Argentine investors in suspense as Milei elects his Economy Minister

The elected president of Argentinathe libertarian Javier Milei, must name the head of a central bank that he had promised to close and task a minister with supervising one of the most pressured economies in the world. Investors are watching the country closely.

The team chosen by Milei will shape the politics of South America’s second economy in the coming years, while the newcomer to politics will have to face inflation exceeding 140%, net reserves in the red and a series of capital controls.

The country, where four out of 10 people live in poverty, is also the largest debtor of the International Monetary Fund (IMF).

Although Milei is surrounded by a small group of economic advisers, the recent alliance with the dominant conservative bloc that helped him win a second round of elections will likely lead to negotiations for top positions.

A bigger than expected victory with 56% of the vote could embolden Mileiwho has promised to quickly end capital controls, cut public spending and eventually dollarize the economy.

“Milei received a strong mandate to change the current economic model”said Armando Armenta, Latin American fixed income and currency markets analyst at AllianceBernstein in New York.

“Who is appointed… as president of the central bank and minister of Economy, and the details of an urgent economic stabilization plan without a majority in Congress, will be the key to asset prices in the coming days,” he added.

The Ministry of Economy is always a key position, since Argentina has defaulted on its debt nine times and is trapped in a boom and bust cycle for decades.

Still, the major grain exporter is facing one of its worst economic crises, with a recession just around the corner.

Milei will take office on December 10 after defeating the Economy Minister of the Peronist ruling coalition, Sergio Massa.

Hans Humes, chief investment officer at Greylock Capital Management, which holds Argentine sovereign bonds, backed Milei for achieving more than people expected.

“Many people do not believe that dollarization is viable. I think it will, it will take a little work.”Humes said. “I hope (your) team is already formed,” he added.

The uncertainty of the future

Milei, whose surprise victory in the August primary elections shook the markets, counts among his economic advisors former deputy economy minister Carlos Rodríguez, former central bank president Roque Fernández and Darío Epstein, director of a financial services company.

Emilio Ocampo, who worked in Wall Street For more than two decades, he has become its main advisor on dollarization.

But Milei’s recent endorsement by business magnate and former conservative president Mauricio Macri could add some market-friendly names from his PRO party and the Together for Change (JxC) coalition to the cabinet.

Juan Manuel Pazos, chief economist at TPCG in Buenos Aires, said Milei’s first post-election speech on Sunday had marked el “correct tone” and transmitted the “correct message”with the aim of expanding the coalition while confirming an alliance with the PRO.

“Milei said he is going to reorganize the central bank instead of imploding it or closing it. “That detail is important.”Pazos said, adding that Argentina’s sovereign bonds should perform well with Milei’s stronger-than-expected victory.

The new Minister of Economy will have to negotiate a new program with the FMYo “relatively fast” to avoid incurring arrears with the agency, Morgan Stanley said on Monday.

The country has a $44 billion program with the Washington-based lender agreed in early 2022 to refinance a failed 2018 loan.

“The two sides can advocate for a new beginning and leave behind the current policies that derailed the current program”wrote the economist Morgan Stanley Fernando Sedano.

Massa, who only obtained more votes than Milei in the provinces of Buenos Aires, Santiago del Estero and Formosa, said on Sunday that it was Milei’s responsibility to provide certainty “from tomorrow”.

“And we hope he does.”he added.

Local markets in Argentina are closed on Monday due to a national holiday.