Markets Cheer as Milei Drops Dollarization for Macri Brass


(Bloomberg) — In the blink of an eye, Argentine President-elect Javier Milei pivoted away from advisers advocating for his most dramatic campaign promises, choosing Wall Street veterans closer to former leader Mauricio Macri.

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Milei’s boldest campaign proposals — dollarization and closing the central bank — appear at least on hold for now amid a staffing shake up. Milei distanced himself from his dollarization guru, Emilio Ocampo, and on Friday another hawkish adviser from early in the campaign, Carlos Rodriguez, announced on X he was departing. Milei had repeatedly said he’d name Ocampo to lead Argentina’s central bank, though he reiterated Friday that closing the institution was “non-negotiable.”

In their place, Milei’s economic team is being led by Luis Caputo and Demian Reidel, two former Wall Street veterans who held key posts during Macri’s presidency from 2015 to 2019.

Local media also reported Milei would appoint his former rival during the election, Patricia Bullrich, as security minister, a post she held in Macri’s government too.

Argentina’s dollar bonds extended their rally Friday on signs of Milei’s more moderate stance. Securities due 2030, some of the most liquid, jumped more than two cents, pacing gains in emerging markets. Notes have jumped across the curve since Monday, with bonds maturing in 2046 up more than five cents, the best week since July 2022 — though the debt still trades at distressed levels, with bonds exchanging hands between 30 and 37 cents on the dollar.

The rally was not restrained to sovereign debt. The country’s benchmark stock index, the Merval, rose 42%, the biggest weekly gain since 1991. The Global X MSCI Argentina ETF, meanwhile, jumped 16% in the same period to a record.

As Milei gets closer to Macri’s team, it’s a sign that while the president-elect “will bring change, it might not be as radical a change as espoused during his campaign,” said Jeff Grills, the head of emerging markets debt at Aegon Asset Management in Chicago.

“It’s also a holiday-shortened week, so any buying will exacerbate moves a bit as there isn’t much flow to offset the demand for Argentina being seen today,” Grills added.

While markets welcomed Milei’s election and concerns about a surge in withdrawals amid his pledge to dollarize the economy failed to materialize, banks are fleeing to one-day notes in order to guarantee liquidity.

Lenders rolled over only 10% of the 1.8 trillion pesos of so-called Leliq notes offered by the central bank at auction Thursday, according to people with direct knowledge of the matter. That’s down from 40% in the Tuesday sale, which was already a sharp pullback from before the vote.

The concern is if banks continue to flee the so-called Leliqs, which have 28-day maturities and are used by the central bank to absorb pesos, it could unleash more pesos into the economy, adding pressure on the parallel exchange rate and boosting inflation that’s already at 143% a year.

No Jump to the Void

Speculation of Caputo joining Milei’s government as economic chief demonstrates Macri’s support, “filling most of the blanks and significantly reducing the feeling of jump to the void,” according to Javier Casabal, a fixed income strategist at Adcap securities.

To be sure, the president-elect still has to officially confirm who will be the key members of his economic team. Caputo, a former finance chief under Macri, appears among the most likely candidates to take over as economy minister after the transition, two people with direct knowledge of the matter told Bloomberg News on Thursday. Caputo met with bank executives in Buenos Aires Friday to discuss Milei’s economic plans.

Reidel, in the meantime, is being mentioned as candidate to lead Argentina’s central bank instead of Ocampo, local press reported. Milei said during the campaign that Ocampo, who’s an expert on dollarization, would be his central bank chief with the task of shutting down the institution.

Milei also softened his stance on China and Brazil after threatening to cut diplomatic ties on the campaign trail. He even thanked Xi Jinping for a congratulatory letter, invited Brazil’s Luiz Inacio Lula da Silva to his inauguration and took a call from Pope Francis, who he’d lambasted in the past. Even though Milei called the Chinese government “an assassin,” his foreign policy adviser, Diana Mondino, said the media over-blew the comments.

From economics to foreign policy, the new tone shows Milei’s pragmatic approach to governing a fragmented congress where he’ll need the business-friendly opposition party to get any reforms done.

–With assistance from Ignacio Olivera Doll.

(Adds context on market reaction and potential economic team starting in fifth paragraph.)

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