December 6, 2023
Can Argentina Really Move Beyond the Peso? , cnn business

London CNN –

Javier Miley wins Argentina’s presidential election on Sunday to revamp South America’s No. 2 economy and dig it The peso currency favors the US dollar.

Will the libertarian’s radical plans succeed?

Miley’s La Libertad Avanza coalition won the election with about 56% of the vote, defeating the incumbent centre-left Peronist party and its candidate, Economy Minister Sergio Massa.

In his victory speech on Sunday, Miley provided few details about the economic policies he plans to pursue when he takes office on Dec. 10. But the self-proclaimed “anarcho-capitalist” – who used a chainsaw on the campaign trail to symbolize his plans to cut state spending – promised “drastic” reforms.

Miley declared, “The decadence model is over, there’s no turning back.”

He acknowledged the challenges he faced, saying, “Today we have ended the destructive model of the current state, which benefits only a few while harming the majority of Argentines.”

“We have big problems: inflation, economic stagnation, lack of real employment, insecurity, poverty and destitution.”

Financial markets widely welcomed Miley’s win, which is likely to mark the beginning of a sea Changes in economic policy making. Miley of course Dealing with inflation above 140%, dwindling foreign exchange reserves and the possibility of another painful recession.

Argentina’s dollar bonds rose on Monday, while shares of several Argentine companies listed in New York rose. State-owned energy company YPF jumped 40%, and Banco Banco Macro (BMA) and Grupo Financiero Galicia (GGAL) rose 20% each.

Argentina’s financial markets are closed on Monday for a local holiday, but the peso weakened slightly to about 353.58 against the US dollar in partial trading. The currency’s value has fallen 875% against the dollar over the past five years.

Miley has promised to lift currency controls and import restrictions, which analysts say will put even more pressure on the peso, pushing the currency’s value closer to the levels at which it trades in various informal markets. Is.

Bruno Gennari, an Argentina specialist at fixed income broker dealer KNG Securities, said the peso on crypto exchanges was trading at $1,009 against the dollar on Monday, significantly weaker than the $869 and $975 rates seen on Friday.

A former economist and TV pundit who ran for president on a promise to “break the status quo”, Miley promised a signature campaign to “dollarize” Argentina, calling it a cure for the country’s hyperinflation problem. Told as.

It’s a move that other countries have taken, none the size of Argentina, Latin America’s third-largest economy after Brazil and Mexico.

dollarization means argentina Would abandon the peso and use the US dollar as its currency, effectively wresting control of monetary policy from the country’s central bank and handing it over to the US federal Reserve.

The move would also deprive Argentina’s central bank of the ability to print money – a tactic it often employs to help the country’s spendthrift government avoid defaulting on its debts. This, in turn, led to uncontrolled price increases.

Analysts agree that dollarization will help overcome inflation. But he doubts Miley has the political or popular support to carry out this agenda.

“We suspect that some of his more radical proposals — namely dollarization — may not materialize, given limited support in both Congress and the public,” William Jackson, chief emerging markets economist at Capital Economics, wrote in a note Monday.

He said that, although dollarization “would be a sure way to bring inflation under control, it would not be the solution to the country’s financial problems.”

In a sign that he is seeking support from centrist parties, Miley did not mention dollarization or prior plans to close the central bank in his victory speech.

“That’s not going to happen in the near term,” said Thierry Larose, portfolio manager at Vontobel Asset Management in Zurich. In addition to political obstacles, the fragile state of Argentina’s economy leaves it in no position to generate dollars, he said told CNN, calling it a “terrible idea.”

This is because in the current situation, the conversion rate would be highly unfavorable to the peso, significantly weakening the currency and possibly increasing poverty, which government figures already put at around 40%.

“If you want to create dollars at (a) conversion rate that makes sense from a social and economic perspective, you need a minimum amount of international reserves,” LaRose said. Currently, the government’s foreign exchange reserves worth more than $10 billion are at risk.

“The path toward dollarization”, however, could benefit the economy, LaRose said.

“For dollarization… you need to stabilize (the economy): eliminate hyperinflation, rebuild foreign exchange reserves,” he said. “You need fiscal consolidation and ultimately you need access to capital markets.”

He may still be some distance away. The International Monetary Fund (IMF) has effectively blocked Argentina from accessing international markets while the country pays off its debts. Argentina owes the Washington, DC-based lender about $44 billion following a historic bailout in 2018.

The fund’s managing director Kristalina Georgieva on Monday congratulated Miley on her election victory. “We look forward to working closely with him and his administration in the years ahead to develop and implement a strong plan to protect macroeconomic stability and foster inclusive growth for all Argentines,” he said. ” wrote On X, the platform formerly known as Twitter.

Miley will need all the help she can get. The World Bank expects Argentina’s economy to shrink by 2.5% in 2023, in part due to a devastating drought that is estimated to cause a $20 billion loss in agricultural exports.

Furthermore, Capital Economics’ Jackson expects the IMF to “step away” from its recent largesse toward Argentina. “It is not clear whether debt restructuring will be sought at this point, but we are moving in that direction,” he said.

, Valentina Gonzalez, Stefano Pozzibon, Olesya Dmitrakova and Reuters contributed reporting.


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