Argentina’s libertarian president-elect picks a former Central Bank chief as his economy minister

BUENOS AIRES, Argentina (AP) — Argentina’s president-elect, Javier Milei, announced Wednesday he has chosen Luis Caputo, a former finance minister and Central Bank chief known as an expert in markets, to lead the Economy Ministry when the right-wing leader takes office on Dec. 10.

The pick confirms that Milei, a libertarian outsider, is building a more orthodox team to manage Argentina’s economy, which is suffering from red-hot inflation running at an annual rate of 143%.

“Yes, the economy minister is Luis Caputo,” Milei said in a radio interview shortly after landing from a two-day trip to the United States, where he met with officials from the Biden administration.

As the first finance minister in former conservative President Mauricio Macri’s government, Caputo was in charge of a debt restructuring and later became Central Bank chief.

Macri’s party backed Milei in a Nov. 19 presidential runoff election, and his allies now are jockeying for Cabinet positions, leading to some tensions with the president-elect’s traditional libertarian allies.

The market has welcomed signs of Milei’s more orthodox choices for key Cabinet positions. Argentine stocks and bonds have increased while the local currency, the peso, has appreciated slightly in financial markets since he won the election.

The choice of Caputo is “a wise choice in order to bring some kind of favorable expectations for markets regarding what economic policy is going to look like, at least in the short run,” Nicolás Saldías, a senior analyst at the Economist Intelligence Unit for Latin America and the Caribbean, said. “He’ll be very orthodox, and he understands the financial markets quite well.”

Milei had previously said he was going to hold off until his inauguration to unveil the post of economy minister, because he feared his choice could get blamed for any economic woes before he even takes office.

Caputo nonetheless faces challenges on multiple fronts. Milei is warning Argentines to expect a painful period of high inflation and slow growth even as he seeks put many public companies into private hands and to reduce the size of the state more broadly.

“There will be stagflation because when you carry out the fiscal restructuring, it will negatively impact economic activity,” Milei said in a radio interview Wednesday. “What we are doing is creating all the mechanisms to stop the money supply and put an end to inflation within a span of 18 to 24 months.”

One of Milei’s main campaign promises involved getting rid of the Central Bank of Argentina as he said the country’s three-digit inflation rate was largely due to the monetary authority’s penchant for printing money.

The closure of the Central Bank was part of a broad plan that would eventually lead to the dollarization of the economy, replacing the local peso currency with the U.S. dollar. Since his election, Milei has made clear the dollarization plan is on the back burner — in an interview, he called it a “a second-order issue” — and that it would only become a priority once a slew of other actions were taken to shore up Argentina’s economy,

However, Milei’s office has insisted that it still plans to close the Central Bank.

“I think Milei knows that he needs somebody with the reputation of Caputo to calm market jitters about his policies,” Saldías said. “I also think it suggests that at least in the short-to-medium run, a kind of dollarization plan is off the table.”

“It’s not clear if Caputo is inherently against dollarization,” adds Saldías, “but at least for the short run, the fears of a dollarization under Milei seem to be overblown.”

Caputo’s naming is no surprise as he was part of the small group of Milei aides who accompanied the new president-elect to Washington.

Milei previously praised Caputo for his market expertise. In a television interview last week he said he believes Caputo could overcome the problem of short-term notes known as “Leliqs” — short-term loans the Central Bank makes to banks as a way to vacuum up excess pesos — and “end controls on the exchange rate.”

Milei has said he considers the Central Bank’s stock of “Leliqs” as one of the first problems he has to solve. He says the notes could spark hyperinflation because they increase the stock of pesos.

“I have to dismantle the ‘Leliqs’ ball to avoid hyperinflation,” Milei said in an interview. “There is no greater financial expert in Argentina than Luis ‘Toto’ Caputo. He is the ideal person to dismantle this problem.”

Milei, an admirer of former U.S. President Donald Trump, said he received a positive reception at the White House on Tuesday when he met with national security adviser Jake Sullivan.

“We were able to present our economic program and have also outlined our international alignment. The response was truly very positive,” Milei said. “We staunchly defend the ideas of freedom, liberal democracy, and align ourselves neither with autocrats nor with those who do not respect freedom or democracy, nor with the communists. This stance was very well received by the White House.”

Milei has said that his top allies as president would be the United States and Israel.

Caputo and Nicolas Posse, who will be Milei’s Cabinet chief, also held meetings in Washington at the Treasury Department and the International Monetary Fund. Argentina currently has a $44 billion loan program with the IMF.

Gita Gopinath, the IMF’s first deputy managing director, posted on social media Wednesday that she had a “positive meeting” with Caputo and Posse.

“We discussed the complex challenges facing Argentina and plans for urgently strengthening stability,” Gopinath wrote. “Our teams will remain closely engaged in the period ahead.”

Caputo has experience dealing with the International Monetary Fund from during the Macri administration and relations between the two were tense during his brief tenure as Central Bank chief. IMF officials objected to his efforts to spend much-needed cash to prop up the value of the peso. He only lasted three months in the job.

Milei also confirmed that Gerardo Werthein, a business magnate, will be Argentina’s ambassador to the United States and he wants Daniel Scioli, a former vice president, to remain as ambassador in neighboring Brazil for now.

Since his election, Milei has worked to smooth over tensions with the government of Brazilian leftist President Luiz Inácio Lula da Silva, whom he harshly criticized during the campaign while praising former far-right Brazilian President Jair Bolsonaro.