Argentina's Milei Stands Firm on Shutting Central Bank Despite Growing Doubts

Buenos Aires — President-elect Javier Milei sent shockwaves through Argentina’s financial system last week when he doubled down on his controversial pledge to close the nation’s central bank.

The move would mark a dramatic departure from mainstream economic policy and eliminate the institution responsible for managing monetary policy and regulating the banking system. Yet Milei, a libertarian economist who rode a wave of discontent into the presidency, insists it is the only way to rescue Argentina from its chronic economic woes.”

Regarding the false rumours being spread, we wish to clarify that the closure of the Central Bank of the Republic of Argentina is not a negotiable matter,” Milei’s team asserted in a statement on Friday.

The proclamation came amid signs that Milei was wavering on his more radical proposals as he assembled his Cabinet ahead of taking office on December 10.

There was speculation he may opt for a more moderate path by appointing former central banker Luis Caputo as economy minister.

But Milei moved swiftly to dispel any notion he is backing down from his plan to shutter the central bank, a signature pledge that fueled his maverick campaign. The unambiguous message served to reinforce his uncompromising stance.

Milei’s unwavering commitment has raised concerns in financial circles about Argentina’s trajectory. Critics warn eliminating the central bank would undermine the economy and weaken the government’s ability to respond to crises.”

Milei’s intention to close the Central Bank contradicts the lessons learned from other dollarized economies,” said economist Juan Ponsot. “In these countries, the central bank, despite its limited role, continues to regulate the payment system, manage local coin circulation, and ensure financial stability.”

Proponents counter that the central bank enabled the runaway inflation and currency devaluations that have long plagued Argentina. Milei blames the institution for recklessly printing money and facilitating government overspending.

He argues abolishing it and pegging the economy to the U.S. dollar would impose fiscal discipline.

The debate epitomizes the high-stakes gambles Milei is willing to take as he pursues his brand of radical economic liberalization. How his policies will play out in the real world remains to be seen.

For now, Milei appears undeterred. The former television pundit built his career railing against the establishment and promising to upend the status quo. His unwavering stance on closing the central bank affirms his commitment to deliver on those pledges, even if it means venturing into uncharted territory.

With his surprise ascent representing growing disillusionment with mainstream politics, Milei seems determined to hold firm to his convictions.

The coming weeks will reveal if his appointed Cabinet shares that resolute spirit as the moment of truth for his bold economic vision draws near.

Javier Milei is assembling an economic team of market-friendly economists, signaling a break from the current Peronist government's interventionist policies.

Milei, who won a resounding victory in last month's election, has not yet finalized his cabinet appointments, but he has indicated that he favors candidates with experience in the private sector and a strong commitment to free markets.

One potential candidate for central bank chief is Demian Reidel, who served as a vice-president at the institution under then-president Mauricio Macri. Reidel is a respected economist with a track record of advocating for fiscal discipline and monetary stability.

For the key role of economy minister, Milei has expressed admiration for Luis Caputo, a former head of trading for Latin America at JPMorgan in the 1990s who later worked at Deutsche Bank. Caputo served as finance minister under Macri from 2017 to 2018 and is credited with overseeing the issuance of a 100-year sovereign bond at the peak of investor enthusiasm for Argentina.

Caputo's appointment would send a strong signal to markets that Milei is serious about implementing pro-growth economic policies. But, Caputo's relationship with the IMF — he resigned from his post as central bank president in 2018 amid differences with the Fund — could be a potential stumbling block.

Milei's economic team is expected to play a crucial role in restoring investor confidence and charting a path for Argentina's economic recovery. With the country facing high inflation, a weak currency, and a stagnant economy, Milei's team will have their work cut out for them. However, the market's positive reaction to Milei's victory suggests that investors are hopeful that he can deliver the reforms that Argentina needs.