Argentina’s market rallies as Senate passes key economic reforms

Argentina’s bonds and currency rebounded on Thursday as investors breathed a sigh of relief after the Senate passed a sprawling bill pivotal to libertarian President Javier Milei’s financial reform plans and renewed a currency exchange loan accord with China.

Senate Approval Boosts Milei’s Reforms

Argentina’s bonds and currency saw a significant rally on Thursday following the Senate’s approval of a critical bill central to President Javier Milei‘s economic reform agenda.

This development, coupled with the renewal of a currency swap loan agreement with China, provided a major boost to the libertarian president’s plans to revamp the nation’s economy.

Economic Overhaul and Legislative Success

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President Milei, who secured a surprise election victory last year, has been pushing for substantial economic changes.

His proposals include privatizing public firms, enhancing executive powers, and incentivizing investments. The Senate’s endorsement of the bill, along with a twin fiscal package, marks a pivotal moment for his administration.

Christian Buteler, an Argentine analyst, remarked, “Without a doubt it was the best day economically for the government,” highlighting the significance of the legislative approval and the extension of the currency swap line with China until 2026.

This agreement allows Argentina access to funds in foreign currencies such as dollars, Chinese yuan, or euros.

Market Reactions and Legislative Maneuvering

The Senate’s approval underscores the government’s capacity to navigate legislative challenges despite holding a minority position.

“The approval of the laws in the Senate, beyond the tightness of the votes or the changes made, underscores the government’s ability to govern despite coming into power with a (legislative) minority. That is very positive,” Buteler noted.

In response, sovereign bonds in the local over-the-counter market rose by an average of 2.5%. A sovereign risk index also saw a sharp decline, while the black market peso strengthened nearly 4% to 1,240 per dollar after hitting a record low in the previous week. However, the local S&P Merval stock index dipped after an initial surge in early trading.

Public Reaction and Future Challenges

Despite the positive market response, the legislative win was met with public unrest. Protests erupted outside Congress, with demonstrators setting fires and clashing with police, reflecting fears that the reforms could lead to increased unemployment and higher consumer prices.

Thys Louw, a portfolio manager at asset manager Ninety One, commented on the long-term implications: “The bill’s passage was the first step in a very tight, very noisy, very long process ahead.”

As President Milei moves forward with his economic agenda, the administration will need to balance legislative victories with addressing public concerns and managing the complex road to economic recovery.