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In a surprising turn of events, Argentine President-elect Javier Milei has steered away from some of his radical campaign promises, opting for a more moderate economic approach with advisers aligned with former leader Mauricio Macri. Milei’s initial proposals, including dollarization and closing the central bank, seem to be on hold amid a significant reshuffling of his economic team.
Milei distanced himself from his key dollarization advocate, Emilio Ocampo, and another hawkish adviser, Carlos Rodriguez, announced his departure. While Milei had previously expressed intentions to appoint Ocampo to lead Argentina’s central bank, he emphasized on Friday that closing the institution remained “non-negotiable.”
Taking their places are Luis Caputo and Demian Reidel, former Wall Street veterans who played crucial roles during Macri’s presidency from 2015 to 2019. Additionally, reports suggest that Milei may appoint his former rival, Patricia Bullrich, as the security minister, a position she held during Macri’s government.
The financial markets responded positively to Milei’s more moderate stance, with Argentina’s dollar bonds experiencing a continued rally. The benchmark stock index, Merval, recorded its most substantial weekly gain since 1991, rising by 42%, while the Global X MSCI Argentina ETF surged 16% to a record high.
As Milei aligns himself with Macri’s team, it signals a potential deviation from the radical changes promised during his campaign. According to Jeff Grills, the head of emerging markets debt at Aegon Asset Management in Chicago, this shift indicates that while Milei “will bring change, it might not be as radical a change as espoused during his campaign.”
The speculation surrounding Caputo’s potential role in Milei’s government demonstrates Macri’s support, easing concerns and reducing uncertainties in the market. Although the president-elect is yet to confirm key members of his economic team officially, Caputo is considered a likely candidate for the role of economy minister post-transition.
Despite the positive market response to Milei’s election and the absence of significant withdrawals amid his dollarization pledge, banks are resorting to one-day notes to ensure liquidity. There is concern that if this trend continues, it may release more pesos into the economy, potentially impacting the exchange rate and contributing to inflation.
The pragmatic shift in Milei’s approach extends beyond economic matters, encompassing foreign policy as well. The president-elect has softened his stance on China and Brazil, emphasizing a more diplomatic approach. This change in tone reflects Milei’s pragmatic strategy in navigating a fragmented congress where collaboration with the business-friendly opposition party is essential for implementing reforms.
While the president-elect’s official economic team is yet to be confirmed, the shift towards a more moderate stance has already made a significant impact on Argentina’s financial landscape, fostering optimism among investors and market participants.
