Argentina’s Economy Shows Signs of Recovery
Argentina’s dollar bonds are recovering from a week-long decline after President Javier Milei introduced next year’s budget with a more conciliatory tone, raising hopes that he can gain support ahead of midterm elections next month. Sovereign notes rose across the curve, with the 2035 maturities gaining more than a cent to trade above 54 cents on the dollar.
The Budget and Its Impact
Milei told lawmakers that he would increase spending on healthcare, education, and pensions in 2026, while sticking to his policy of a fiscal surplus. He also held out an olive branch to provincial governors, whose support would help him perform better in the October 26 vote. The libertarian president needs to gain seats in Congress to keep his plan to overhaul the economy on track.
A Move Towards Moderation
"Milei’s address marked a first step toward moderation, aimed at building consensus with governors and preventing further erosion of support among swing voters hit by weak economic activity and fiscal austerity," said Juan Sola, an analyst at Banctrust & Co. This move towards the center could help unify support against Peronist opposition, while reinforcing credibility.
The Road Ahead
Although the speech provided a respite for the country’s assets, which had posted heavy losses following the government’s worst-than-expected defeat in a local election in Buenos Aires Province on September 7, it is far from plain sailing for Milei. Economic growth is stalling, and the peso is threatening to weaken and revive inflation. "Expanding some expenditures with potentially less revenue than projected is a difficult combination, and this is before we have clarity on the midterms," said Brendan McKenna, an emerging markets economist and FX strategist at Wells Fargo.
Currency Boost
Amid the political turmoil, the government has been stepping up efforts to keep the peso within its trading band, which was set up as part of a $20 billion deal with the International Monetary Fund. The Central Bank has expanded sales of dollar futures contracts in the local market, while the securities commission on Friday moved to limit dollar demand from brokers by reinterpreting an existing rule.
Conclusion
In conclusion, Argentina’s economy is showing signs of recovery, with the country’s dollar bonds rising after President Milei’s conciliatory tone in his budget introduction. However, the road ahead is still uncertain, with economic growth stalling and the peso under threat. As the midterm elections approach, Milei’s ability to build consensus and reinforce credibility will be crucial in determining the country’s economic future.
