Thursday, July 18, 2024

ECONOMY | 10-01-2024 16:01

JP Morgan warns of dollarisation risks in Argentina under Milei government

US investment bank warns of risks of Javier Milei’s plans to eliminate the peso, warning congressional weakness may block attempts to “de-Peronise” Argentina.

JP Morgan investment bank has warned that dollarisation "will fail if implemented" in Argentina since the country lacks the necessary conditions to push through a plan with those characteristics.

The warning figures among the 10 forecasts for 2024 made by JPMorgan financial strategist  Michael Cembalest in an extensive report for the bank’s Eye on the Market

Cembalest points out that the government would need a two-thirds majority in Congress to approve the necessary constitutional reforms, as well an "important volume of foreign currency reserves and much higher saving rates before even making the attempt." 

According to Cembalest, "convertibility schemes are generally only viable in places with some combination of the following: high levels of productivity, entrepreneurial flexibility and dynamism to permit the economy to absorb shocks, lenders of last resort on a par with the European Central Bank and the European Commission and substantial important foreign currency reserves linked to commodities to protect the monetary link when it becomes necessary."

"Argentina does not have any of these attributes and although President [Javier] Milei will give it a try, I doubt that he can 'de-Peronise' the country sufficiently. Dollarisation will give way in a fairly short period," the analyst forecast.

Cembalest’s 10 predictions also include United States President Joe Biden dropping out of the presidential race due to failing health  with the Democrats finding another candidate amid positive economic trends and continuing conflict between Ukraine and Russia.



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