President Javier Milei Greet Supporters from Casa Rosada Balcony Following Swearing-In Ceremony
“Buenos Aires Braces for Economic Shock as President Javier Milei Unveils Plans”
Argentine voters may be apprehensive about new President Javier Milei’s commitment to painful economic shock therapy, but markets are optimistic. The libertarian leader is expected to provide a detailed plan this week, and markets are hopeful that he will give the economy a “firm kick” to address the country’s severe economic crisis. The outsider economist has reiterated his intention for significant spending cuts to combat Argentina’s worst economic downturn in two decades, aiming to reduce inflation nearing 150%. However, he cautioned that the situation might worsen before showing signs of improvement.
“No Money: President Javier Milei Vows Tough Decisions in Inaugural Speech”
In his inaugural speech, President Javier Milei reiterated the stark reality by saying, “There is no money,” committing to making difficult decisions even if it brings short-term pain to the country. Addressing the monumental challenge ahead, he acknowledged, “The challenge we have ahead is titanic.”
Analysts emphasized the importance of Milei, who garnered support with a “chainsaw” economic plan aimed at reducing state spending and rectifying a deep deficit, following through on his resolute stance. The president’s commitment to fiscal responsibility has positively impacted stocks and bonds in recent weeks.
“Milei’s Invocation of ‘Blood, Toil, Tears, and Sweat’ Reflects Deliberate Strategy, Not Just Rhetoric”
According to Mariano Machado, Principal Americas Analyst at Verisk Maplecroft, Javier Milei’s deliberate echo of ‘blood, toil, tears, and sweat’ is more than just rhetoric. It is a strategic move to manage expectations and instill a sense of urgency as the country faces a challenging fiscal path.
“Beyond fiery speeches, effective governance is the linchpin to stabilization, and the playbook of the new administration remains a puzzle,” Machado added.
Javier Milei’s economy chief, Luis Caputo, is anticipated to announce a series of economic measures, and investors are particularly attentive to potential developments such as a devaluation of the peso, currently subject to currency controls, public spending cuts, and potential privatizations.
In his inaugural address, President Milei mentioned a fiscal adjustment of 5% of gross domestic product, emphasizing its impact on the state rather than the private sector, although specific details were not provided.
“Milei’s focus is on eliminating the fiscal deficit, the Achilles heel of the Argentine economy,” noted Kezia McKeague, Regional Director at McLarty Associates in Washington, who provides counsel to multinational companies on matters related to Argentina.
CUTTING BACK
“Pivotal Cuts Expected as Milei’s Administration Targets Fiscal Adjustment”
Potential cuts in Argentina could involve the removal of tariff subsidies, reductions in capital expenditures, and a decrease in fiscal transfers to provinces, according to Fernando Marull, founder of the Buenos Aires-based economic consultancy FMyA. While Marull deems the 5% cut as “achievable,” the primary challenge lies in governability, particularly with a significant portion of the population living in poverty. The success of President Javier Milei’s fiscal adjustment plan is viewed as critical for Argentina to reenter the international arena, with a narrow six-month window identified.
Economist Gustavo Ber stressed the urgency for the new administration to swiftly restore confidence, acknowledging the need for social and legislative support amid anticipated economic challenges and rising inflation. Consulting firm GMA Capital Research expressed concerns about the “terrifying” macroeconomic outlook, foreseeing further challenges despite already reaching the highest inflation rate in the last 30 years.
Milei faces the daunting task of rebuilding depleted central bank reserves, estimated to be a net $10 billion in the red, addressing an impending recession, reducing the 40% poverty rate, and overhauling a struggling $44 billion program with the International Monetary Fund. Analysts emphasize that his initial weeks in office will set the tone, highlighting the importance of prompt action, including the elimination of capital controls, to navigate the challenging economic landscape .
“Morgan Stanley Warns of Potential FX Adjustment in Argentina, Citing Need for Credible Economic Program”
In a December 7 note, Morgan Stanley highlighted that without a robust economic program, Argentina might be compelled to significantly weaken its exchange rate, currently standing at around 365 per dollar. The investment bank suggested that such an adjustment appears inevitable and could lead to a rate of 700 per dollar. Emphasizing the importance of a credible economic program, Morgan Stanley explained that a weaker exchange rate might be seen as necessary to attract investment in the absence of a comprehensive economic strategy.