Argentine markets, which soared after the president Javier Milei took office a month ago, are now giving the libertarian leader a dose of reality, with bond prices falling, the peso weakening again and investors wary of the government's new debt auctions.
The cold shower from investors, after an initial honeymoon, highlights the enormous challenge that Milei faces in trying to contain inflation — which is approaching 200% —, avoid social unrest, rebuild the country's reserves and rescue a program of 44 billion dollars with the International Monetary Fund (IMF).
He also faces resistance in Congress, where his libertarian coalition does not have a majority, to his “omnibus” reform project, which aims to privatize state entities and increase taxes. A decree deregulating the economy also faced legal obstacles.
“Reality is hitting him in the face,” said local financial analyst Marcelo Rojas. “Their intentions are good, but that’s not enough and that’s what we’re starting to see.”
The country's sovereign bond prices have started to fall after a strong run since Milei's victory in mid-November. A country risk index hit the highest level in seven weeks, and a “Bopreal” bond aimed at importers failed to find buyers.
Milei's government: Exchange rate disparity and controversial policies
Meanwhile, the gap between the official peso-dollar exchange rate and parallel rates — used by many to bypass strict capital controls — is widening again after a major devaluation in December narrowed it significantly.
“The government is beginning to face its first obstacles. Its lack of political strength is now more evident: the bonus for importers failed to take off and the exchange rate difference widened again sooner than expected,” broker Cohen said in a note.
She added that Milei's decree and reform project do not look promising unless the president is willing to make concessions.
However, the central bank has accumulated $4 billion in reserves since Milei took over. The S&P Merval grows, with YPF valued by rumors of privatization.
Eyes on inflation
Everyone is watching the economy, expecting inflation of almost 30% in December and more than 200% last year. Two-fifths of the population are already in poverty.
The country, a grain exporter, is negotiating in Buenos Aires to reactivate the agreement with the IMF, aiming to release 3.3 billion dollars in the seventh review.
Economist Aldo Abram, from the Libertad y Progreso Foundation, stated that the market is influenced by the success or failure of Milei's reforms. The December 20 Itaú BBA report indicates that Mato Grosso crop productivity fell by 20% compared to initial estimates.
“On the other hand, anything that leads to confirmation of the change of course will encourage preference for local assets, moving us away from the crisis.”
Source: Jorge Otaola | Notícias Agrícolas
