Investors optimistic about Milei's ability to bring Argentina back from the brink

In the early 20th century, Argentina was one of the world's richest nations. After six major military coups and decades of reckless spending, the nation was reduced to a shambles such that when libertarian economist Javier Milei replaced outgoing leftist President Alberto Fernandez on Dec. 10, 2023, inflation was set to reach 211%; 45% of the population was impoverished; and Argentina owed $44 billion to the International Monetary Fund.

The South American country's problems have not gone away — inflation, for instance, reportedly reached a 12-month rate of 254.2% in January and poverty now affects nearly 60% of the populace — but investors have begun expressing newfound optimism about Argentina's future.

"It seems the market is starting to believe," financial analyst Mariano Sardans of FDI Argentina told Reuters.

This belief is fueled in part by the apparent efficacy of Milei's shock measures and his committment to seeing them through.

Within hours of taking power, the self-proclaimed "anarcho-capitalist" took his metaphoric "chainsaw" to half of Argentina's government ministries; his government allowed for its peso currency to devalue by 50%; and his economy minister Luis Caputo revealed Argentina would be cutting spending by 3% of GDP.

Extra to cutting government spending and making strides toward dollarizing the currency, Milei's government has purchased over $5 billion in dollars to build up their reserves and issued "Bopreal" bonds to tackle import debts. In discussions with the IMF over Argentina's debt, the Milei government has also advocated pursuing even tougher fiscal measures than those deemed reasonable by the international body.

"The market is becoming very optimistic about Javier Milei's conviction," Javier Casabal, a fixed income strategist at Adcap Grup Financiero in Buenos Aires, told Reuters. "It's a real shift worth celebrating, given that most investors did not have confidence in his ability to reduce the deficit just a few weeks ago. If anything, perhaps he's going overboard in some ways."

Milei's follow-through on his austerity scheme has pushed Argentina's risk index to a two-year low and driven some bonds to four-year highs. However, to succeed in his turnaround of the Argentine economy, Milei will likely have to overcome street opposition, provincial protests, and legislative setbacks.

Milei's economic reform bill was, for instance, thwarted in the nation's Congress earlier this month, preventing Milei from privatizing various state entities, reworking myriad regulations, and reducing state subsidies outright.

Reuters reported that the oil-rich province Chubut recently threatened to cut off the nation's energy supply because the Milei government withheld roughly $16 million to pay down some of Chubut's outstanding federal debt.

Extra to the caltrops laid before his austerity agenda by lawmakers and provincial leaders, leftist groups have worked to further paralyze the country. Late last month, the General Confederation of Labor, Argentina's largest trade union, organized a 12-hour general strike to voice anger at the country's rescue from oblivion.

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