MercoPress. South Atlantic News Agency

Argentina: Dollar jumps after Sunday's midterm elections in BA province

According to the IDB, Argentines could be suffering from “social fatigue” given Milei's austerity measures

The results of Sunday's midterm elections in the Argentine province of Buenos Aires pushed the US dollar above the AR$1,400 cap, given the poor performance of President Javier Milei's La Libertad Avanza (LLA) and, with it, the resurrection of Peronism-Kirchnerism. In addition, Argentine stock abroad fell sharply, coupled with a spike in the country's risk rating.

Sunday's outcome was regarded by investors as a major setback for Milei, raising fears that he may not be able to implement his economic reform agenda.

The official dollar exchange rate rose sharply to AR$1,480, while Argentine stocks on Wall Street experienced drops of over 20%. Major banks and energy companies were hit hard, with Grupo Galicia's shares falling by nearly 24%.

The country's risk rating, a key indicator of investor confidence, soared to 1,000 points. Analysts had anticipated this increase, given the Peronist victory's margin of around 13%, forecasting significant legislative challenges for the Libertarian administration.

Despite the electoral defeat, Milei has confirmed his commitment to his economic policies. In a move to reassure markets and secure international support. On Monday, he and Economy Minister Luis Toto Caputo met with Inter-American Development Bank (IDB) President Ilan Goldfajn to discuss a US$10 billion financing plan.

This funding is crucial for maintaining the country's external liquidity and demonstrating international confidence. The IDB's plan, approved in June, aims to support fiscal reforms, economic liberalization, and poverty reduction.

The IDB highlighted several risks facing Argentina, including fragile international reserves, the government's lack of a majority in Congress to pass reforms, and the potential for “social fatigue” from austerity measures. The IDB and the government have a roadmap to address these issues and promote a more stable economy.

Milei acknowledged the “clear defeat” and convened cabinet meetings to reevaluate his strategy for the upcoming Oct.26 midterm elections in other districts.

Comments from former President Cristina Fernández de Kirchner (CFK) and Buenos Aires Governor Axel Kicillof have been interpreted as a public rejection of Milei's austerity measures and a signal that voters desire a different path.