Argentina’s Javier Milei vows to pay country’s debt while shuttering the central bank

Argentina’s assets sold off after Milei, an outsider few investors saw as a serious contender until now, came out ahead in the primary, seen as a barometer for presidential elections in a country where polls are notoriously unreliable. The slump forced the government to devalue its tightly controlled official exchange rate by 18% when markets opened Monday.

The country’s bonds were mixed on Wednesday after the interview. Securities due 2030 edged 0.2 cent lower to 31.4 cents on the dollar for their fourth day of losses, while bonds due in 2046 edged up. The peso sank as much as 4% in parallel markets to around 710 pesos per dollar, a record low.

In the first interview to foreign media after his unexpected win, Milei detailed his plan to scrap the Argentine peso for the US dollar as a way to bring down inflation that’s running at 113%, and upped his criticism of the central bank, which he called “the worst garbage that exists on this Earth.”

Argentina’s leading presidential candidate Javier Milei pledged to close the nation’s central bank, calling it "one of the greatest thieves in the history of mankind" https://t.co/IWKrXf3cwM pic.twitter.com/yRau0nlC3e

— Bloomberg (@business) August 16, 2023

“Central banks are divided in four categories: the bad ones, like the Federal Reserve; the very bad ones, like the ones in Latin America; the horribly bad ones; and the Central Bank of Argentina,” he said.

If Milei wins the presidency, he plans to hand over the keys to the central bank to economist Emilio Ocampo, his informal adviser on the dollarization program, so that he can shut it down. Ocampo will also help in negotiations with the International Monetary Fund, which has a $44 billion program with the South American nation. The candidate says he has no plans to ask the IMF for more money.

“A fiscal deficit is immoral,” Milei said. “If you live continually with a fiscal deficit, you’re going to be insolvent.”

Milei said he’s already developed a plan to dollarize the economy, a move he vows would be among his first in case he wins the Oct. 22 election. Argentina would follow El Salvador’s model, allowing people to voluntarily choose between currencies. Once two-thirds of the monetary base is converted, the economy would become fully dollarized, he said.

“If nobody wants to have pesos in Argentina, the question is how much are pesos worth in real terms? Nobody wants them, we’re not talking about water in the middle of the desert. We’re talking about something nobody wants,” Milei said.

The one-time congressman obtained more votes than the pro business coalition led by Patricia Bullrich and the ruling Peronist bloc of Economy Minister Sergio Massa, surprising pollsters who expected him to come in third. Investors are worried the country is headed for its fourth debt workout in the past two decades.

Among chief concerns for markets is that Milei, a political outsider, wouldn’t be able to get backing for his plans. The 52 year-old, who doesn’t shy away from criticizing politicians he says have been robbing Argentines for decades, said he would call referendums if he can’t get legislative consensus to approve his measures.

“If I lower the currency risk, and I lower the credit risk, that means country risk will plummet. It means that bonds are literally going to fly,” he said. “The truth is it’s a pretty simple trade. Or, if you buy and hold, for example, returns in a year would be above 200%.”

In the interview, Milei also criticized China and Latin America leftist leaders he considers “socialists,” said he would seek to leave the Mercosur trade bloc and would quickly move to deregulate commodity markets.