The photo of the 100th day of the Government finds the market wrapped in euphoria. Stocks and bonds fly, country risk goes down. The City celebrate the adjustment at record speed of the first three months of Javier Milei with huge profits. However, there is no blank check either in the local arena or on the Washington-New York axis, and they fly over doubts regarding the fragility of the ongoing process.
The package applied so far (initial megadevaluation, fiscal and monetary adjustment, blender and deregulation) leaves a dual scenario. The real economy languishes in step with the collapse of real wages (17.9% between December and January in the formal sector), retirements (around 20% in three months) and consumption. Financial indicators grow before him enthusiasm that awakened among the big players of the City the financial surplus of the first two months of 2024, the reduction of the Central Bank’s balance sheet and the fact that, despite multiple protests, the Government does not face a social overflow for now . “A scenario that is difficult to imagine in advance,” said a Mesadinista.
This Tuesday, the 100th day, Argentine assets continued to rise. At the closing of this note, the Merval It rose 0.5% and, measured in CCL dollars, accumulated a gain of 10.1% in the month; the sovereign bond in dollars AL30 It exceeded US$50 for the first time since the 2020 exchange, after an increase so far in March also greater than 10%; and the risk country accumulated a monthly decline of similar magnitudes to 1,539 basis points. Carried away by the oversupply generated by the liquidation of 20% of exports in cash with liquidation (and a demand flattened by the liquefaction of the pesos of the economy), the exchange gap oscillates around its minimums.
The doubts that the market has
However, that euphoria does not seem to be blind. Market analysts observe that the adjustment made so far is weak. And there are doubts about how the Government will take its next steps: must decide, for now, what response to give to the agricultural sector, which is pushing for a higher exchange rate (the current blend dollar in real terms is already lower than that of previous export increase programs) in the run-up to the most dynamic moment of the thick harvest. An exchange rate unification that could take longer and negotiations with the International Monetary Fund also appear on the radar.
In Washington, the concern is about social and political sustainability: that Milei and Luis Caputo do not go too far so that the continuity of the adjustment shock does not come into risk. In an unpublished painting, Gita Gopinathnumber 2 of the IMFand Mark Stanley, United States ambassador to Argentina, exposed a Government to the right of the organization itself. The northern envoys celebrated the fiscal and monetary orthodoxy and the plan for deregulation and shrinking of the State, but raised concerns about “the impact on the most vulnerable.” Gopinath even called for moderating the liquidation of pensions and salaries.
In fact, the negotiation that the Government began with the Fund In the face of a new program, it appears as a key post for official ambitions. Milei said that, if she had $15 billion more, she would immediately open the exchange rate and she said that the possibility of accessing new debt appears in conversations with the organization and with Wall Street investment funds. The fresh dollars from the IMF are not yet guaranteed and, in these first 100 days, there was no news regarding the financing from foreign banks that the President promised before taking office. At least for now, the position of the global financial establishment seems to be “seeing concrete and sustainable results is enough to stop believing.” We’ll see what happens in the coming weeks.
Meanwhile, the consultant 1816, one of the most consumed in the City, synthesized the scene. “In the first three months of Milei, the Government made strong progress in correcting macro imbalances,” he noted and listed: purchase of foreign currency by the BCRA for more than US$10 billion, financial surplus, adjustment of relative prices, slowdown in inflation in February after the initial flash and the “patience” of the population despite the fall in income and consumption. “The market cannot ask for more than this”he claimed.
Although he qualified the above. The consultant considered that “the situation continues to be precarious, fragile” for two reasons: “First, because improving fundamentals is partly based on unsustainable things: reserves rise due to depressed imports; there is a fiscal surplus due to the liquefaction of retirements, unpaid expenses (for example, Cammesa) and PAIS tax; and inflation is low due to the strong recession and the crawling peg of 2% monthly. Second, because political arithmetic is unfavorable to Milei, as was seen in the vote on the Bases Law in Deputies and the DNU in the Senate. The DNU is still in force, but it is unknown how the Lower House will vote.” At the moment, these factors do not affect the progress of stock market operations.
Source: Ambito
