Argentine Stocks Rebound As President Milei Eyes Potential New IMF Deal, Exit From Capital Controls

Argentine stocks experienced a surge on Thursday following rumors that the country is in discussions with the International Monetary Fund (IMF) for a new program.

This initiative aims to secure additional funding, accelerating Argentina’s departure from its stringent capital controls, as reported by Bloomberg citing a senior government official, who preferred to remain anonymous.

The official revealed that the IMF is advocating for a quicker depreciation of the Argentinian currency under its “crawling peg” system. Additionally, the Fund is urging Argentina to maintain its interest rates above the current inflation rate, which has alarmingly reached approximately 250%.

Milei Assures Exit From Capital Controls By Mid Year

In an interview with the Financial Times, Argentina’s newly-elected President Javier Milei conveyed his determination to advance reforms without the necessity for congressional approval, especially post-2025.

Milei’s strategy, as he states, aligns with academic recommendations and aims to eliminate dollar exchange controls by mid-year, potentially marking a “turning point” for Argentina.

Despite potential challenges, Milei dismissed the likelihood of social unrest during his tenure, except in cases of foreign infiltration.

President Milei’s administration is keen on removing capital controls, with the IMF’s support being viewed as a crucial accelerator in this process. Milei believes that cleansing the central bank will pave the way for lifting exchange restrictions, a milestone the IMF estimates could be achieved by mid-year.

However, Argentina’s economic landscape is under severe stress, with inflation spiraling uncontrollably. The country recorded a staggering 250% increase in its consumer price index in January 2024, marking the most significant inflationary jump in 33 years.

Amid these challenges, Argentina’s ongoing financial obligations to the IMF loom large, with an outstanding debt of approximately $44 billion from a previous arrangement that failed to stay on course.

Market Response

The anticipation of a fresh agreement with the IMF led to a notable uptick in Argentine stocks on Thursday. The Global X MSCI Argentina ETF ARGT saw a 2.2% increase, with its principal holding, MercadoLibre Inc. MELI, experiencing a 2% rise during early morning trading hours in New York.

Banco Macro S.A. BMA emerged as the top gainer among Argentine’s American Deposit Receipts (ADRs), marking a surge of over 6%.

Since Milei’s electoral win, Argentine stocks have soared by nearly 20%. However, the momentum has plateaued over the last three months, as Milei administration’s reform initiatives have encountered significant resistance within the Argentine Congress, posing challenges to the government’s ability to implement its proposed changes swiftly.