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Day one of the grand experiment to cure Argentina’s crisis-ravaged economy handed President Javier Milei a victory.
His government’s moves to devalue the peso 54% and slash the budget were received well on Wall Street, where traders bid up the country’s bonds, and, more importantly, at home, where there were no signs of panic among inflation-wary Argentine shoppers and investors.
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Argentines appear willing to endure the short-term pain because Milei is promising relief to come — if everyone can just buckle down for the trials ahead, the thinking goes, redemption is on its way. And the population is desperate for relief as the country heads to its sixth recession of the past decade with poverty rates topping 40% after years of mismanagement.
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There’s no doubt it will be painful for most people, as already fuel refiners have hiked prices by some 40%, according to
a report in La Nacion. A coalition of groups opposed to Milei’s austerity program announced demonstrations in Buenos Aires on Dec. 20. The new government says it’s developing a strategy to deal with any disruptions or traffic blockades.
But at this point, most Argentines see Milei’s ideas as the best bet for normalizing the economy.
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Central bank President Santiago Bausili told them that his short-term goal is to accumulate dollar reserves, with a broader aim of eliminating exchange restrictions down the line, according to people who attended the meeting but asked not to be identified.
Bausili also told them that he won’t break contracts or breach previous commitments with the banks, and there won’t be any changes imposed to notes that have already been sold. The central bank chief expects more dollars to flow into the country in 2024 from agricultural exports and foreign investment, the people said.
The central bank’s press office didn’t respond to a request for comment.
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Some analysts and investors warned, however, that the optimism may be overdone. Alejo Costa, the chief strategist at BTG Pactual in Buenos Aires, said it was far too early to celebrate the tighter exchange rates.
“These plans always cause a reduction in the exchange gap on the first day,” Costa said. “Then it starts to grow.”
For now, though, it seems most Argentines and investors are maintaining a sense of optimism, recognizing that the shock therapy proposed by Milei might be exactly what the country needs.
“The best analogy I would use is that they put all the meat on the grill, which is an age old Argentine saying, which means that you just throw the sink at this thing,” said Walter Stoeppelwerth, a senior strategist at Montevideo-based brokerage Gletir. “If you wait, you give time for your opposition, enemies to regroup and to mount a significant problem.”
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