Javier Milei successfully completed his first month as president by successfully passing several critical tests. He earned the support from markets and gave a boost to his larger efforts of completely transforming Argentina’s economy.
This week, the government of Milei fulfilled a payment of US$1.5 billion to bondholders, successfully negotiated an agreement with the International Monetary Fund, and convinced importers to purchase securities designed to assist them in paying off debts owed to foreign suppliers.
According to Bloomberg’s data, the recent increase in the value of 2030 dollar notes for Milei indicates that investors now view Milei as more reasonable than previously anticipated. These notes rose by two cents to around 40 cents on the dollar throughout the week, bouncing back from earlier losses in the year.
Since assuming office on December 10, Milei and his Economy Minister Luis Caputo have promised to bring about a new era for the struggling economy, and the streak of victories should generate the necessary momentum for them to accomplish this.
Alberto Bernal, Chief Strategist at XP Investments in Miami, stated that the market is pleased with the practical approach of Minister Caputo and his team. Bernal emphasized that Argentina requires stability in order to recover from its current situation, and the government’s prompt addressing of the remaining issues will be beneficial.
Bond investors believe that there will be further gains as Milei and Caputo have agreed with the IMF, which allows them to access $4.7 billion in funds. If the executive board of the IMF approves the deal, Milei will have the opportunity to repay the lender and then decide whether to continue with the current $44-billion program or negotiate a new one.
Despite the widespread anticipation of the agreement, the market responded in a favorable manner.
David Austerweil, a money manager at Van Eck Associates in New York, expressed surprise at the sudden rise in Argentina’s sovereign bonds following this news. He suggested that funds might interpret the IMF agreement as a sign that the Fund will be more forgiving towards Milei’s government when it comes to repaying debts.
According to a note from EMFI Group, a team of strategists led by Geronimo Mansutti Silva, dollar bonds could potentially be valued at approximately 50 cents on the dollar by the conclusion of 2024. The note also mentions the potential for the country to avoid default and potentially continue without major financial issues beyond 2025.
In their own country, Argentine importers quickly purchased $1.2 billion worth of bonds that were intended to assist them in reducing the debts they owed to foreign suppliers. This successful sale followed two unsuccessful attempts to auction off these bonds.
Certainly, the positive information will not be sufficient to alleviate worries among investors. Bonds continue to be traded with significant concerns and the peso is facing new challenges in parallel markets, resulting in a 20 percent depreciation against the US dollar since the start of the year.
There are still uncertainties about how Milei will achieve certain actions, like the closure of the Central Bank and successfully executing a debt exchange with banks, which could surpass a value of US$71 billion. If accomplished, this would become the biggest ever domestic debt restructuring in the history of the country.
On January 24, there will be a general strike scheduled by labour unions. Additionally, Argentina has surpassed Venezuela in terms of having the highest inflation rate in Latin America, as consumer prices are increasing rapidly.
