Arxius de Financial analysis - Page 12 of 14

Javier Milei and his government have endured public scrutiny since day one of his term but, after almost four months in office, we have some perspective on what has been achieved and what has yet to be achieved. His number one objective is to stabilise an economy on the brink of the abyss. To this end, significant fiscal, monetary and deregulatory measures have been taken, with mixed success. On the fiscal front, the new government has achieved budget surpluses in January and February (the most recent data), something that has not happened since 2011. The surplus is not only primary, but also considering interest payments on general government debt. This has been achieved both through nominal spending cuts as well as liquefaction, i.e. revaluing items such as pensions or civil servants' salaries below inflation. The effects have not been long in coming, and Argentina has seen its risk premium fall sharply, resulting in lower interest costs on its debt. Regarding monetary matters, important progress has also been made. Firstly, international reserves, although still clearly negative (not enough to meet liabilities), have recovered significantly, by some USD 6 billion. Secondly, the reduction of the exchange rate gap (the difference between the official peso exchange rate and the market exchange rate) has solved a large part of the Central Bank's permanent and growing debt with importers. Not only this, but the interest rate the body pays on its debt has been significantly reduced. Having eliminated the Leliqs, for which it paid 133% annual interest, it is only renewing the Pases, which from now on will pay 80% annual interest compared to the previous 100%. A higher perceived solvency of the central bank means that creditors are not selling peso debt, which would put pressure on the exchange rate. In contrast, in recent months we have been witnessing a certain stability in the Argentine peso, which after a sharp depreciation in recent years is stabilising at around 1,000 pesos to the dollar. However, it is not all good news. Real spending cuts are weighing down the purchasing power of many Argentines dependent on state revenues which, in turn, is deteriorating economic activity (economy in recession and poverty increasing). To combat this downturn in economic activity while maintaining a fiscal surplus, the private sectors of the economy need boosting, and it is here that the executive is facing its toughest challenge. Without a majority in Congress, most of the government's liberalisation and deregulation proposals are not getting passed. This is undoubtedly Milei's biggest challenge in the coming months, as otherwise dwindling state revenues would make it difficult to maintain a surplus that is of utmost importance for the country's financial stability. For the time being, the market is taking a positive view of the government's measures, which is reflected in the price of government bonds. For example, the USD international bond maturing in 2030, which was trading below 30 cents to the dollar before the election, is trading at 58 cents at the time of writing.

Financial analysis

Milei: first assessment

Inflation and geopolitical angst take down the market

Goldilocks, Superheroes and Sleeping Beauty

Not too hot, not too cold!

How is the delay in interest rate cuts affecting fixed income?

No landing

The end of negative interest rates

Stumbling into the 2nd quarter

Market drops for a second week in a row

Nasdaq reaches a new all time high

NVDA pushes S&P 500 to a new high

S&P 500 closes above 5000 for the first time