The winning candidate downplayed the situation. “Many of the analyzes that are doing the rounds are quite precarious. What happens is that many international analysts are nourished by local analysts who also play politically. The things they are told about me are not positive at all. But what better for the market than a pro-market economist”, Milei told Continental and Millennium radio stations.
Milei shook the Argentine political scene on Sunday by becoming the most voted presidential candidate after uniting the votes of Argentines dissatisfied with the traditional political leadership that in recent years has been unable to combat inflation, insecurity and corruption.
The Central Bank ordered a change in the administration of the exchange rate, leaving behind the daily adjustment to stabilize the value of the peso. The measure implies bringing forward the devaluation scheduled for the coming months and establishing an exchange rate of 350 pesos per US dollar. This rate is the one used to pay for imports and liquidate exports. In turn, the reference interest rate rose 21 points to 118% per year to prevent Argentines from taking refuge in the dollar so as not to lose purchasing power.
Within a few hours, the blackboards of the state-owned Banco Nación showed the dollar at 365 pesos. Meanwhile, the dollar that trades in the parallel market, which savers resort to due to government limitations to acquire foreign currency, shot up to 690 pesos compared to 605 on Friday, according to some operators consulted by The Associated Press.
The monetary authority said in a statement that it believes “advisable to readjust the level of interest rates… in order to anchor exchange expectations and minimize the degree of transfer to prices, tend towards positive real returns on investments in local currency and favor the accumulation of international reserves”.
For its part, at 1:00 p.m. local time (1600 GMT) the Merval index -which groups companies listed on the Buenos Aires Stock Exchange- recovered from the fall of the first hours and rose 3.08%.
In the surprise internships that revealed a tilt of the electorate to the right, former Security Minister Patricia Bullrich was the winner of the internship of the opposition coalition Together for Change, while the ruling Peronism ranked third with the Minister of Economy , Sergio Massa, as a candidate.
Analysts pointed out that the market expected a clear victory for Together for Change and today there are fewer certainties.
Jorge Arias, from the Polilat consultancy, predicted a volatile and highly problematic economic scenario until the October 22 elections after the victory of Milei, who proposes to dollarize the economy to combat inflation at a time when the Central Bank suffers a decrease in its international reserves.
“The markets are going to be highly speculative, even more so than before, with a Central Bank and an economy that is quite battered, so there are not many possibilities of fire in a scenario that is going to be dependent on any rumor and operation with a handful of dollars, because this is the greatest weakness that the economy has today,” Arias told AP.
He added that Massa -a moderate within Peronism who has well-established ties with US leaders and is accepted by the financial markets- “will have to assert all the qualities of a magician, both as a candidate and as Minister of Economy… to generate actions that they can tame the situation”.
Milei also proposes closing the Central Bank to prevent it from continuing to issue pesos and accelerating inflation -the last measurement in June gave 115% year-on-year-, which threw 40% of the population into poverty.
Mariano Machado, principal analyst for the Americas at risk intelligence company Verisk Maplecroft, said that Milei has not yet provided details on how it would implement its measures.
“The dollarization of costs could end the competitiveness of the few sectors that continue to drive the local economy, such as the agricultural sector, crucial for obtaining foreign currency, and those that present future opportunities such as mining, oil and gas” , Machado said.
He further indicated that “a significant increase in unemployment and/or informality would increase the heat under the existing pressure cooker.”
“What is happening today scares me more than yesterday’s results. The peso has already been devalued, that is going to impact prices and salaries, the interest rate and the ‘blue’ dollar (parallel) are going up again and we all know that it is an escalation that is not going to stop,” Hernán Cortizo told AP , 48 years old, owner of a clothing business.
According to the consultancy Capital Economics, “the fall of the peso will push inflation even more, perhaps up to 130-140%” annually.
The consultant wondered if this scenario will alter the anticipated disbursements of the program that Argentina agreed with the International Monetary Fund in the framework of the refinancing of a debt contracted in 2018 for some 45,000 million dollars. The Fund’s board must meet in the second half of August to approve them.
Milei said that “it may be that there will be” a meeting with the IMF and noted that the agency “should not have problems with the program that we have proposed because we propose a much deeper fiscal adjustment” than the one proposed by the candidate of the main force opposition.
According to analysts, the far-right garnered votes both in the wealthy classes and in poor sectors fed up with economic instability and crime.
Milei is in favor of the free carrying of arms and the sale of organs and against abortion. He affirms that climate change is a lie and is an admirer of the former presidents of Brazil and the United States, Jair Bolsonaro and Donald Trump, respectively.
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AP journalists Débora Rey and Daniel Politi contributed to this story.
FOUNTAIN: Associated Press
