The setback of Javier Milei in the elections impacted fully on the markets: bond and shares, country risk of 1,000 points and doubts about the stability of the dollar. The government bets on reservations and debt to contain the crisis.
Argentine politics demonstrated its weight on the economy again. Last Sunday, La Libertad advances (Lla) suffered a blunt defeat against Homeland In the elections, with a difference of more than fourteen points. The reverse not only reconfigures the political map, but also had an immediate impact on financial markets. The fall of actions and bonds, the country’s jump jump and doubts about the economic direction show that the relationship between polls and finance is narrower than many would like.
This Monday, investors reacted hard: the Argentine shares that are quoted on Wall Street came to collapse up to 22% in some cases, while sovereign bonds retreated up to 12%. The risk premium, measured by the EMBI+, exceeded 1,000 basic points, a psychological threshold that feeds alarms. Despite the magnitude of the coup, not everything was negative: the Central Bank reported reservations above 40,000 million dollars and, the most striking, without the need to intervene in the change market. In other words, the first post -electoral Monday left a tense stage, but with some maneuver margins.
Among the price and rates storm, there were data that surprised. The Central Bank said that it managed to add net reservationsa striking fact if political uncertainty is considered. In turn, the rates paid by the banks for fixed deadlines showed a slight decline, a sign that an immediate run on the deposits in pesos was not unleashed. The reaction, although partial, allowed to show that the liquidity of the financial system remains consistent. The treasure also played his letter in the hours after defeat. Aware of the pressure of a monumental expiration of the letter S12S5 – for almost 9.8 billion pesos -, managed to agree with banks an exchange that drastically reduced the figure to face in Wednesday’s tender. The final amount smiled at about 7.3 billion, still high, but more manageable. That negotiation relieved markets, who feared a technical default or forced impact.
Beyond the immediate financial impact, it is worth asking why the ruling lost with such amplitude. The political explanation has multiple nuances, but the economic analysis provides central keys. First, foreign direct investment (FDI) showed a strong fall in the first quarter of the year, according to data from the Central Bank itself. The expectation of a capital boom never materialized. Doubts about governance, social tensions and clashes with Congress discouraged global investors. For a society that I hoped to see open factories, private employment and new opportunities, the FDE’s decline was a silent but deep blow.
Secondly, the dollar handling during the electoral campaign left traces. To contain the exchange pressure, the government turned to a very high rate policy in pesos. The objective was to offer yields that made attractive stay in local currency. The strategy fulfilled its mission in the short term, but with a huge cost: it took the credit, cooled to the productive sector and generated the feeling that the economic plan depended on emergency measures. A policy of this type should extend no more than 90 days, but in Argentina it became an almost permanent mechanism. To this, political factors were added: the internal scandals, the lack of legislative agreements and the difficulty of communicating concrete achievements ended up eroding the confidence of the electorate. While the macroeconomics showed some stabilization – increasing reservations, reduction of the primary deficit, moderation in monthly inflation -, the microeconomics of the walking citizen remained punished by high prices, lagged wages and informal employment. The divorce between statistics and pocket finished sealing the result.
The attention of the markets is now concentrated in the tender of the Treasury. The menu includes, among other instruments, a new Lelink (D31O5), tied to the evolution of the official dollar. However, recent experience showed that investors do not always choose exchange coverage. In the last tenders, the preference was clear: first the LECAP short -term, then BANCAP And thirdly the Bonce adjusted by inflation. This behavior reflects a defensive vision: investors seek quick expiration instruments, which allow revaluation positions in a volatile context. Within that framework, Lelink appear as a secondary commitment, unless the treasure validates a higher rate or an additional prize. Wednesday will be a key test: if the demand remains solid, the Government may exhibit that it retains financial margin. But if the tender fails or demands to validate exorbitant costs, the pressure will be transferred to the dollar and the bonds.
While local investors show caution, some global players maintain a more pragmatic vision. In a recent report, JP Morgan He stressed that Argentina maintains fiscal discipline signs that should not be ignored. The Bank even suggested investment opportunities in certain bondslike the Bontam, despite the political crisis. The recommendation surprised many analysts, but shows that, in the middle of the noise, some segments of the international market still see value in the Argentine debt. This look contrasts with the pessimistic vision that usually dominates after an official defeat. JP Morgan emphasizes that, beyond electoral uncertainty, the Government showed fiscal adjustment and ability to reschedule maturities with the financial system. In other words, it distinguishes between political fragility and the technical capacity to administer debt. This differentiation is relevant because it can limit the magnitude of the capital output and, consequently, moderate the pressure on the exchange rate.
The immediate future will depend on three critical factors. The first is the dynamics of the Central Bank reserves. Although they exceed 40,000 million dollars, the margin is not infinite and any mass intervention could quickly erode that mattress. The second is the ability to contain the dollar without resorting to unsustainable rates: A delicate balance between giving stability signs and not suffocating productive credit. The third It is the evolution of foreign direct investment. If the next quarters show fall again, the narrative of “macroeconomic order” will be questioned. In terms of trust, electoral defeat implies a double challenge. On the one hand, rebuild the relationship with voters through measures that impact the pocket. On the other, convincing the markets that Argentina maintains a predictable direction, beyond the political situation. The country risk above 1,000 points shows that this task will not be simple.
The defeat of Javier Milei marks a turning point in Argentine politics and, as always happens, in the economy. The electoral blow unleashed immediate turbulence, but also opened the door to a rearrangement that is still underway. The government’s ability to administer short -term debt, sustain the level of reserves and avoid a run to the dollar will be the elements that define whether the crisis is amplified or if it can be contained. The challenge is enormous: to govern political weakness, but trying to preserve an economic program that needs credibility. In that field, not only the fate of the ruling is played, but that of the entire country. The next months will say whether the electoral defeat was the beginning of a prolonged fall or the blow that forced to adjust the strategy to avoid a larger scenario.
Financial Analyst
Source: Ambito
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