One of the most recognized advisory and financial services firms in international markets has just presented its vision on the Argentine case, raising a series of questions about 2025.
At the moment, there are very few analysts who spare praise for the libertarian experiment of President Javier Milei. In general, The consensus values both the line of economic policies and the resultsso far, achieved. However, this same consensus seems to continue distrustful about the prospects.
In this framework, the American rating agency Morningstar DBRS, who, perhaps, has best summarized “how they see it”: on the one hand, they maintain that “The adjustment program of the Milei administration is working, but it remains incomplete” and on the other hand, they propose that President Milei has ahead of him “The twin challenges of credibility and governance.”
Morningstar DBRS, a subsidiary of the influential American advisory company Morningstar, recognizes the enormous task that Javier Milei had in front of him when he assumed the presidency on December 10 with a country classified “CCC”, on the brink of a macroeconomic crisis and with a fragmented and polarized political landscape.
He notes that “in his first 10 months in office, Milei acted quickly to implement a major macroeconomic adjustment and push a series of reforms through Congress to improve growthand their successes so far are surprising.” However, the report signed by
Michael Heydt, vice president and leader of sovereign ratings and Thomas Torgerson, managing director, warn that doubts persist about the exchange rate policy and the political durability of the adjustment. They consider that “the peso appears slightly overvalued, which hinders the recovery of exports and foreign exchange reserves.”
They also highlight that with the midterm elections approaching, in October 2025, “Milei’s agenda could be at risk unless he can increase his legislative base and consolidate the country’s transformation”. Below are the main analyzes and conclusions.
in favor
- “Milei has achieved an impressive series of achievements in its first year”: the axis of the economic stabilization plan has been a broad and rapid fiscal adjustmentmoving from a primary deficit of 2.8% of GDP in 2023 to a primary surplus of approximately 1.6% in the first nine months of 2024. The Milei administration redoubled its commitment to fiscal discipline in September and October by presenting an austere 2025 budget and successfully vetoing two spending bills that would have jeopardized the balanced budget goal.
- “Fiscal correction and the elimination of monetary financing have helped control inflation”: monthly inflation decreased from 25.5% in December 2023, when a large devaluation raised import prices, to 3.5% in September of 2024. The disinflationary path was achieved even when energy and transportation subsidies that distorted relative prices were reduced. Progress on the inflation front is expected to continue, albeit gradually.
- “In addition to macroeconomic stabilization measures, Milei has promoted reforms in Congress that will strengthen growth in the medium term”: reforms should help revitalize Argentina’s stagnant economywhich has failed to grow in the last 14 years.
The doubts
- “Despite early successes, the exchange rate regime may pose challenges”: as long as inflation slows to less than 2% per month on a sustained basis (with a “crawling peg” of 2% per month), The Government could gradually liberalize capital controls and introduce more flexibility in the exchange rate regime without necessarily experiencing another considerable drop in the value of the peso. However, the peso already seems a bit overvalued in real terms (the exchange rate differential has narrowed since July, when it reached 60%, but is still around 20%). An overvalued currency could make it difficult to attract the foreign capital needed to boost investment and accelerate the pace of recovery. Plans to reduce the PAIS tax on dollar purchases next month could further strengthen the peso. Maintaining this exchange rate scheme could also make it difficult to generate the reserves necessary to pay foreign bondholders. Reserve buildup is off to a good start in 2024, with net reserves increasing during the first five months of the year. However, the process has taken a slower course since then and, at the end of October, net reserves were in the red between $2 billion and $5 billion. Without reserves or access to international markets, Argentina runs the risk of not having enough hard currency to meet its external debt payments, which amount to $14 billion in 2025 and 2026. Milei’s administration could seek official financing from multilateral lenders to help meet its short-term obligations until market confidence recovers.
- “The government fears that the devaluation could have significant political costs if the inflationary effect damages the government’s popularity”: the fear is understandable. Milei was elected, in the first place, to quell inflation. A price increase, even temporary, could weaken the LLA’s chances in the October 2025 elections. Furthermore, a weak recovery could shift voters’ concerns from inflation to jobs. The policy adjustment has had a severe economic impact.
The twin challenges
- “When Milei assumed the presidency he faced two primary challenges, he needed to implement a painful policy adjustment to restore macroeconomic stability and establish a coalition of support in a fragmented congress. Until now, Milei has been effective in addressing these twin challenges. The policy adjustment has gained some credibility, although some problems remain. At the same time, Milei has skillfully built coalitions to advance his agenda and used his cross-party appeal to appease the opposition,” Heydt and Torgerson conclude. But at the same time they warn that, “that does not mean that the risks that lie ahead are insignificant: Fiscal adjustment must be reinforced with tax and spending reforms. Argentina remains excluded from international markets and has no reserves. “Extreme weather or a sharp drop in global food prices could worsen the country’s prospects.” “They even add, If Milei can successfully navigate these economic challenges, he will have to convince the electorate in October that his agenda is working for them.”. “Despite these risks, the prospects for Argentina appear to be much brighter today than at the beginning of Milei’s mandate,” they say.
Source: Ambito
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