Milei Economic Revolution: In a seismic shift for Argentina’s economic landscape, libertarian Javier Milei’s victory in the presidential election triggered significant market movements. The black market peso experienced a sharp 12% decline to 1,045 per dollar on the first trading day after Milei’s win. Simultaneously, optimism swept through stocks and bonds as investors anticipated more market-friendly economic policies under the new leadership.
Following a Monday holiday, Argentina’s local markets reopened with a fervor, focusing on Milei’s pledge to cut spending after securing the presidential seat over the weekend. The local S&P Merval stock index witnessed a remarkable 23% surge, with state energy firm YPF leading the charge with nearly a 39% increase in shares. Notably, Milei hinted at the possibility of privatizing YPF, adding another layer of intrigue to the market dynamics.
However, Milei’s proposed plans for the dollar, including the potential for a significant peso devaluation or even the parallel use of the peso and U.S. dollar, exerted pressure on the local currency. While the official exchange rate hovered around 356 per dollar, maintained by stringent capital controls, the black market rate surged to 1,045, implying a devaluation of close to 66%.
Milei, known for advocating economic shock therapy, specifically targeting the longstanding issue of the peso’s overvaluation, promised substantial changes to the economy. His commitment to delivering economic reforms and his critical stance toward China and Brazil, key trading partners of Argentina, set the stage for a period of significant policy shifts.
Also Read: Milei Victory Shakes Up Argentina: Markets React to Libertarian Upset
S&P Global Ratings analysts noted the potential for deep swings in policy under the new government, emphasizing the historical correlation between policy changes and shifts in leadership. Meanwhile, Morgan Stanley analysts predicted an 80% drop in the peso over the next six weeks, underscoring the uncertainty surrounding the currency’s future trajectory.
In the run-up to the elections, Milei had expressed the desire to abandon the peso entirely in favor of the dollar. However, as he assumed the role of president-elect, questions arose about the pace at which he might pursue such a drastic measure. Milei’s first speech did not explicitly reference “dollarization,” leaving room for speculation about the timeline and approach to scrapping the peso.
Taking office on December 10, Milei’s administration is poised to grapple with a myriad of economic challenges, including soaring inflation at 143%, a situation expected to exacerbate with the devaluation of the peso. While international bonds experienced gains for a second consecutive day, rising as much as 1.7 cents on the 2029 note, the equity market, including the Global X MSCI Argentina ETF, demonstrated volatility.
The 22.8% surge in the local Merval marked the largest daily percentage increase on record, according to LSEG data. U.S.-listed shares of Argentine banks sustained most of their gains from Monday. As the country navigates through these transformative times, the lingering question remains: How swiftly will Milei’s proposed economic changes materialize, and what impact will they have on Argentina’s economic trajectory and global relations? The economic and political landscape is in flux, and stakeholders are closely watching how the president-elect’s vision translates into policy and action.