Welcome to the Land of Good News

Argentina is more vibrant than ever, and its President is now considered one of the most influential leaders in history. Time magazine has recognized him as one of the 100 most influential people in the world. A year into the liberal government’s tenure, the country thrives, and expectations remain high.

Dear ArgenGrowther,

Every week, we present the key data from the past week and delve into various aspects of our beloved Argentina to assess their impact, understand what's happening, and make better decisions. The newsletter is divided into four main sections:

1. Brief Reflection

2. Data

3. Understanding What's Happening in Detail

4. Actionable Items

Brief Reflection: Leadership in Action

Argentina has transformed overnight into a beacon of positivity. After one year of liberal governance, the numbers speak volumes:

• The fiscal deficit of 3% of GDP has flipped to a surplus, including a financial surplus.

• The official exchange rate has remained stable, closing the gap between parallel rates.

• Country risk has plummeted by 1,200 points.

• Dollar deposits have more than doubled.

• Dollar wages have recovered by over 200%.

• Poverty, which had affected over half the population, is now below 50%.

• Monetary emissions have ceased, bringing inflation down from 25% to just 2.4%. Once at 150%, the exchange rate gap narrowed to a single reference rate.

Despite challenges like dollar-based inflation and lagging wage adjustments, macroeconomic stability has returned, bringing widespread benefits. Markets are responding positively, and citizens are experiencing the most optimistic December in decades. Argentina is moving from a global growth laggard to a leader at full speed, and this optimism has set the tone for a transformative future.

Presidential Announcements

On the anniversary of his inauguration, President Javier Milei made significant announcements:

1. Tax Reform: A 90% reduction in national taxes, restoring fiscal autonomy to provinces.

2. The end of Exchange Controls is scheduled for next year. Solutions for central bank stock issues, including potential IMF or private sector agreements, are under discussion.

3. Currency Freedom: Argentinians can use any currency for transactions, except for taxes, which will remain in pesos.

4. Investments: Approved investment requests exceed USD 11.8 billion, with additional commitments in infrastructure, energy, and technology.

5. Free Trade Agreement with the U.S.: Planned for 2025.

6. Public Spending Cuts: Comprehensive audits to reduce public spending and eliminate redundant state structures.

7. New Laws: Anti-mafia legislation inspired by the U.S. RICO Act, stricter penalties for repeat offenders, and property rights restoration.

8. Nuclear Plan: Development of new reactors and small modular reactor technology.

The measures should significantly reduce costs, restore economic competitiveness, and position Argentina as a global business hub. These reforms will underline a new chapter in Argentina’s governance if implemented.

Appreciate This Content?

Please support us by buying a coffee and helping sustain these insights.

#data

Is Argentina's Economic Shift Positive or Negative?

Spoiler alert: The positive is here to stay. We repeat almost everything: the Merval at historical nominal highs, bonds at highs, and country risk that accelerates the drop. The Central Bank? The same as every wee,k buy a foreign currency. The inflation? Gone in action.

Follow me on Twitter

Detailed Analysis: Argentina’s Economy in Focus

Exchange Rates and the Strong Peso

After the Strong Peso eradicated the exchange rate gap, the dollar gained some demand, rising 2.26% this week. However, the peso's overall stability suggests this is a temporary fluctuation. Exporters benefit from the reduced gap, recovering lost income from lower international prices. The Central Bank has maintained a strong dollar-buying trend, enhancing its annual performance.

Additionally, export rules were relaxed, allowing individuals to hold up to USD 36,000 annually without liquidation requirements. President Milei also hinted at a combined IMF and private-sector solution for Central Bank stocks, potentially accelerating the lifting of exchange controls.

Public Accounts Recomposition

Fiscal discipline is now centered in the Ministry of Deregulation. Recent measures include eliminating CONAMI, a microcredit program that costs $469.8 billion (adjusted) while maintaining an active portfolio worth only $751 million. This mismanagement exemplifies the inefficiencies being addressed.

Furthermore, INTAL, an IDB branch, will be closed, saving USD 1.6 million annually. Privatization plans for Transener ($TRAN), Argentina’s leading electricity transport company, have also been announced, signaling a broader reduction in bureaucratic costs.

The government’s focus on efficiency and transparency is not only saving money but also regaining public trust. These moves emphasize the shift toward a leaner and more effective state apparatus.

National Public Sector

This week's tender, $5.4 trillion, was awarded, with rates that seem to have remained high, especially after Thursday's inflation data. The feeling is that CER bonds above 9% will be taken advantage of.

Economic Growth

Capacity utilization rose to 63.2% in October, marking four consecutive months of growth. Private-sector credit in pesos increased by 5.7% in real terms, the eighth consecutive monthly rise. While dollar credit has grown, deposit levels have fallen by USD 100 million daily since the whitening process.

RIGI projects continue to attract investment. Tecpetrol announced a USD 2 billion investment in Vaca Muerta, while Sidersa introduced a USD 300 million initiative. These projects underscore Argentina’s growing appeal to international investors.

Wage Recovery

Wages are rebounding at a record pace. Unlike the prolonged recovery following the 2001 crisis, adjustments under President Milei have been swift and simultaneous. Property rights have also been restored following the repeal of laws that hindered judicial action on land disputes. These changes reflect the government’s commitment to strengthening legal certainty and fostering economic resilience.

Inflation Update

November’s inflation rate of 2.4% marks the lowest level since July 2020. Core inflation also fell to 2.7%. Anchored by fiscal and monetary policies, the government appears to have won its battle against inflation. Certain sectors, such as food and beverages, recorded sub-1% inflation, further evidence of stabilization.

Utility price adjustments in November (+4.5%) and upcoming increases in December (electricity +2%, gas +2.7%, water +3%) highlight progress in aligning relative prices. According to Ecconviews, relative price alignment has improved by 70% since January 2024.

Actionables

1. Market Trends: Merval and bond prices remain at record highs. However, the moderate pace suggests bonds stabilize, creating opportunities for cautious investors. Diversifying across sectors within Merval could provide a balanced exposure to growth opportunities while mitigating potential risks.

1. Fixed Income: With inflation and monetary policy rates falling, fixed-rate instruments are highly attractive. CER bond yields above 9% are worth considering, particularly for investors seeking to lock in gains while inflation remains subdued. Additionally, short-duration instruments may offer flexibility in a transitioning rate environment.

2. Corporate Bonds: Pay close attention to local-law bonds. Exchange control liberalization could lead to curve normalization, resulting in higher yields and lower prices. Consider focusing on New York-law corporate bonds for reduced exposure to local legal and political risks.

3. IMF Program: A potential USD 26.26 billion agreement with the IMF could roll over existing debt, providing much-needed fiscal flexibility. Monitoring developments in this program is essential for gauging broader economic stability and market confidence.

4. Sector Opportunities: Infrastructure, energy, and technology sectors are poised for significant growth. Investors can benefit from exposure to projects like RIGI initiatives, attracting billions in foreign investment.

5. Carry Trade Strategies: The falling inflation rate and stable exchange environment make carry trades in pesos increasingly viable. Investors with a higher risk tolerance may capitalize on peso-denominated instruments offering extraordinary real returns.

6. Energy Investments: With Tecpetrol’s major Vaca Muerta project and other energy sector expansions, this area remains a hotspot for long-term investments. Monitoring developments in these initiatives could provide early entry points.

Inflation control, public spending cuts, and strategic investment open pathways for domestic and foreign investors. Capitalizing on these opportunities requires vigilance and adaptability.

Closing Thoughts

Argentina is on the move, proving that bold reforms and fiscal discipline can deliver transformative results. The market’s enthusiasm is evident, with foreign funds flocking to Argentine assets. As we approach 2025, optimism about Argentina’s economic future continues to grow.

If you’ve enjoyed this analysis, please share your thoughts, comments, and feedback. Let’s keep the conversation about Argentina’s transformation alive.

Nau Bernués
Founder, ArgenGrowth

PS: Follow me on Twitter and LinkedIn, and let's discuss the Argentine economy's challenges