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Argentina prepares for Milei to start shock therapy

Argentina’s financial markets were on tenterhooks on Monday to see if new President Javier Milei would immediately launch into his promised economic shock therapy by devaluing the peso.

The radical economist took office on Sunday with a warning in his inaugural speech that he had no alternative to a sharp, painful fiscal shock to fix the country’s “titanic” challenges.

Milei has promised deep cuts to public spending but his task looks daunting, with inflation nearing 200%, recession looming and payments ramping up while Argentina’s reserves are depleted.

His speech was light on details, but he reiterated there would be a fiscal adjustment equivalent to 5% of GDP through cuts that would fall on “the state and not the private sector”.

Investors are now waiting to see how quickly he moves and for more of the details.

Argentina’s international government dollar-denominated bonds, which have surged some 25% since Milei won the Presidency last month, looked to be drifting lower in Europe but focus was largely the peso and when and how large its widely-expected devaluation will be.

“Now he (Milei) needs to get down to the hard graft of governing,” BlueBay Asset Management’s Graham Stock said.

“There will almost certainly be a new official exchange rate,” he said, adding it could even come before the country’s local markets open and was expected to move it to around 650 to the dollar from around 360 now.

One ways locals and internationals were able to trade the peso over the weekend has been in the 24-hour cryptocurrency markets, albeit in tiny volumes compared to traditional FX.

The peso was at 43,284 per bitcoin, according to crypto exchange Binance’s website, although that was off a low of 448,620 seen on Sunday.

Tether – another cryptocurrency pegged to the U.S. dollar – was trading at 1,019.7 pesos compared to around 980 after Milei’s election win.

U.S. and European-listed shares, known as “depository receipts” were mostly higher, with state oil company YPF up 2.3% in U.S. premarket trading and up 1.2% in Europe

Source: WTVB