Pyrrhic victory for President Javier Milei in the Senate, but that anticipates the ratification of its economic program and, therefore, the formula chosen to govern. The anarcho-capitalist president obtained the first law from him in Congress – now he must return to the Deputies -, which results in political support for the progress of his administration. The dollar, pending.
These are kinder hours for Milei: Upon approval of the Bases, the IMF will meet today to monitor the review of the agreement and disburse US$800 million, the People’s Bank of China renewed the swap for one year, the Treasury tender was affirmative and the dollar remained calm. There was a wake-up call: the risk rating agency Fitch assigned Argentina a ‘CC’ grade, that is, “a bond restructuring or other default event of some type appears likely in the coming years”. That is where the Government has its sights.
The RIGI, the great bet for the income of dollars along with money laundering
Returning to “Bases”, issues as sensitive as the delegated powers, the Large Investment Regime (RIGI) and even the possibility of money laundering, seem to be successful milestones in the will of the president to advance in the deregulation of the economy and the disarmament of the State. However, if the Government could choose a derivation for the next few hours, it would be the possibility that the price of sovereign debt rises in the markets and the country risk could fall to the area of 1,000 basis points. As said, it is a victory in the area that interests Milei – the financier – but it will not necessarily drive immediate economic growth.
With a clearly short-term view, little seems to change from now on for the needs faced by the Milei administration. As said time and again in this column, Minister Caputo asked the President for a period of six months for the economic program to “prosper.”
Luis Caputo’s bet is to achieve the refinancing of the debt that the Treasury currently carries (and which was absorbed from the BCRA) and for this needs bond prices to rise enough for country risk to decline and thus be able to advance in that roll-over. It is a race against time: Luis Caputo is betting on reaching a country risk in the area of 700 basis points sooner that will allow him to refinance the Treasury debt before, in the “market’s” view, the calculation shows a possible restructuring. As said above, Fitch has already begun to travel that path as it pointed out the “persistent uncertainty about the sovereign’s ability to achieve a sustained accumulation of international reserves and regain access to global capital markets.” and therefore make large payments on foreign currency bonds that mature in the coming years.”
Return to the markets, Luis “Toto” Caputo’s bet
“Regaining access to markets may not only require greater macroeconomic adjustments, but also evidence of broader political acceptance and the preservation of social support. This may be particularly difficult to achieve before the midterm legislative elections in November 2025.“, says the rating agency.
Much of what is mentioned here converges on a more strange question. Dollars are loves. This involves an equation that was also anticipated here and that the Government projects: that the dollars will stop entering the current account and that, necessarily, they will have to increase the BCRA’s reserves via the capital account. Therefore, for the Casa Rosada, the whitewashing that was discussed in the Senate is important. So is RIGI. Investments are President Milei’s only bet to move the economy, but also to add foreign currency. There will be no stimulus to consumption, nor public spending to drive the cycle. And the recession seems to be a real drag on that matter.
The exchange rate, the pending task
However, exchange controls still seem like a real barrier. Victory in the Senate does not solve this problem. Again, the Government needs fresh dollars.
In the meantime, and under the motto of “cleaning up the BCRA’s liabilities,” the Government put out to tender Treasury Bills that pay interest rates, in short terms. Awarded $5.4 billion in the LECAP tender, after receiving offers totaling $16.4 billion. The data? The negative real rate process came to an end, as requested by the IMF. In this way, for the Government, the process of “liquefaction” of stocks is completed.
The Government’s mechanics raise questions because it seems that Luis Caputo is now seeking to deindex the Treasury debt and instead offer securities that pay positive rates. In the economist’s view, this is supported because it takes “pesos” that belong to the overnight passes that you have with the BCRA, but it must be noted that The counterpart for the next 10 months is that there are maturities of more than $45 billion, almost $35 billion.
Source: Ambito
