Javier Milei capped his first month as president by passing a series of crucial tests, winning approval from markets and providing a lift for his broader plans to overhaul Argentina’s economy.
Milei’s government this week made good on a US$1.5-billion interest payment to bondholders, reached a deal with the International Monetary Fund, and persuaded importers to buy securities aimed at helping them clear debts with foreign suppliers.
In a sign of how investors are seeing Milei as more rational than first thought, benchmark dollar notes due in 2030 climbed two cents to about 40 cents on the dollar during the week, recovering from losses at the start of the year, according to data compiled by Bloomberg.
The winning streak should provide momentum for Milei and his Economy Minister Luis Caputo, who have vowed to usher in a new chapter for the beleaguered economy since taking office on December 10.
“The market is celebrating the pragmatism of Minister Caputo and team,” said Alberto Bernal, Chief Strategist at XP Investments in Miami. “Argentina needs certainty to get out of this hole so the faster the government tackles the lingering imbalances, the better.”
Bond investors bet more gains are in store after Milei and Caputo reached a staff-level agreement with the IMF on Wednesday unlocking access to US$4.7 billion in funds. A green light from the Fund’s executive board for the deal would give Milei time to repay the lender before deciding whether to stay with the current US$44-billion programme brokered by his predecessor or negotiate a new one.
Although the agreement was widely expected, the market still reacted positively.
“The sharp rally in Argentina sovereigns on the back of this news is surprising,” said David Austerweil, an emerging markets fixed-income money manager at Van Eck Associates in New York. “Funds may have read the IMF agreement as a positive signal that the Fund will be more lenient with Milei’s government in terms of rolling payments coming due.”
Dollar bonds may trade at around 50 cents on the dollar by the end of 2024, a group of strategists led by Geronimo Mansutti Silva at EMFI Group wrote in a Tuesday note. They also add that there’s a possibility the country muddles through “beyond 2025 without a default.”
At home, Argentine importers snapped up US$1.2 billion of bonds aimed at helping them pay down debts owed to suppliers abroad after two previous auctions for the notes flopped.
To be sure, the good news won’t be enough to ease investors’ concerns. Bonds still trade deeply in distressed territory and and the peso has come under fresh pressure in the parallel markets, falling some 20 percent in value against the greenback since the beginning of the year.
Questions linger about how Milei will accomplish some measures, such as shutting down the Central Bank and pulling off a local debt swap with banks that could top US$71 billion. At that size, it would be the largest domestic debt rollover in the country’s history.
Labour unions, meanwhile, have called a general strike for January 24. And consumer prices are running so hot that Argentina is ahead of Venezuela as the nation with the fastest inflation in Latin America.
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