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Argentine markets were roiled on Monday after the surprise victory of radical liberal economist and outsider candidate Javier Milei in Argentina’s primary elections ahead of presidential elections later this year.
Bonds and stocks rallied after Milley won more than 30% of the vote on his promise to dollarize the country’s economy and slash spending.
The central bank responded quickly by devaluing the official exchange rate by 18% to 350 pesos to the dollar to stabilize the market. The country also raised interest rates by 21 percentage points, to 118%, as it ran out of means to defend its currency.
The uncertainty created by the shock result has left October’s vote hanging in the balance, deepening investor anxiety about Argentina’s fragile economy. Inflation is over 115%, foreign exchange reserves are dangerously low and the peso has lost more than half its value against the dollar in the past 12 months. Four out of ten Argentines live in poverty.
“The primary election result is a political earthquake,” said Paul Greer, portfolio manager for emerging markets debt and FX at Fidelity International. “We’re facing a lot of uncertainty, and the market has repriced to reflect that.”
Argentina’s most liquid dollar-denominated bonds fell 15% at the open and closed about 10% lower at about 28 to 34 cents on the dollar.
The benchmark S&P Merval stock index initially fell 3%, but closed up 3.3%. The New York-traded Global X MSCI Argentina ETF, a way for international investors to express their views on the country, closed down 2.9% but fell 7% shortly after the open.
Mire, known as a television personality critical of Argentina’s political class, has no administrative experience and only two years as a congressional representative.
EM economic adviser Peter West said: “People worry about the policies themselves, whether he will be able to carry them out, but also about his ability to govern – if he can implement radical measures, how far he will be able to Control the protests.” – Funding.
The blue-chip swap rate, a free-floating exchange rate for international investors buying stocks and bonds, fell 40 pesos to 637 pesos to the dollar on Monday.
Thierry Larose, manager of Vontobel’s emerging markets bond fund, said the currency depreciation would boost the Argentine dollar and local bonds, as the “huge gap” between official and unofficial exchange rates led to a “permanent drain” of reserves.
The IMF’s board is due to meet on Aug. 23 to approve a $7.5 billion disbursement to Argentina, ad hoc in late July after months of negotiations as Argentina missed key program targets. Argentina received a $44 billion loan program last year, refinancing loans in 2018 and becoming the IMF’s largest debtor.
“We welcome the recent policy actions and commitments by the authorities to maintain stability, rebuild reserves and strengthen fiscal order,” the IMF said in a statement.
The IMF has long called for a devaluation of the peso, a move by the populist government to reassure the fund at a time of great uncertainty, said Fernando Marul, founder of Buenos Aires-based economic consultancy FMyA. a try.
“The government cannot afford not to pay this amount,” he said. But he added that the currency depreciation would have a significant impact on inflation ahead of the election. “It’s definitely going to be in the double digits, probably around 15%. That’s going to hit voters’ wallets hard.”
Still, investors said the result was an encouraging sign for the market. On Sunday, the two main parties – with a combined 58% of the vote – also supported cuts to fiscal spending and further devaluation of the currency.
Investors said Milley’s victory underscored the potential for a divided parliament after elections in October and a possible run-off in November.
“I think the market is pulled in both directions: up as the reform-oriented bloc took two-fifths of the vote in total, and down due to uncertainty created by Milei’s radical policy platform, which could make it inoperable,” Weiss said. Te added.
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