Dollarization: Wall Street bankers and investors distrust Milei’s plan

“The references of Javier Milei They went to listen, and they listened a lot. But, one month before the electionsI think the ideal would have been to go, not to listen, but to explain the entire detailed plan, with numbers, figures and studies carried out. I think that, in these electionsmore than ever, what is at stake is the presidency and the economic plan to follow. Go listen in this instance left a little taste. “They said general things and, when they went to the specifics, the details were not there,” he expressed in dialogue with Ambit, Javier TimermanManaging Partner of Adcap Financial Groupa man very close to investors in the US.

The market looks for long-term plans

“To achieve a certain legitimacy of an economic plan, whether of Massaof Bullrich or of Mileithey have to propose policies that have chances of staying more than 3 yearsprobably more than 10 years, due to our low level of credibility,” Timerman said.

Another source consulted by Ambitwhich preferred not to be revealed, coincided with the “poor precision” of the economists Dario Epstein and Juan Napoli, by providing information on how the necessary reforms for the country would be carried out. However, they did not question his career and knowledge. “It is unlikely that they will do dollarization”, expressed this voice, based on information provided by its own clients, who were present at the meeting.

Reserves: in search of the missing dollars

As he slipped Diana Mondino, the candidate for national representative for LLA recently, to dollarize it would be ideal to have a good stock of dollars at first. Assets that Argentine economy they are missing. According to estimates by several economic consulting firms, the net reserves They are negative by US$4.5 billion and the estimate is that they would be close to US$10,000 million in December 2023. But, can it be dollarize no dollars?

Not at the beginning. As explained by the Consultant 1816 In a recent report, dollarization implies, in addition to the change of the monetary sign, change the currency into dollars and deposits in local currency, instrument conversion of debt (public and private) in local currency to assets denominated and payable in US currencies.

According to the report, it would necessarily be necessary to extra dollars to carry out the operation. By 1816, to cancel the monetary base, it would be necessary for the creditors of the Central Bank (BCRA) They are willing for their debtor to become the Treasury, because, netting liabilities in foreign currency, the entity would not have foreign currency available.

That is why he warns that it is only possible to dollarize the economy in 2024, prior massive liquefaction of stocks of pesos, and/or with a restructuring in local currency.

Consequently, most investors begin to discard the dollarization and highlights the moderation in the candidate’s speech. Now, with apparently less legitimacy to resort to this blunt solution, the focus will be on a possible alternative. If dollarization is not, what scenario stabilization do you have in mind? Therein lies the biggest doubt.

Milei: governance and impeachment?

According to the FyMA consultancy In its latest report, widely read by investors, Milei’s plan is reduced in shock, but with “governance” risks and that tends to generate more negative than positive sentiment in terms of expectations, causing a strong search for coverage in the market .

For FyMA, “surveys and the market imagine a second round Milei-Massa” before a Patricia Bullrich who cannot take off. According to the analysis of economist Fernando Marull, “the greatest risk of her government is a chaotic mileiwhich increases the chances of impeachment“.

According to article 53 of the First Section on National Authorities of the National Constitution, within the First Chapter, which regulates the functioning of the Chamber of Deputies, it provides that the political trial exercises the right to accuse before the Senate the president, vice president, the chief of staff of ministers, the ministers and the members of the Supreme Court in cases of responsibility that are attempted against them for bad performance in it exercise of their functions. The market does not rule out that this could happen. Therefore, governance is a key factor in the possibility of a Milei president.

Milei: the change that Argentina needs?

Along the same lines, on August 30, a report from BTG Pactual, one of the largest investment banks in Latin America, issued a document called “Milei’s plan: the hero we deserved, but not the one we needed?” There, the focus is placed on the high possibilities that him liberal candidate represents the “change that Argentina needs” towards fiscal consolidation and the normalization of the economy. In that sense, they were forceful in relation to the risks which would involve a eventual government of the candidate.

“Our investment thesis under a probable administration of Milei It’s simple: although governance risks and execution are high and disorderly adjustment is likely to occur, the fiscal/external accounts, clearing the way for future reforms. That, in our opinion, alone is sufficient,” the work says.

They consider, however, that “the main risk is the inactiondriven by excessive dogmatism and a lack of experience”. Thus, they warn that the institutional and governance risks will be high, since Milei has adopted an aggressive attitude against the members of Together for Change, but will face obstacles to execute reforms important without your support.

In this way, they do not rule out that their dogmatism could get in their way, resulting in inaction if concessions are not made. “Together has been more pragmatic and has made concessions to the left if necessary, something criticized by Milei libertarians. He will also be exposed to political trial If social unrest increases, since social organizations, unions, and the left, including Kirchnerism, will not accept reforms peacefully“, they point out.

According to BTG Pactual, Milei’s lack of experience and political strength could be your main defects, combined with fiscal problems and monetary proposals that, at least for now, have loopholes or uncertainties that may also expose you to execution risks. Finally, in a conclusive way, the firm foresees that October/November in terms of investments It will be positive for dollar assets.

Javier Milei Representative of Argentina

Mariano Fuchila

Milei: are your proposals linked to the fall in assets?

One of the big doubts, at this moment, has to do with what impact Milei’s speech and his political positioning are having on the negative dynamics of the markets of late. Are your proposals linked to the decline in assets? A little and a little. Although there were external factors that caused the falls of the S&P Merval and bondswho this Monday experienced their ninth consecutive loss in a row, showed that the local factors They are the ones that are weighing the most, they are fundamentally linked to political and economic uncertainty.

The candidates’ messages seem confused and are beginning to show less precision when talking about how he would solve the complex economy. This is weighing the numbers and the corrections to be made, without hesitation. “Despite the triumph of Milei in the PASO and its “pro-market” ideas, the investors punish the low probability of success of the execution of its measures. Even if he obtains a favorable result in October, the legislative muscle will be poor and will have no governors, making it difficult great fiscal adjustment and the reform agenda that the country requires,” Portfolio Personal Inversiones estimated in a recent report.

“It no longer only concerns the operators he electoral scenario that was opened from the result of ‘three thirds’ of the PASO, but also, the political map that could be left by the general elections. This is because achieving governability and the ability to generate political consensus would be essential in seeking to address and implement any plan that urgently aims to correct the serious economic imbalances“said economist Gustavo Ber.

The stage is open and the markets increasingly echo a panorama divided into thirds and in which anything can happen.