In its monthly report, Focus Economics projects a major jump for both the dollar and inflation for next year. Their forecasts are based on the fact that they see that the measures taken by Javier Milei will have an impact on prices and lead to a "deep economic contraction" (the president-elect himself warned that in the coming months Argentina will suffer stagflation).
In this way, while they expect inflation to reach 260% in the second quarter of 2024; the dollar, even without executing a dollarization of the economy as Milei proclaimed when he was campaigning, would reach $1,500 by the end of next year.
"President-elect Milei appears determined to move forward with significant and advanced fiscal consolidation, the removal of capital and exchange rate controls, and privatizations once he takes office on December 10," the report said. "These measures will lead to rising inflation and a deep economic contraction in the coming quarters, with the foreseeable social opposition to the government's measures further disrupting economic activity."
Dollarization on pause
Economists assume that the future president will strongly despise the local currency, generating a devaluation that will impact the official dollar and will try to get closer to the blue, which will allow the fearsome gap that today stands at over 150% to be narrowed.
"The peso has lost about half of its value so far in 2023 in the official market and more than 60% in the parallel market," they commented. And they warned that, towards the end of 2024, the dollar will be closer to $1,500 and they see it at $1,800 at the start of 2025.
"The next administration will likely negotiate a new program with the IMF, given that all quantitative targets set for 2023 have been missed. It is likely that the IMF will ask for a weaker exchange rate, considering the deterioration in the balance of payments," was the forecast of analysts at Itaú Unibanco.
The forecast of this group of experts is that the nominal exchange rate will be one dollar at 1,550 by December 2024 and inflation of 150% annually (with a likely peak in the first half of 2024), reflecting the effect of the expected devaluation of the currency and the correction of energy tariffs, transportation and fuel, among others.
For the local currency to stabilize, analysts think it is necessary to radically reduce the fiscal deficit, inflation and restore confidence in policymaking.
On the other hand, the firm, which consults both local and foreign analysts, warns that "given that Milei's Freedom Advances party lacks a majority in both houses of Congress, dollarization seems to be ruled out in the short term." In this regard, he adds that, in fact, "Milei has stopped mentioning the reform in his recent public appearances."
"Even his most modest measures to reduce government spending and eliminate capital and FX controls could face opposition in Congress; in the Senate, the combination of La Libertad Avanza and the center-right party Juntos por el Cambio does not reach a majority, so it will need negotiations with the Peronists or other smaller political groups," he adds.
Better long-term prospects
Regarding the exchange rate, the premise remains that Milei will seek to unify the multiple exchange rates, as well as seek to streamline the state, eliminate economic distortions, privatize state-owned enterprises, and maintain social stability – something that requires a certain leap of faith. If everything turns out as it has been announced, Focus Economics points out that "Argentina could experience rapid growth from 2025 onwards, as inflation and interest rates decline and private investment soars".
However, for those consulted, even if the economy temporarily recovers after 2024, Argentina's recent history should make one thing clear: beware of false dawns.
On fiscal stance, Goldman Sachs' Sergio Armella said: "Weak fiscal fundamentals are at the heart of Argentina's macroeconomic problems. [...] Once Mr. Milei takes office on December 10, we would expect the new president to introduce an amendment to the 2024 budget plan. The program with the IMF foresees a deficit target of 0.9% of GDP next year. However, in our view, moving to a primary surplus should be one of the pillars of a macroeconomic stabilization plan in Argentina."