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ECONOMY | 13-12-2023 11:30

Argentina bonds rise to two-year high after Milei debuts shock plan

Bonds climb to the highest in two years after President Milei’s government unveils first batch of shock-therapy economic measures.

Argentine bonds climbed to the highest in two years after President Javier Milei’s government unveiled the first batch of shock-therapy measures intended to revive the economy.

Benchmark overseas notes due in 2035 added 1.3 cents to 34.9 cents on the dollar, the strongest level since September 2021, according to indicative price data compiled by Bloomberg. Other securities also climbed, bolstered by speculation that the country may have a path to jump-starting growth, as painful as the process may be for ordinary Argentines.

The “shock therapy” package announced by Economy Minister Luis Caputo late Tuesday included devaluing the peso by more than 50 percent, along with massive cuts to government spending equivalent to almost three percent of gross domestic product. Caputo outlined plans to halve the number of ministries, cut transfers to provinces and suspend public works projects. Transport and energy subsidies would be slashed, with slight increases to some social programs to try to blunt the impact. 

“Investors are taking the announcements as the first steps on the right direction,” said William Snead, a strategist at BBVA in New York. “There is a lot of enthusiasm — but the next couple of months will be key. Inflation will spike and lower spending should have an economic impact, then a reality check is due.”

The drastic measures are intended to salvage an economy battered by years of mismanagement and overspending. Argentina is headed to its sixth recession in a decade with inflation raging above 140 percent, and more than 40 percent of the population is mired in poverty.

Provincial bonds were little changed Wednesday, with notes from Entre Rios due in 2028 near 76 cents on the dollar, while 2029 bonds from Cordoba hovered around 77 cents.

Argentine gains could be limited by concern among some investors that the moves outlined last night don’t go far enough, as well as speculation that Milei will have difficulty pushing his ideas through Congress.

Hours after his televised comments, the Economy Ministry said Argentina is targeting a slow weakening of the peso going forward, about two percent per month. 

“The initial focus on fiscal measures will provide comfort,” said Alejo Costa, chief Argentina strategist at Banco BTG Pactual SA. However, investors will soon “demand additional details to understand the full implications of the measures.”

by Kevin Simauchi & Vinícius Andrade, Bloomberg


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