Trump-admiring populist Milei wins in Argentina, edging the country closer to a dollarized economy

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Newly elected President of Argentina Javier Milei of La Libertad Avanza speaks aft the polls closed successful the statesmanlike runoff connected November 19, 2023 successful Buenos Aires, Argentina.

Tomas Cuesta | Getty Images News | Getty Images

Argentina's Javier Milei, a far-right governmental outsider often compared to erstwhile U.S. President Donald Trump, vowed to present connected his extremist economical policies soon aft winning the country's statesmanlike run-off.

Milei, whose word volition tally from Dec. 10 done to the extremity of 2027, staged a resounding triumph successful Sunday's vote by a wider-than-expected margin.

He received astir 56% of the vote, according to provisional results, comfortably beating Peronist Economy Minister Sergio Massa, who conceded aft receiving conscionable implicit 44%.

The daze effect leaves Latin America's third-largest system successful uncharted territory.

Proud libertarian Milei, 53, has antecedently described himself arsenic an "anarcho capitalist" and astatine 1 constituent during the run way adjacent wielded a chainsaw to symbolize his intent to chopped authorities spending.

Among immoderate of his projected policies, Milei has pledged to dollarize the economy, abolish the country's cardinal slope and privatize the pension system.

"We person the determination to enactment the fiscal accounts successful check. We person the determination to hole the problems of the cardinal bank. We person the determination to enactment Argentina connected its feet and determination forward," Milei said soon aft his victory, according to a translation.

"Today, we instrumentality to the way that made this state great," helium added.

The challenges facing Milei's presidency are significant, nevertheless — peculiarly fixed that the state is erstwhile again successful the grip of a profound economical crisis.

The purchasing powerfulness of the South American federation has been ravaged by an yearly ostentation complaint of more than 140%, portion two successful 5 Argentines present unrecorded successful poverty and cardinal cultivation areas person been deed by a historic drought.

Presidential campaigner Javier Milei of La Libertad Avanza lifts a chainsaw during a rally connected September 25, 2023 successful San Martin, Buenos Aires, Argentina.

Tomas Cuesta | Getty Images News | Getty Images

"Governability is going to beryllium truly pugnacious for him," Nicholas Watson, managing manager of Teneo, told CNBC's "Street Signs Europe" connected Monday. "We could beryllium successful for a rollercoaster ahead."

"If helium truly goes done with the benignant of 'shock therapy' that he's talking about, we would expect to spot nationalist appetite for that statesman to wane perchance rather quickly," Watson continued.

"Dollarization? I deliberation they are going to footwear that into the agelong grass. Reform of the cardinal bank? I mean helium talked astir blowing the cardinal slope up, his schtick is with a chainsaw … I mean, immoderate of that is conscionable nary longer realistic."

Asked whether investors could expect sky-high ostentation to commencement to travel down aft the vote, Watson replied: "Inflation mightiness spell up due to the fact that the distortions and imbalances of the system are truthful aggravated and truthful wide that addressing 1 happening means possibly creating problems determination else."

'Dollarization is feasible and its desirable'

While galore stay skeptical astir Milei's governmental quality to present connected immoderate of his economical reforms, others felt the measures could beryllium "very positive" for Argentina.

"The cardinal occupation successful Argentina since 1876 has been the peso," Steve Hanke, prof of applied economics astatine John Hopkins University, told CNBC's "Street Signs Asia" connected Monday.

"One currency situation aft another. One recession aft another. Defaults connected indebtedness — 1 close aft another. They person had 3 defaults connected sovereign indebtedness since the twelvemonth 2000. And the existent ostentation rate, I conscionable measured it today, it's 220% successful Argentina," helium added.

"It's each tangled up with the cardinal slope and the peso. So, Milei has the close idea. You've got to dollarize and galore of these arguments against dollarization are implicit rubbish. This thought that somehow, they don't person capable dollars to dollarize is ridiculous."

 Steve Hanke says galore  arguments against dollarization are 'absolute rubbish'

Hanke said helium had not been a ceremonial portion of Milei's campaign, but had been successful adjacent interaction with his method squad and described himself arsenic an "informal adviser" connected issues specified arsenic dollarization.

"Dollarization is feasible and its desirable," Hanke said, saying the adjacent steps would request to beryllium akin to "a precision drill."

He added, "We're talking astir a precise precise operation. So, if it is done right, it volition beryllium a immense economical roar successful Argentina. Very positive."

Likelihood of contiguous dollarization 'remains remote'

Jimena Blanco, caput of Americas astatine Verisk Maplecroft, noted that Milei volition request to present important structural reforms if helium is to marque bully connected his promises including dollarizing the system and scrapping the cardinal bank.

"The former, however, requires dollars that the cardinal slope presently lacks and, therefore, the probability of contiguous dollarisation remains remote," said said successful a probe note.

"In the contiguous term, we expect Milei would denote a pugnacious fiscal, monetary and FX argumentation to statesman stabilizing the system and trim ostentation with the purpose of transitioning towards dollarisation. And portion peso-denominated bonds would instrumentality a hit, marketplace expectations mightiness amended implicit the medium-term horizon."