Analyzing Milei’s Success through the Lens of Investment Banking

Javier Milei, the newly elected president of Argentina, faces extreme challenges with uncertain outcomes. Although he proposed strong measures during his campaign that could eventually address the stark imbalances in the country’s economy, these measures would cause an abrupt and deep economic adjustment if implemented as described. This could collapse domestic demand and threaten financial stability.

Moody’s Investors Service Vice President Jaime Reusche highlighted the need for urgent and profound reforms and the margin of action that Milei will have to carry them out. He also focused on the consensus necessary to carry out the proposed reforms and on governance. “A Congress divided and social pressures will also influence the incoming president’s ability to implement corrective policies,” Reusche added.

Investment banking JP Morgan also placed its magnifying glass on the risks of implementing Milei’s measures announced during the campaign. The bank warned that political maneuvering may hinder bolder reforms, particularly dollarization and reduction of government spending. The decision to go for a bimonetary exchange scheme or dollarization of the economy cannot be made for another year, but it should be accompanied by a draconian fiscal adjustment to compensate for seigniorage income loss and rebuild central bank foreign exchange reserves.

Barclays warned that for Milei,