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Elections in Argentina are expensive – perhaps more so than in any other country in the region. And tomorrow’s vote has proven especially costly: an estimated US$7.4 billion, possibly even US$7.5 billion, was spent by the government to prop up the dollar during the fraught two months before October 26. All this, merely to reach election day in a near-terminal economic state.
According to the latest report by JPMorgan Chase & Co, presented in Buenos Aires last Wednesday by the bank’s global chief executive, Jamie Dimon, the pricing of Argentine bonds and equities reflects market expectations that Javier Milei’s libertarians will take around 30 percent of the vote in the midterms.
The paper – ‘Argentina Strategy: Outlook Ahead of the Midterm Elections’ – is not entirely pessimistic. Presented to an elite audience that included Dimon, Condoleezza Rice and Tony Blair (who are both now working with the bank), the report cautiously recommends select Argentine energy and banking stocks, arguing that they may rebound after the election if recent market pessimism proves excessive. In essence, JPMorgan believes that if Milei’s coalition avoids another major defeat in Buenos Aires Province, investor anxiety could ease.
Many traders trace the current turmoil back to another JPMorgan note issued on June 31, which advised clients to abandon peso positions and seek refuge in dollars – advice that investors duly followed. Since then, July marked the start of what one analyst dubbed “Argentina’s economic plagues.” With reserves depleted and confidence slipping, the government began first indirect and then direct interventions in the exchange market, an effort that proved extremely costly. The exchange still climbed to around 1,500 pesos per dollar.
Banco Provincia’s latest ‘Economic Week’ report found that between September and October the government used some US$7.4 billion in exogenous funds – i.e. outside normal market dynamics – to sustain the peso. This included US$1.1 billion in Central Bank sales on the official market, US$5.7 billion advanced by the agricultural sector, and a net US$440 million sold by Argentina’s Treasury. Added to this was the “crucial” contribution from the US Treasury, estimated at up to US$1 billion, including a US$450-million intervention on October 22 that calmed markets – temporarily.
Banco Provincia notes that, excluding the US contribution, this would mark Argentina’s fourth-largest currency intervention since 2003, after those in 2015, 2018 and 2019. Whether the latest US$7.4 billion (or US$8.4 billion, including Washington’s support) proves worthwhile will become clear only after Sunday’s results. Economy Minister Luis ‘Toto’ Caputo insists that from Monday, Argentina’s exchange policy will remain unchanged, with the band system intact and the dollar even expected to fall.
Early in 2023, the government envisioned a smooth run-up to these elections – inflation below 10 percent by September 2025, a stable dollar, strong activity and rebounding consumption. Instead, inflation stands at 2.2 percent for the month, the dollar has surged to 1,500 pesos after a 40 percent devaluation, activity is slowing, and consumption has dipped by 0.2 percent. The economy survives on US aid, while the IMF awaits the final vote count to demand new reserve targets.
But in economics, as in football, there is always a rematch. Tomorrow will show whether Javier Milei and Luis “Toto” Caputo get theirs – and on Monday, the markets will cast their own vote.
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