LONDON (Reuters) -Right-wing libertarian Javier Milei has won Argentina’s presidential election, putting an outsider with radical views in charge to fix South America’s No. 2 economy battered by triple-digit inflation, a looming recession and rising poverty.
+ Argentina’s domestic markets are closed on Monday for a local holiday
+ International sovereign dollar bonds rose as much as 2.6 cents before retracing some gains to stand up 0.9-1.2 cents with the curve trading around 30 cents in the dollar
+ U.S.-listed shares of Argentinian companies rise premarket with financial and energy firms chalking up double-digit gains
Below are comments from analysts:
FERNANDO D SEDANO, MORGAN STANLEY, SAO PAOLO, BRAZIL
“We expect policy changes, yet we are mindful of political limitations.”
“We expect the next administration to adjust the official FX early on and in a significant manner, and we expect an attempt to eliminate the primary fiscal deficit next year, and a relatively quick lifting of capital and import controls, at least on flows.”
“We expect at least a roughly 80% adjustment of the official FX in December this year. This is assuming that the current government manages to keep the promised crawling pace of the official FX at a rate of roughly 3% per month in the next three weeks, which we see as a challenging objective now.”
LUCILLA BONILLA, OXFORD ECONOMICS, LONDON, UNITED KINGDOM
“We think sustained fiscal discipline is needed to maintain monetary sovereignty and provide a more balanced and credible backdrop to stabilizing the economy. Although we’d already factored in a sizeable fiscal adjustment for 2024, Milei’s victory will result in an even larger consolidation as he has promised to limit the role of the state.”
“Argentina will have to restructure its debt again, otherwise default by 2025 is likely. Our present value analysis estimates sovereign bond fair value around 30-35. The positive differential that Milei presents to the restructuring is an upside to the debt sustainability analysis, a pivotal factor in IMF agreements.”
JIMENA BLANCO, VERISK MAPLECROFT, MALAGA, SPAIN
“Argentina’s economic future hinges on Milei’s ability to present a credible stabilisation plan with a view to restore macroeconomic order – this would require a major devaluation of the official ARS/USD FX rate to remove the gap with the other FX instruments ahead of lifting capital and currency controls, as well as a contractionary monetary and fiscal policy.”
“The Latin American precedent has shown that outsiders are forced to moderate – in policy terms, even if not in rhetoric – by the centrist allies they need to legislate, or increasingly turn to using decree powers.”
DIEGO W. PEREIRA, JPMORGAN, NEW YORK
“President Elect Milei is offering a bold reform agenda ahead, but the main challenge is that it may be hindered by political manoeuvrability. Governability risks lay ahead given the lack of party structure, and also the power distribution in Congress after the general elections.
“Any stabilization program aiming to successfully reduce inflation must address the consolidated public sector deficit as a whole, encompassing both the headline fiscal deficit and central bank interest payments on remunerated liabilities, together with the strengthening of the central bank balance sheet amid FX reserves rebuilding.”
SERGIO ARMELLA, GOLDMAN SACHS, NEW YORK
“It is indisputable that a swift change from the failed economic policies of the past is imperative. The accumulated imbalances in the economy have grown too large and must be addressed promptly.
“In our view, a tangible and structural fiscal adjustment (e.g., moving to a sustainable primary surplus), a responsible independent central bank free from the grip of fiscal dominance, financial liberalization, and structural reforms to make the economy more open, productive, and flexible, are needed to put the economy on a sustainable path.”
ALEJANDRO ANIBAL DEMICHELIS AND PEDRO BAPTISTA, JEFFERIES
“Whilst we believe that the election result should bring positive changes to the country (eg, reducing budget deficit, and removing frictions in the economy), these are unlikely to be easy and/or quick.”
“To us, governability and risk of social unrest are key concerns as the new administration’s push to remove relative price distortions, subsidies (particularly on energy and food) and FX controls could accelerate inflation and the devaluation of the currency near term.”
CHRIS TURNER, ING, LONDON, UNITED KINGDOM
“Given the parlous state of public finances and the very low representation of his party in Congress, it looks as though it will take some time to push reforms through. Investors and corporates will be keen, however, to see developments in the exchange rate. The official rate is ARS350/USD, the ‘blue’ kerb rate is ARS920/USD, and the 12-month NDF outright is around ARS1600/USD.
“We expect bonds to jump in today’s trading, putting bonds closer to the mid-30s range. This assumes no further announcements are made. Further gains are possible if there are any announcements on Milei’s economic plans and team. However, no announcement should be expected today as, according to local media, Milei and President Alberto Fernandez will discuss the measures to be implemented during the transition in the afternoon.”
BRUNO GENNARI, KNG SECURITIES, LONDON, UNITED KINGDOM
“A major part of the discussions is likely to focus on the exchange rate regime. Given Milei’s commitment to dollarization and his reiteration that he will implement shock policies, it is expected that exporters will delay settlements to take advantage of a correction in the official exchange rate, while importers will try to purchase as many goods and services as possible at the cheaper official exchange rate.”
RABOBANK, BENJAMIN PICTON, SYDNEY, AUSTRALIA
“Comparisons have been drawn between Milei and former U.S. President Donald Trump, who celebrated the election result by posting; “The whole world was watching! I am very proud of you. You will turn your country around and truly Make Argentina Great Again!”.
“Milei and Trump share an erratic, populist style and a pugilistic approach to foreign policy, but the similarities may end there. Milei’s pledge to dollarize the Argentine economy and restrain social spending will likely lead to a painful period of deflation for Argentines.”
(Reporting by Karin Strohecker, editing by Ed Osmond and Chizu Nomiyama)