by Walter Bianchi and Jorgelina do Rosario

BUENOS AIRES (Reuters) – The shock therapy promised by Argentina’s new President Javier Milei is inspiring markets, which hope the economic plan he will present this week will give a “boost” to the economy.

On Sunday, Javier Milei reaffirmed his intention to sharply reduce public spending in order to resolve the worst economic crisis facing the country in twenty years and to reduce inflation, which is close to 150%.

Analysts believe that Javier Milei must now follow through on his promises: when he was only a candidate, he announced that he would reduce state spending “with a chainsaw” and that he would eliminate the deficit . His victory in the election benefited Argentine stocks and sovereigns.

“The refrain that Javier Milei intones about the ‘blood, sweat and tears’ that await Argentines is not mere rhetoric, but an attempt to temper expectations and emphasize the importance of a fiscal trajectory which will be difficult,” explains Mariano Machado, analyst at Verisk Maplecroft.

“But beyond the fiery speeches, effective governance is the keystone of economic stabilization, and the new administration’s roadmap remains opaque.”

The new Minister of Economy, Luis Caputo, is expected to announce a package of measures which could include, according to investors, a devaluation of the peso currently subject to capital controls, a reduction in public spending and privatizations.

“Javier Milei will focus on reducing the fiscal deficit, the Achilles heel of the Argentine economy,” for Kezia McKeague, regional director of the consulting firm McLarty Associates.

Fernando Marull, founder of consultancy FMyA, highlights that governance risk is the main obstacle to Javier Milei’s ambitions, with four out of ten Argentines living below the poverty line. “I think he has a six-month window. If he succeeds, Argentina will return to the international scene,” adds the leader.

The speed with which the economic plan is announced and implemented will be essential.

Morgan Stanley writes that in the absence of a solid economic program, Argentina could be forced to sharply devalue the peso, which currently trades around 365 pesos to the dollar and which could fall to as much as 700 pesos to the dollar. a dollar. “A country without a credible economic program might need to offer a lower exchange rate to attract investment.”

(Reporting Walter Bianchi and Jorgelina do Rosario, writing Adam Jourdan and Karin Strohecker, Corentin Chappron, editing by Kate Entringer)

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