Markets React as Milei Surges in Argentina’s Primaries
Argentine government bonds in both local and international markets fell sharply on Monday, retreating nearly 10 percent. A market scene in Buenos Aires opened amid the surprise strong showing of far-right candidate Javier Milei in Sunday’s primary elections, according to the EFE news agency. The peso was also devalued by 22 percent by the Central Bank of Argentina, reflecting the country’s ongoing effort to guard the currency from persistent depreciation against the dollar. Authorities this Monday tightened foreign exchange controls and lifted the monetary policy rate by 21 percentage points, bringing it to 118 percent.
An analysis from fund manager Grupo SBS attributed the result to potential pressure on both the foreign exchange market and fixed and variable income securities. The SBS note highlighted a morning slump in Argentina Global bonds as investors digested the unexpected primary outcome. Argentina Global government bonds declined by about 9.7 percent amid rising uncertainty.
Milei, who heads the political coalition Freedom Advances, emerged as the leading vote-getter in the run-up to the presidential election scheduled for October 22. The Homeland (Peronist) faction trailed with roughly 27 percent, while the opposition coalition Juntos por el Cambio (center-right) held about 28 percent. The pro-government Union party placed third, naming former Security Minister Patricia Bullrich as its presidential candidate. Economy Minister Sergio Massa was also expected to participate in the campaign.
The market reaction reflected fears over Milei’s proposals, notably his call for dollarizing Argentina’s economy. Analysts cautioned that implementing such a move would be challenging given limited international reserves. Net reserves were reported near a negative $10 billion, underscoring the vulnerability of the currency regime.
Dollarization of Argentina’s Economy
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Demand for pesos remains weak relative to the economy, with significant concerns that a dollarization plan could accelerate demand for dollars. Milei’s platform also includes abolishing the Central Bank and slashing public spending, a combination many fear could destabilize a country already grappling with high inflation, which had surged sharply in the prior year. Inflation soared to nearly 116 percent last June, a reminder of the macroeconomic pressures Argentina faces.
The SBS fund manager noted that Milei’s policy directions could affect State revenue in pesos. As events unfold and Milei makes additional statements, market participants will monitor the possible performance of other asset classes and the responses from IMF officials. The IMF, which currently holds debt obligations around $45 billion, has not yet approved a disbursement of $7.5 billion, a point of attention for Argentina’s fiscal outlook.