The change in mood of the markets during the last week, in which bonds and stocks recorded significant falls that averaged 10% and with a country risk level that is now close to 1,600 basis points, exposed in neon lights what investors, businessmen , economists and the Government itself already warned as an inexorable reality: the first stage of economic management came to an end. “The emergency has been overcome” and now the Government is entering a critical phase in which substantive results are expected, market analysts observe.
The main one, the reforms proposed in the Base Law and the lifting of the exchange rate.
The management of Milei arrives at the doors of the second part of the year with a tremendous achievement and a large deficit (clearly, not fiscal).
In the first column, the accelerated fall in inflation is noted. The indicator that will be known on Thursday will mark the smallest monthly price advance in more than two years, after a process of honesty and correction of relative prices. The market considers this progress, not only because it is supported by the ironclad commitment to a fiscal surplus but because it is the main factor that contributes to sustaining popular support for Javier Milei who, for now, has that only asset in the absence of political muscle.
The market weights the reduction of inflation, not only because it is supported by the ironclad commitment to a fiscal surplus but because it is the main factor that contributes to sustaining popular support for Javier Milei
In the second column, meanwhile, the President completed six months in office without any progress in the structural reforms that he promoted from the first days of his administration: the Bases Law threatens to pass the Senate filter, but nothing is assured.
Especially when the opposition advances laws with the opposite spirit, such as a greater increase for retirees for the supposed compensation for January inflation. Investors took note not only of how difficult it will be for Milei to sustain fiscal balance but also how easy it is for Congress to return to deficit.
”It was a pleasant surprise to see Milei at the beginning making a clear diagnosis, facing a very complicated situation. We must give it credit because it really began a first stage with clear objectives, such as increasing international reserves, honest prices, reducing the fiscal deficit, ensuring that the price adjustment did not lead to uncontrolled inflation and maintaining an agreement with the IMF. Until two weeks ago everything was really going smoothly,” considered the economist. Miguel Kiguel who warned that that has just changed.
The Government must not only consolidate the results of the first semester but also advance one of the central short-term objectives of the financial economic policy: reduce the country risk below 1,000 basis points (Kiguel)
“Now it is entering a second stage,” said the former Undersecretary of Finance. From now on, the Government must not only consolidate the results of the first semester but advance in one of the central short-term objectives of the financial economic policy: reduce the country risk below 1,000 basis points.
But in recent days, the movement was the opposite. With the rise of the last week, market agents rushed to calculate the total debt maturities next year. The figure, USD 17,000 million, is easy to refinance in a context of macroeconomic stability, but it appears to be an enormous challenge for a country with an exchange rate. Hence the market’s anxiety and even impatience to see more forceful progress in that direction.
In that context, there are key milestones. The first of them will be to reach a new understanding with the Monetary Fund in the coming months that may be able to relieve pressures.
Once again, the Base Law appears as the first door to cross to achieve this. Everything indicates that in this framework, the Government must insist with the request for fresh funds.
The economic team led by Minister Luis Caputo is willing to assume a new devaluation but only in the context of exchange rate unification, as long as the resources are assured to avoid an overflow of expectations.
The economic team led by the minister Luis Caputo is willing to assume a new devaluation but only in the context of exchange rate unification, as long as the mechanisms are assured to avoid an overflow of expectations and destabilization. In other words, without reservations comfortably in positive territory, something that is still far from happening, the elimination of exchange restrictions is an expression of wishes, but an objective sine que non to avoid new shocks in the medium term.
“The balance remains very delicate. Faced with this context, we do not see that the release of the stocks is imminent. Despite the clear progress in fiscal and external matters, the lifting of exchange restrictions will be, at best, gradual,” said the analysts from the Consultatio team.
