Thursday, July 18, 2024

ECONOMY | 15-12-2023 15:30

Argentina's ‘El Loco’ Milei delivered chaos, laughs and key wins in week one

To many Argentines, President Javier Milei is simply “el loco” — the madman.  Week one of Milei’s administration didn’t disappoint.

To many Argentines, President Javier Milei is simply “el loco” — the madman. 

Week one of Milei’s administration didn’t disappoint. As he and his aides rolled out — rapid-fire — a raft of reforms to stabilise the economy, the on-the-fly chaos that became his hallmark on the campaign trail was on full display. Impromptu press conferences and briefings were called at all hours of the day and policy overhauls hit in the middle of the night. In between it all, Milei found time to take in the performance of a tango song titled “Ballad for a Madman.” (He didn’t sing, but received a standing ovation nonetheless.)

It’s all gone over well so far — with foreign and local investors as well as everyday Argentines. It’s still the honeymoon stage, before the economic pain from Milei’s shock therapy kicks in. Whether that lasts or not, one thing is clear: Milei, with the mane of long hair and four Mastiff dogs named after famous economists, will rule Argentina in a manner like few before him.

“It is the first time in a long time that a dim light appears at the end of the tunnel,” Hernan Ladeuix, director of strategy at Buenos Aires-based Latin Securities, wrote in a note to clients. “For now, markets have reason to celebrate no matter how complex the process will be.” 

And there’s been plenty of celebration. Argentina’s bonds rallied to two-year highs, the IMF cheered, US Treasury brass flew in, Goldman Sachs got bullish and sovereign risk tanked. Ukrainian leader Volodymyr Zelenskyy made the gruelling trek to praise Milei at his inauguration before heading to Washington. 

What’s more, the streets of Buenos Aires have kept calm — for now — and the black-market exchange rate, which acts as a panic thermometer in a crisis-prone country, remained stable despite a 54 percent devaluation on the official exchange rate. Milei even got political rival Cristina Fernández de Kirchner laughing during his swearing in ceremony as she checked out his ceremonial mace engraved with images of his beloved dogs.

The feel-good market vibes and social calm contrast with Milei and Economy Minister Luis Caputo’s dire warning that brutal economic pain is coming as they slash subsidies, devalue the peso and cut government outlays. JPMorgan Chase & Co economists forecast annual inflation will catapult to 210 percent from 160 percent this month, followed by a sharp recession in 2024. That all but guarantees more poverty in a country where almost half the population is already destitute. 

But things have been so bad for so long that Argentines are willing to tolerate this experiment.

Milei’s administration is starting strong despite fairly chaotic communication in the first days. Caputo’s tenure in former president Mauricio Macri’s government ended ruinously in 2018 after the International Monetary Fund told him to be more transparent as the Central Bank chief. Two weeks later, he quit. Some analysts blamed communication stumbles for Macri’s election loss in 2019. 

This week, Caputo’s highly anticipated announcement laying out the pillars of Milei’s economic plan was recorded, then re-recorded, and then delayed multiple times until the government posted it on YouTube. Caputo had planned to speak in the Economy Ministry’s press conference room — a tradition — but later opted to read off a paper while sitting at his desk, providing few details in his initial speech.

The Central bBnk published its monetary policy overhaul shortly after 12.30am local time Wednesday even though Caputo’s portfolio had said those announcements would come later after a board meeting. 

After the sun rose, Milei’s spokesman held an 8am press conference at which he didn’t announce anything and dodged questions before running to a Cabinet meeting. Milei himself, a chatterbox throughout the campaign, has remained mostly silent since his gloomy inauguration address, only publishing Instagram stories and X posts.  

Odd hours aside, Milei’s economic team got the benefit of the doubt as they pledged austerity to come. The first test of Argentines’ patience comes on December 20, when various social groups have organised a march in Buenos Aires to protest Milei’s spending cuts. Security Minister Patricia Bullrich has already ordered federal forces to be on alert.

Brigitte Le Bris, the managing director for emerging markets at Ostrum Asset Management in Paris, said there will be a better sense of Argentines’ tolerance for pain within two to three months when more of the impacts will trickle through society. 

“So far, so good,” she said in an interview. “But we’ll see later.”

by Patrick Gillespie & Kevin Simauchi, Bloomberg


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