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Er ... Does This Mean A Return to the "Old" Milei?
Milei won an unexpectedly strong mandate in the mid-term elections, with a plurality in Congress allowing him to keep his veto power and pursue his agenda.
This is clearly positive for markets in the near term, with a stronger peso and a bond rally on the results and a greater likelihood of large US support.
But does this mean a return to "Milei 1.0"? Over the past four months we finally saw Argentina get serious about stabilization policy, with peso pressures leading to a sharp tightening of BCRA monetary and rates policy, more currency flexibility and a renewed retrenchment in domestic demand - all of which was sorely needed to prevent a resurgence in inflation and nail the landing.
If the election victory and US funding are used as an excuse to go back to where we were in the spring, with repressed rates, a renewed peso peg, an expansionary central bank and pro-growth bias, the medium-term results would be painful. Keep an eye out.
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