Following the election of Javier Milei as Argentina’s president, the international financial market has turned its attention to the need for immediate and profound reforms. Although Milei’s first speech as president-elect was characterized by unexpected moderation and he avoided mentioning his two campaign promises, dollarization and the closure of the Central Bank, investors believe that his libertarian plan could pose a threat to financial stability.
Jaime Reusche, Vice President – Senior Credit Officer de Moody’s Investors Service stated that “Milei’s proposed strong measures during his campaign could eventually address the stark imbalances that currently paralyze Argentina’s economic activity, distort relative prices, and reduce purchasing power. However, if enacted as described, these measures would cause an abrupt and deep economic adjustment, collapsing domestic demand and threatening financial stability.”
Investment banking JP Morgan placed its magnifying glass on the risks of implementing Milei’s announced reforms. “President-elect Milei offers a bold reform agenda, but governance risks loom given the lack of party structure and also the distribution of power in Congress after the elections,” warned economists Diego Pereira, Lucila Barbeito y Gorka Lalaguna in a report for its clients. The US bank predicted that Milei would need to negotiate with other parties before deciding on a bimonetary exchange scheme or dollarization of the economy. This decision could not be made for another year. However, it is expected that upon taking office he will realign the anticipated exchange rate with a level consistent with the parallel exchange rate to realign relative prices firmly and gradually remove capital controls. This adjustment should be accompanied by a draconian fiscal adjustment to compensate for lost seigniorage income and create incentives to rebuild central bank foreign exchange reserves.
Meanwhile, Barclays focused on governance challenges facing Milei. “The biggest challenges will come from