Wall Street banks say that La Libertad Avanza’s victory in the midterm elections opens up a clear window of opportunity for President Javier Milei’s Government to speed up economic normalisation, prioritise the purchase of international reserves and modify the exchange rate regime – or even liberalise it.
Citibank, one of the entities through which the US Treasury purchased pesos to intervene in the Argentine market last week, predicted some relief in local markets “particularly focused on the foreign exchange (FX) sphere” and noted that “a definitive decision on the long-term exchange rate regime is still awaited.”
However, it warned that decisions concerning the peso are unlikely to come in the first few days post-election. “The government’s immediate priorities will probably include strengthening market confidence and securing Congressional backing for essential microeconomic reforms,” Citibank said in a report.
JPMorgan Chase & Co – which has also been involved in US-led talks regarding new assistance from private institutions and hedge funds – said the election had radically altered market expectations. “Argentina’s EMBIGD (EMBI Global Diversified index) yield could fall by 440 basis points to reach the 10.2 percent low achieved on January 9, 2025 and would still remain 170 and 206 basis points above Egypt and Pakistan, respectively.”
According to the bank, Argentina’s country risk rating could average out to around 627 basis points, similar to levels reached in January during a peak in government confidence. The scenario appears favourable for a recovery in sovereign bonds.
“US support should bolster the rebound. Not only are Argentine assets underpinned by the political outcome, but the promised backing from the US implies additional concrete measures to stimulate demand for dollar-denominated bonds, including potential buybacks,” JPMorgan indicated.
Investment bank Barclays said that the election’s results present “an opportunity to liberalise the exchange rate and announce a reserve accumulation programme from a position of strength.”
La Libertad Avanza and its allies secured 41% of the national vote, outpacing the opposition Peronist coalition Fuerza Patria and its allies by nine points. Analyst Iván Stambulsky described the performance as “a major surprise” that contrasts with market expectations, adding that this is already reflected in “higher asset prices.”
Bank of America published an optimistic report about the country’s economic outlook following the legislative elections. It described the result as “a decisive legislative victory” for President Milei, which “strengthens his position in Congress and increases the likelihood of structural reform.”
Accordingly, it maintains a “bullish” stance on the Argentine peso via local BONCER bonds and expects a “major rally” in external debt to be forthcoming. The bank believes the government now has the support it needs to push forward with key reforms and that the real exchange rate is not as overvalued as it is perceived to be.
“Strong backing from the US Treasury will probably accelerate new economic measures, including the floating of the peso, reserve accumulation, and a more hands-on management of interest rates,” said Bank of America.
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