Javier Milei did not completely rule out the dollarization of Argentina, according to the union of global banks

The liberal proposals of the next president of Argentina, Javier Mileithey go down well IMF and excite investors; However, there are experts who believe that we must “be cautious,” since the new president did not completely rule out the dollarization of the economy.

In an interview with EFE, the head of Research at the Institute of International Finance (IIF) for Latin America, Martín Castellano, believes that “It is something that is going to return,” because “it is something that Milei has not completely left aside.”although the incoming team has “taken note” of “the costs and feasibility of doing it now.”

The economist of the association of global banks, which brings together some 400 members, had warned that it is “complicated” to implement dollarization in Argentina and observed “with concern” the cost-benefit equation of replacing the Argentine peso, since the country lacks of foreign currency to do so and would affect its economic growth.

Milei will assume the Presidency of Argentina on December 10, after having as his banner dollarization, the elimination of the Central Bank and passing the chainsaw through public spending to resolve the strong macroeconomic imbalances, such as inflation that is close to 150% annually.

After winning the elections, the president-elect moderated his speech.

“The alliance with the most centrist party (Together for Change), (former president Mauricio) Macri (2015-2019) and (former presidential candidate of that space, Patricia) Bullrich allowed for the moderation of some of the most controversial proposals such as the dollarization,” says Castellano.

Investors reacted with enthusiasm because Argentina left “behind a model plagued by distortions, imbalances and problems in the management of economic policy,” explains Castellano regarding the Government of Alberto Fernández (Peronism) and his Minister of Economy, Sergio Massa, and because Milei’s proposal is to “reform the State, open the economy and give space to private investment.”

“You have to be cautious,” warns Castellano, because the “risks” from the initial conditions of the new administration and the implementation of the new program prevail.

Stagflation

“2024 is going to be a very tough year: recession, high inflation, surely triple digits, as we are seeing this year, also many problems of social tension, resistance in the implementation of measures. The risk of implementing the program is high, because the conditions from which it is based are very complicated, there are many imbalances. Surely, the adjustments that are planned are going to generate problems,” explains Castellano.

Its base scenario for GDP decline is 1.3% in 2024.

Milei warns the population that there will be stagflation and that it will seek fiscal balance in 2024; He appointed a former Minister of Finance and former president of the Central Bank under Macri, Luis Caputo, to head the Ministry of Economy, and traveled to the United States to meet with officials of Joe Biden and international organizations.

“The most urgent thing” is “to reduce financing needs and attack the fiscal front,” says Castellano, who adds: “The new government will urgently need to rebuild reserves” in a context in which “it is difficult to see significant financing from the start.” .

IMF

The new Administration has already begun negotiating with the International Monetary Fund (IMF), with which Argentina has a program to refinance a debt that already amounts to 46 billion dollars and maturities ahead without international reserves and with the debt market closed. .

“The trip to the United States was good” and “to talk with the IMF authorities,” explains Castellano, because “opening that channel of dialogue is essential,” since “Argentina is going to have to renegotiate the agreement” and “in As those conversations are already underway, that may open up different options to meet those payments in the short term.”

“Given the exposure that the IMF has in the country, I think the willingness to work is high,” says Castellano, because Argentina’s credit is the highest in the organization’s history.

Among the few financing options available for Argentina, Castellano mentions “postponing payments (with the IMF) within the framework of a negotiation and an agreement” because “today the appetite for increasing the Argentine position of investors is quite limited” and they are going to “wait for the macroeconomy to begin to stabilize” to increase exposure to the South American country.

On the public accounts side, investors are waiting “to see how the fiscal adjustment is going to be implemented,” he says, while pointing out that “there is a lot of concern about the conditions in which the economy is.”