By Libby George
LONDON (Reuters) – Investors and markets welcomed, with caution, the first details of President Javier Milei’s plans to shock Argentina’s beleaguered economy back on track.
His administration swept to office with promises of drastic economic changes to tackle negative reserves, inflation above 100% and years of economic stagnation.
Investors said that the changes unveiled late on Tuesday by Economy Minister Luis Caputo, including a more than 50% cut to the official peso rate, slashed energy subsidies and cancelled public works tenders, did not disappoint.
“The news is positive,” said Argentina expert at KNG Securities. “It is a massive fiscal effort, with 3 ppts of GDP of spending cuts and 2.2% of additional revenues.”
Trading of Argentine debt and equities was muted during London hours, but sovereign dollar bonds edged close to 1 cent higher and U.S.-listed shares of Argentinian state oil company YPF rose 1.3% in early premarket trading.
“Non-deliverable” fx forwards moved sharply, showing bets that its value would continue to dive.
Six-month forwards were pricing a level of 1,022 per dollar ARS6MNDF= and 1-year forwards a level of 1,687 ARS1YNDF=.
The peso also lost ground on crypto exchanges, a proxy for the black market. The price of one tether – a cryptocurrency pegged to the U.S. dollar – was around 1,167.30 Argentine pesos at 1019 GMT, according to the crypto exchange Binance, the highest since late October.
Jimena Blanco, chief analyst with Verisk Maplecroft, said the government was trying to temper an otherwise-guaranteed economic crash landing.
“He promised a very tough pill to swallow and he’s delivering that pill,” she said. “The question is how long will popular patience last in terms of waiting for the economic situation to change.”
Argentina has artificially controlled the peso since 2019, creating a wide gap between the official exchange rate, which was at 366 per dollar before Caputo’s announcement that it would move to 800, with plans for a monthly 2% devaluation.
The parallel rates were just above 1,000 per dollar earlier this week.
Caputo also unveiled a 2.9% of GDP cut to government spending, with nearly 1 percentage point of it coming from cuts to energy and transport subsidies, and outlined some new taxes.
(Reporting By Libby George. Additional reporting by Bansari Mayur Kamdar in Bangalore and Rodrigo Campos in New York; Editing by Nick Macfie)
