Exploring Milei’s Success through the Lens of Investment Banking

Javier Milei, the newly elected president of Argentina, faces significant challenges and uncertain outcomes as he seeks to implement the reforms he proposed during his campaign. While Milei’s first speech as president-elect was characterized by unexpected moderation and avoidance of his two battlehorses from the campaign, such as dollarization and the closure of the Central Bank, financial market experts believe that his plan is “bold” and could threaten financial stability.

Moody’s Investors Service Vice President Jaime Reusche stated that Milei’s proposed measures would cause an abrupt and deep economic adjustment, collapsing domestic demand, and threatening financial stability if enacted as described. Reusche also highlighted the consensus necessary to carry out these reforms and the influence of a divided Congress on governance.

JP Morgan has placed its magnifying glass on the risks associated with implementing Milei’s measures. The US bank warned that while Milei offers a bold reform agenda, governance risks loom due to lack of party structure and distribution of power in Congress after the elections. The bank predicted that in the short term upon taking office, there will be a realignment of the anticipated exchange rate to realign relative prices firmly before removing capital controls gradually. They also emphasized that fiscal adjustment is necessary to compensate for seigniorage income loss and create incentives for rebuilding foreign exchange reserves.

Barclays focused on governance challenges for Milei, warning that social pressures will play a crucial role in determining whether he can maintain support from middle-income sectors. The British entity concluded that achieving stabilization quickly and strong economic recovery is essential for developing a virtuous circle of reforms.