Argentina registers lowest monthly inflation in two years, triggering financial euphoria

On Thursday the markets uncorked the champagne bottles they had been reserving for the approval of Javier Milei’s economic deregulation law. The Chamber of Deputies still needs to give its final approval, but that vote is expected to be much simpler than the agonizing victory obtained in the Senate this morning. The most visible proof is the stock market party unleashed in the last few hours: Argentine stocks surged, a sovereign risk index plummeted and the day of euphoria was rounded off by the best monthly inflation figure in two years. The Consumer Price Index increased 4.2% in May compared to April, a figure that would be devastating for most countries, but which in Argentina sparks optimism if we look back: six months earlier, the pace of price increases was triple that figure. Even so, accumulated inflation in the first five months was 72% and rose to 276% year-on-year, figures that remind us that any treatment for the chronic illness of the Argentine economy will take time.

This Thursday’s financial enthusiasm was reflected in increases of up to 10% in Argentine stocks on Wall Street, led by the banking sector, while sovereign bonds rose more than 4%. Sovereign risk, which quantifies how dangerous a country’s public debt is perceived by foreign investors, fell almost 60 points to 1,424. The markets also celebrated that Argentina this week removed another ghost, the nearly $5 billion debt contracted with China through a currency swap, and that it will shortly receive a disbursement of $800 million from the International Monetary Fund.

The stock market signals have to do with the opportunities for big capital offered by Milei’s deregulation law, but also with the message of governability sent by Milei to the world. Despite leading a new and minority political force, La Libertad Avanza (Freedom Advances), the president has shown that his Cabinet is able to negotiate with the opposition and emerge victorious. The legislative battle over the sweeping bill began six months ago and the draft has been severely changed, but it retains its essence: scrapping state services that Milei despises, making the labor market more flexible, deregulating prices and opening the doors wide for 30 years to multinationals willing to invest in energy, mining, agribusiness and technology.

The energy sector is the most privileged by the new regulations. Milei wants a profound transformation to erase any trace of state interventionism, and will allow private players to compete freely for the country’s natural resources, especially for the gigantic gas and oil reserves of Vaca Muerta, in the south of the country.

Agribusiness will remain the country’s main export engine, but other sectors are preparing to grow. The mining lobby has managed to avoid the 3% to 5% increase in fees supported by some senators and, instead, is rubbing its hands over the generous tax, customs and exchange benefits contemplated by the bill.

Repression of protests

Open-pit mining faces strong resistance from Argentine citizens, who have organized massive mobilizations against it and have managed to halt several projects, but the mining industry is confident that Milei will maintain his course regardless of protests. Security forces surrounded Congress on Wednesday to prevent thousands of protesters from marching against the reform bill and cutting off traffic. The Senate carried on with the vote, while the nearby streets became a battlefield that ended with dozens of injuries. The official version of events left no room for doubt: “The Office of the President congratulates the Security Forces for their excellent action in repressing the terrorist groups that, with sticks, stones and even grenades, attempted to carry out a coup d’état, attacking the normal functioning of the Congress of the Argentine Nation.”

The technology sector is the fourth pillar on which Milei wants to base future Argentine growth. The president wishes to turn the country into a regional tech hub and has gone knocking on the door of the Silicon Valley giants. This week, Worldcoin, the company co-founded by Sam Altman, announced that it will expand its structure in the Latin American country.

The approval of the bill will grant Milei legislative powers for one year, but it will also take away the possibility of blaming the political opposition for every stone that his government stumbles over from now on. Inflation has fallen hand in hand with an economic recession, aggravated by severe cuts in public spending. Keeping prices down when the economy begins to recover will be one of the great challenges for the coming months.

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