Economy Ministry, has sold around $2 billion in recent sessions to support the weakening peso. The ministry does not publicly report its market operations.

The interventions have rapidly depleted the Treasury's hard currency holdings. According to a report from Portfolio Personal Inversiones, dollar deposits held at the central bank plunged from $1.44 billion last Friday to just $680 million, leaving only "a few more days" of intervention capacity at the current pace.

The Treasury has now sold off over three-quarters of the hard currency it raised from the export scheme, according to consultancy Wise Capital.

Late last month, the government suspended export taxes on grains and their byproducts. Within a few days, traders committed to selling some $7 billion worth of crops, largely soybeans to China. Cash poured in, but the deal has stoked tensions with Washington, as U.S. farmers have been frozen out of the Chinese market due to a tariff standoff.

The pressure is mounting ahead of Argentina's legislative elections on October 26, seen as a crucial test for libertarian President Javier Milei's administration.

In a bid to calm markets, Economy Minister Luis Caputo is in Washington negotiating a potential $20 billion currency swap deal. An announcement could follow a planned meeting between Milei and U.S. President Donald Trump next week.

IMF Managing Director Kristalina Georgieva told Reuters the fund is working closely with the U.S., the World Bank and the Inter-American Development Bank to develop an aid package for Argentina.

On Wednesday, the wholesale peso held at 1,430 per dollar, but the parallel rate used for moving money abroad climbed to 1,556 per greenback, widening the exchange-rate gap to nearly 9%.

The consensus among economists is that the current intervention strategy is a temporary bridge until the election. A new, freer foreign-exchange regime is widely expected afterward, with its implementation dependent on the election results and securing U.S. financial support.

In asset markets, sovereign bond prices fell by an average of 1%. In contrast, the S&P Merval stock index reversed early losses to close up 1.42%.

Meanwhile, shares in aluminum producer Aluar jumped 2.93% after the government temporarily suspended export tariffs on the metal.

(Reporting by Walter Bianchi in Buenos Aires; Additional reporting by Rodrigo Campos in New York; Editing by Marguerita Choy and David Gregorio)