A recent report from Moody's heralded that a macro-fiscal adjustment is inevitable in Argentina regardless of who wins the Nov. 19 runoff between Economy Minister Sergio Massa and Libertarian Congressman Javier Milei.
As per the risk rating agency’s assessment, the causes of an adjustment lie in the current macroeconomic and fiscal imbalances amid very high political uncertainty even for a country used to financial volatility and disorderly policies. A split Congress is also the prelude to further difficulties, it was explained.
The Nov. 19 polls will decide how willing Argentines will be to accept a drastic change in policies and who they believe will be able to best lead the economy in a time of crisis, the study went on.
Many voters are still waiting to see how negotiations and political agreements between opposition parties play out, it was also explained.
Argentines will have to choose between two difficult options: to support, on the one hand, Milei's strong macro-fiscal adjustments; or on the other hand, Massa's unorthodox political stance which, however, exacerbates macroeconomic distortions, the document stated.
While Massa plans to implement gradual corrective measures which would ultimately delay the strong adjustments that are necessary to address the overheating of the economy, Moody’s found.
On the other side, a Milei government would be constrained by governance challenges that will hinder its ambitious reform agenda of blunt measures that would be effective in addressing imbalances and eliminating macroeconomic distortions, but would imply a strong and deep economic adjustment and a sudden drop in domestic demand.
The rating agency also foresees the risk of a credit event in 2024-2025, due to very limited foreign exchange reserves and economic contraction.
However, the financial strength of Argentine companies remains relatively solid, as short-term debt payments are manageable, but refinancing risks will increase in 2025, especially in the case of external debt, Moody’s argued.
Subsidies on utilities will also be targeted by either winner thus fueling inflation and a purchasing power loss that will make any structural changes difficult.