Written by Walter Bianchi
BUENOS AIRES (Reuters) – Argentine voters may have reason to be concerned about new President Javier Millei’s promise to deliver painful economic shock therapy, but markets are enthusiastic about what liberals plan to do this week. It is hoped that the announcement will give a “solid kick” to the economy. .
Outsider economists on Sunday reaffirmed plans to make tough spending cuts to tackle the country’s worst economic crisis in 20 years and bring inflation down by nearly 150%, but the situation could get much worse before it gets better. He warned that it would get worse.
In his first speech, he reiterated that “there is no money” and vowed to make tough decisions, even if it meant suffering for the country. “The challenges ahead of us are enormous.”
Analysts said Milley, who won support from voters with her “chainsaw” economic plan to cut state spending and tackle a deep budget deficit, needed to see through the tough talks. His election victory has boosted his stocks and bonds in recent weeks.
“The biggest risk in the coming days is that the signal is not strong enough,” consultancy EcoGo said in a note. “That signal should include a clear signal of a willingness to implement robust fiscal spending and structural reforms.”
Milay and Economy Secretary Luis Caputo are expected to announce a series of economic measures early this week, with investors eyeing a possible devaluation of the peso due to currency controls, public spending cuts and possible privatization.
“It is critical for the new government to quickly restore trust,” said economist Gustavo Vell, adding that the government needs social and legislative support given the economic pain and further spikes in inflation ahead. He added that it was necessary.
“The macroeconomic situation…is frightening to say the least. Inflation has already reached its highest level in 30 years, but everything indicates that the worst is yet to come.” said consulting firm GMA Capital Research.
Mr. Milley will rebuild depleted central bank reserves, which analysts estimate is a net $10 billion deficit, ease a looming recession, reduce poverty by 40%, and negotiate a failed deal with the International Monetary Fund. The $44 billion program needs to be restructured.
His first few weeks may set the tone.
“To get out of this situation, the new government needs to act quickly and lift capital controls as quickly as possible,” said Lautaro Moshe, an economist at the Freedom and Progress Foundation.
Without a strong economic plan, Argentina will have to significantly devalue its exchange rate, currently around $1 to $365, which could cause the dollar to double in value, Morgan Stanley said in a report. said.
“Forex adjustment appears inevitable,” the investment bank said in a Dec. 7 note, adding that the exchange rate could fall to as low as 700 yen to the dollar. “Economies without reliable economic planning may need to compensate for exchange rate depreciation to attract investment.”
(Reporting by Walter Bianchi; Writing by Adam Jourdan; Editing by Nick Zieminski)
