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Javier Milei’s Argentina: what will be the impact of the elections on the Brazilian economy and businesses?

The ultraliberal economist Javier Milei, of the Liberdade Avança party, won the presidential elections in Argentina this Sunday (19th), in a dispute against the Peronist Sergio Massa. In Brazil, Milei faced backlash for defending liberal programs and calling President Luiz Inácio Lula da Silva corrupt, as well as criticizing Mercosur and China. All of this has led to the question of what relations between Brazil and Argentina will look like in the coming years.

He became famous as an economic commentator on television programs, Javier Milei in the second round he won the support of traditional right-wing politicians, such as former president Mauricio Macri and defeated candidate Patricia Bullrich.

The future Argentine president defines himself as a libertarian and anarcho-capitalist and declares himself a defender of ideas such as the free sale of weapons. He promises todollarize Argentine economy and extinguish the Central Bank of Argentina to end inflation. However, in the second round, he softened his previous promises, vowing to no longer privatize healthcare and public schools.

For some analysts, in the short term, trade relations between the two countries are unlikely to change, to the detriment of pragmatism. Rafael Pacheco, economist at Guide Investimentos, underlines that Milei, in the last acts of his electoral campaign president of Argentinahe sweetened the deal, stating that private companies were free to trade with whomever they chose.

“OR trade with Brazil it is extremely favorable for Argentina. We are one of the countries to which our neighbors export their highest value-added goods. So, it is worth it for Argentine companies to export to Brazil and maintain this positive trade relationship,” says Pacheco.

In the financial market, the main concern is the existence of an ideological misalignment that could damage trade relations between the two countries. However, Marcelo Boragini, partner and specialist at Davos Investimentos, says that most Brazilian companies that have Argentina as a client are not listed on the stock exchange.

In recent years, several multinationals have abandoned Argentina, amid an economic crisis with annual inflation above 140% and base interest rates of around 133% annually, to mitigate risks in their operations. Recently, Itaú (ITUB4) ceased its operations in Argentina after 40 years, selling them to Banco Macro, for approximately R$250 million.

As regards companies listed on the stock exchange, Boragini analyzes that the Argentine economy has not shown significant impacts on results. “A crisis in Argentina affects Brazilian companies, but exposure is reduced. Ambev (ABEV3), in twelve months, recorded a decline of 9% in this exposure, but in the third quarter results it surprised positively. Argentina did not impact Ambev’s results.”

OR Ambev’s net profit increased by 24.9% in Q3-23 year-on-year to R$4.015 billion. The brewery’s international operations in Central America and the Caribbean offset declining sales in Latin America and Canada.

As for companies that have greater exposure to Argentina, Ambev currently has 7% to 8% of its revenues tied to operations in the country it will be governed by Javier Milei. CVC (CVCB3) has a higher percentage, 12% to 15%. Immediately after are Minerva (BEFF3) with approximately 10% of revenues, Marcopolo (POMO4) with 8% and Usiminas (USIM5) with 5%.

“Among these companies I mention Minerva, since it has great visibility [na Argentina], suffered the most, with a 50% decline for the year. This year, however, Marcopolo has grown absurdly,” explains Boragini.

Milei will have difficulty implementing his reform agenda

Privatizations are the central axis of the proposals The Milei government. The new Argentine president’s goal is to privatize public media,dollarize the economy and even put an end to Argentina’s Central Bank.

Furthermore, international treaties such as Mercosur These are the goals of Argentina’s new president-elect, who has already called the agreement a “nuisance.”

Even in the face of this inflammatory political rhetoric, economist Paulo Feldmann, university professor at the Faculty of Economics and Administration of the University of São Paulo (FEA-USP) and researcher at Fudan University, China, points out that Milei it will hardly be able to carry forward most of the ideas, including those concerning Mercosur. “In Argentina the Congress is very powerful. It is a parliament that thinks differently from Milei. Peronism has more than 40% representation among parliamentarians.”

As for Mercosur, Feldmann says any weakening of the bloc would be bad for South America and Argentina. “The big problem for South American countries is that Mercosur is very small compared to the potential it has, compared to other economic blocs and other regions of the world. Personally, I think Milei’s story of considering leaving Mercosur is more of a question to win the election, a bravado,” reflects Feldmann.

For Alvaro Bandeira, coordinator of the Economic Commission APIMEC Brasil, some companies could be affected if changes are made to those related to Mercosur processes. “These are mainly companies producing durable goods such as household appliances and cars. Argentina is important within the group.”

Milei will have to expand political support

OR Peronist bloc Union Por La Patria it will have 108 representatives in Congress, out of a total of 257. Juntos Por El Cambio, the party of former Argentine president Mauricio Macri, will have around 93 representatives. Finally, Milei’s La Libertad will have around 38.

With a small transition window, Argentina’s new president is expected to be certified on December 10. Milei, being a new political figure, will have to make agreements with more central politicians to govern.

“It will be very important to monitor the alliances that the new president will make, given that since the beginning of the ballot Milei has already allied himself with centrists like”Together for the Change“, Macri’s party. The market will carefully follow some names in this new government and who will actually take over the Ministry of Economy”, explains Bogini.

And what about Mercosur?

Giorgio Romano Schutte, professor of International Relations and Economics at the Federal University of ABC (UFABC), Giorgio Romano Schutte stressed that it is still too early to assess what relations between the two countries will be like, but believes that trade should not be changed.

“Trade relations are established by economic actors. This should not suffer so much. Trade has suffered because of this Argentina’s economic situation. Now, there is an uncertain fact about how investors will evaluate the election. But the trend is that existing business relationships should not suffer so much,” she considered.

As for Mercosur, Schutte assessed that Milei could try to change the rules, but it will be up to Brazil to resist. Furthermore, he underlined that the proposals of the current Brazilian government to revive Latin American integration must be weakened, due to the position of future Argentine president. “The idea of ​​strengthening Brazil’s inclusion in the world through Latin American integration will be very difficult,” she added.

Argentine political scientist Leandro Gabiati underlined that allies and advisors of the future president of Argentina, while stating that he will not have personal relations with President Lula, affirm that there will be institutional contacts through Itamaraty or ministries.

“Even if the two presidents do not speak to each other directly, there are common interests that will ensure that relations between the two countries remain relatively normal. I see it as something similar to what happened between former president Bolsonaro and the Argentine president Alberto Fernández. The two did not dialogue during their administrations, but many things continued to advance”, he reflected.

Gabiati believes, however, that the liberal measures, even if they do not remove the Mercosur Argentina, can weaken the block. “It will not be an easy relationship between Argentina and Brazil, but we will not reach the radicalism of removing Argentina from Mercosur because this would have serious repercussions on the Argentine economy and industry,” she said.

How are the Brics?

The researcher at the Observatory of Foreign Policy and International Exemption of Brazil (Opeb) Audrey Andrade Gomes underlined that Milei’s victory should reduce the cohesion of Mercosur and interfere in the BRICan economic bloc in which Brazil participates and which brings together emerging powers, such as China, Russia, South Africa and India and which recently included Argentina in the bloc.

“Perhaps he will not be able to keep his electoral promises, such as the distance he wants to maintain with China and Brazil. He cannot separate himself from Argentina’s main partners. But even so, it could create integration problems that will make cohesion difficult and solidity of Mercosur. But the biggest problem is the Brics, because this bloc has proposed using another currency other than the dollar for commercial transactions and this is not the solution Milei’s proposal“said Agência Brasil.

Which assets in Argentina could increase in value after the elections?

According to Bandeira, in Argentina, in principle, the assets that can increase in value are companies that can be privatized, such as YPF oil company and other companies related to crypto assets.

In the afternoon of this Monday (20th), YPF recorded a 41% increase in its shares traded in New York, with a price of 15.18 US dollars.

In addition to YPF, after the victory of Mileitoday the ADRs of BBVA bank and Telecom Argentina also increase, with an increase of 19% and 18% respectively.

With Agência Brasil

Source: Terra

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