The Blubber

Argentina’s leading presidential candidate, Javier Milei, has promised to shut down the country's central bank while also vowing to make all possible efforts to prevent a default on the nation's sovereign debt if he emerges victorious in the October election.

Milei, a radical libertarian who surprised markets by winning the primary vote on Sunday, told Bloomberg News that his audacious fiscal adjustments will enhance Argentina’s global reputation and creditworthiness, thereby rendering a default unnecessary.

His strategy encompasses cutting spending by a minimum of 13% of the gross domestic product (GDP) before mid-2025 through substantial reductions in public works projects, streamlining ministries, eliminating subsidies, and removing capital restrictions that would permit businesses to conduct transactions in US dollars. Additionally, he intends to take more drastic measures by closing down the central bank, which he contends has 'no reason to exist,' and implementing dollarization for the $640 billion economy.

'Obviously, I will do everything possible to avoid a default,' Milei stated in an extensive two-hour interview held in Buenos Aires on Wednesday. 'If we undertake the necessary fiscal adjustments, the necessary financing will be available.'

Argentina’s assets experienced a sell-off following Milei's unexpected victory in the primary, a development that took most investors by surprise, as he was not considered a serious contender until then. The primary serves as a gauge for the presidential elections in a country where polling data is notoriously unreliable. The market downturn prompted the government to devalue its tightly controlled official exchange rate by 18% when markets opened on Monday.

Subsequent to the interview, Argentina's bonds demonstrated mixed performance on Wednesday. Bonds maturing in 2030 experienced a marginal decline of 0.2 cents to reach 31.4 cents on the dollar, marking the fourth consecutive day of losses, while bonds maturing in 2046 saw a slight increase. Meanwhile, in parallel markets, the peso dropped by as much as 4% against the dollar, reaching around 710 pesos per dollar, which represents a historic low.

In this interview, his first with a foreign media outlet following his surprising victory, Milei elaborated on his proposal to replace the Argentine peso with the US dollar as a strategy to combat the country's staggering 113% inflation rate. He also intensified his criticism of the central bank, referring to it as 'the worst garbage that exists on this Earth.'

'Central banks can be categorized into four groups: the bad ones, like the Federal Reserve; the very bad ones, like those in Latin America; the horribly bad ones; and the Central Bank of Argentina,' he asserted.