Luis Caputo still hasn’t been formally appointed as Javier Milei’s Economy Minister. Nonetheless, he held a meeting with representatives of Argentina’s major banks on Friday in which he played down the possibility of dollarizing the economy.
Read together with a recent report by his Anker Latinoamérica consultancy, his actions cast doubts over the president-elect’s flagship proposals to close the Central Bank and abolish the peso.
Argentine Banking Association president Javier Bolzico, who is a vocal opponent of dollarization, called the meeting “very positive.”
Caputo hasn’t aired his views on dollarization in recent weeks, but his consulting firm, Anker Latinoamérica, discussed the issue in a June report. Anker wrote that abolishing the peso is not “a magic solution to the country’s problems” because it would not tackle the core issue of Argentina’s fiscal deficit. The document does, however, suggest “feasible” financing sources for dollarization, such as the Sustainability Guarantee Fund (FGS) which partly finances pensions, a new deal with the International Monetary Fund (IMF), and increasing austerity measures.
“We believe that dollarization is a difficult alternative to implement and that it requires a complex legal and financial architecture,” Anker Latinoamérica wrote. “But it is not impossible to carry out, as some media outlets and colleagues tend to simplify.”
Banks’ representatives have also expressed concern about the Central Bank’s interest-bearing liabilities. They currently represent around 10% of GDP and three times the monetary base. The banks have moved from LELIQs, which pay in 28 days, to repo operations, which pay in one day. On Tuesday’s bond auction, banks only renewed 40% of its LELIQ maturities. Thursday’s deadline was worse, as they only 10.5% renewed . According to a report by the Ecolatina consulting firm, the decision was made out of fear of Milei’s “market solution” to quickly dismantle the LELIQ stock.
However, Caputo also offered “tranquility” on that matter during the meeting, according to Balzico.
“Caputo emphasized fiscal balance as the basis of [the Milei government’s] model and a comprehensive and market approach to the Central Bank’s interest-bearing liabilities,” Balzico said.
Who is Luis Caputo?
Caputo is one of former President Mauricio Macri’s most trusted men and served as his finance minister and Central Bank chief. He is considered to have been one of the main drivers of Argentina’s 2018 deal with the IMF. His apparent arrival in Milei’s cabinet has been interpreted as giving Macri a presence in Milei’s government.
The president-elect’s team issued a statement on Friday describing the closure of the Central Bank as a “non-negotiable” part of his economic plan.
Meanwhile, Milei’s pro-dollarization allies seem to be jumping ship. Carlos Rodríguez, who Milei said would be a top economic advisor, announced Friday that he was “ending all formal ties regarding economic advisory” with LLA.
On Thursday, La Nación reported that dollarization advocate Emilio Ocampo, whom Milei had announced as his possible Central Bank head, would not take the job due to the possibility of Caputo being the economy minister, as he thought that would hinder his plan to dollarize the economy.
Sources close to Ocampo declined to confirm whether he would take the job. Ocampo was one of the main proponents of abolishing the peso; in 2022, he co-authored a book called Dolarización: una solución para Argentina (“Dollarization: A Solution for Argentina”).
The market has yet to factor in the possibility of dollarizing the economy. All of Argentina’s dollar exchange rates spiked in the week after the elections but eased to under AR$1,000 on Friday.
According to a report by consultancy Ecolatina, future dollar contracts surged by 20% over the week. “They continue to reflect a strong devaluation at the beginning of the new term,” the report said. “However, the December contract reached the AR$800 zone, far from a value consistent with a dollarization expectation.”
Nothing is set in stone, especially campaign promises. On that, the market seems to agree.