Milei’s Shock Therapy Sparks Interest, Yet Investors Seek Further Clarity
Just days into his presidency, Javier Milei’s administration unveiled a series of ten measures aimed at revitalizing Argentina’s struggling economy. However, despite the initial positive response from investors, some are left craving more decisive actions and a clearer implementation plan.
Economy Minister Luis Caputo, in collaboration with Milei, kickstarted the promised “shock therapy” by devaluing the currency to 800 per dollar, a significant shift from the existing rate of 366.5. Although seen as a step in the right direction, it falls short of the parallel rate exceeding 1,000 used by Argentines to bypass currency controls.
Among the announced measures are plans to halve the number of ministries, reduce transfers to provinces, suspend public works, and trim subsidies in the transport and energy sectors while increasing support for certain social welfare programs.
Investors, while acknowledging the necessity of the outlined adjustments, express a desire for bolder moves and more comprehensive details. Diego Ferro, founder of M2M Capital, views the measures positively but finds them somewhat underwhelming, emphasizing the need for additional actions.
Following televised comments by Caputo, the Economy Ministry provided more information on spending cuts, monetary policy, and currency framework. Argentina aims for a 2% peso devaluation per month, with spending cuts equivalent to 2.9 percentage points of GDP. The central bank is expected to announce further details on monetary policy.
Investors share mixed sentiments on the initial measures. Jorge Piedrahita, founder of Gear Capital Management, criticizes the lack of a comprehensive economic plan, describing it as improvised. Alberto Bernal, Chief Strategist at XP Investments, recognizes the logical nature of the measures but warns of potential challenges in gaining approval and public acceptance.
Carolina Gialdi, head of international-markets sales and trading at Max Capital, raises concerns about the sustainability of the new exchange rate and calls for clarity on whether it will be fixed or floating.
Diego Ferro remains cautiously optimistic, emphasizing the importance of public reaction to the success of the measures. Joaquin Bagues, Managing Director at Novus Asset Management, applauds the boldness of the announcement but calls for more implementation details.
Oren Barack, managing director of fixed income at Alliance Global Partners, expects favorable market reactions to the initial steps, viewing them as essential for correcting past economic imbalances.
As Argentina embarks on this economic transformation, investors are closely watching for additional measures, detailed plans, and public reception, recognizing the challenges ahead.
