Keeping the Faith (TMAP)

After the June rebound, confidence in the Government fell by more than six points

Welcome Avatar! After changing the Argentine Central Bank charter and buying international reserves like there is no tomorrow, Argentina’s medium to long term outlook is starting to look more rosier from a macro perspective. Despite these positive headlines, Milei’s positive image seems to be tanking in the polls. A look under the hood to see what is going on, and a deep dive on Milei’s São Paulo visit ahead of the Brazilian elections.

First some of the good news. A plan was sent to Congress to change the Central Bank charter that will make financing the Treasury through the peso printer a felony. It imposes criminal penalties on deficit monetization, one of Argentina’s core problems since the start of the BCRA early last century.

Besides all this, the chainsaw keeps roaring to make sure the bloated public sector is gutted as much as possible, which keeps federal spending in check. As of now, more than 71,000 public sector employees have been severed from the state apparatus.

Public employees - the type of waterfall few countries ever get to see — Source

The effective tax burden continues to decline nationwide; a gradual and slow process that shouldn’t be interrupted in 2027 if Argentina wants to reach the levels of the 1990s.

National effective tax rate as a percentage of GDP — Source

Next to less fiscal pressure, the BCRA has been stacking US Tokens like there’s no tomorrow, and is now closing in on 50 billion USD gross and 12 billion net reserves. These are very much needed given the maturities Argentina is facing in the next 24 months.

Even despite selling a record number of pesos tu buy Benjamins, the exchange rate has only begun to move a little in the last couple of trading days, surpassing the 1600 pesos per USD threshold for the first time in forever. The upper band is at 1800, and the peso is still very far removed from that level (if it would get there too quickly, we might see inflation pick up again).

So all in all, the macro picture is very sound and is everything is running according to plan (TMAP - Todo Marcha Acorde al Plan).

So what about the political and micro picture? Below I will discuss Milei’s recent decline in popularity and his weight on the Brazilian elections later this year in October.