When Javier Milei, Argentina’s radical libertarian president-elect, this week selected Luis Caputo as his economy minister, some investors greeted the news with relief.
Unlike Milei, a political outsider who has had no executive encounter and scarce contact with Argentine businesses, Caputo is a known quantity.
The former Wall Street trader ran the finance ministry and briefly the central bank under conservative ex-president Mauricio Macri. Known for opening up the country’s access to credit, Caputo successfully sold a 100-year sovereign bond in 2018.
“For the market, this is admire your best friend becoming economy minister,” said Salvador Vitelli, head of research at the Buenos Aires-based Romano Group.
Yet Caputo will take the reins of Argentina’s economy on December 10 at its most fragile point in two decades. Inflation is running above 140 per cent, foreign currency reserves have been wiped out and economic activity is being hobbled by a labyrinthine set of currency, import and price controls brought in by the left-leaning Peronist government.
Milei’s November election win — on a pledge to rapidly overhaul Argentina’s dysfunctional economy — has triggered a burst of market exuberance. The local Merval stock index is up 28 per cent, while prices for Argentina’s closely watched sovereign bonds maturing in 2030 — some of the most liquid — have risen 22 per cent to 37.2 cents on the dollar.
The rally has been aided, analysts said, by a pragmatic turn from Milei, embodied by his choice of Macri era officials including Caputo, who is not a champion of Milei’s controversial campaign pledge to dollarise Argentina’s economy.
“I think that [the extreme ideas] we have heard in the political campaign may probably never come into place,” JPMorgan Chase president Daniel Pinto, who is from Argentina, told the Financial Times on Tuesday.
“I think that it will be a positive event for the country. It will probably be more of a centre-right type government.”
After he accepted the job on Thursday, Caputo said on X: “We’re going to give everything we’ve got to bring joy to good Argentines, who so deserve it!”
Under Macri, Caputo helped to direct a massive borrowing push. As finance secretary in 2016, he agreed to pay more than $9bn to holdout creditors to restore Argentina’s access to international capital markets. He later sold $2.75bn worth of dollar-denominated century bonds, defying market watchers who warned of Argentina’s history of defaults.
Market confidence evaporated in 2018, prompting Macri to take out a world-record $57bn IMF loan. Argentina defaulted on the century bonds and other debts in 2020.
Tensions between Caputo and fund officials prompted him to leave the central bank leadership after just three months in 2018 amid the IMF’s refusal to allow the release of extra funds to intervene in currency markets.
One Buenos Aires trader said: “I think many creditors have a bad memory of Caputo. It’s true that he’s a super reasonable guy and better than the other options, but a lot of [investors] lost a lot of money last time. I don’t know how they will feel when sitting down with him.”
Yet few in Buenos Aires dispute Caputo’s skill as a financier. His stints at JPMorgan, Deutsche Bank, and later at his own Argentine-based investment fund led Macri to give him the nickname “the Messi of finance”. One friend describes him as “a total brain” who is “at core an introvert” but has the charm of a salesman.
What is less clear is how Caputo, who has relatively little political encounter and is not a macroeconomist, will work with the wild-card president-elect — who previously promised to take a “chainsaw” to the state — to settle Argentina’s wide-ranging economic challenges.
These include more than a decade of economic stagnation and a chronic fiscal deficit that successive governments have failed to cut in the face of powerful provincial leaders and labour movements.
“Caputo is not known for his encounter with the real economy — growth, production, small businesses,” Vitelli said. “That’s not to say he will be a bad minister, but that’s his profile now.”
Milei has pledged a “shock” package of spending cuts on December 11 after his inauguration. Milei’s two-year-old La Libertad Avanza party holds less than 15 per cent of seats in Argentina’s lower house, and 10 per cent of the senate.
Eugenia Mitchelstein, associate professor of politics at Buenos Aires’ University of San Andrés, argued that Milei’s choice of a finance specialist was probably strategic and might enable the relationship to run smoothly.
“Caputo is a technician, not a politician. He is not someone who will challenge Milei on his overall direction for the economy or try to launch [his own political project],” said Mitchelstein.
Known by his nickname “Toto”, Caputo is the cousin of Nicolás Caputo, a construction magnate with close ties to Macri. Caputo’s nephew, Santiago Caputo, is a 38 year-old political consultant who Milei called “the real architect” of his victory in his election night speech.
At the top of Caputo’s in-tray is an exploding pile of short-term liabilities issued to local creditors to contain an excess of pesos in the economy. Known as Leliqs and Pases, and already worth roughly 10 per cent of GDP, they are currently being serviced by money printing. He must also tackle the renegotiation of Argentina’s troubled $43bn deal with the IMF, on which it has missed almost all its targets.
On the former, Caputo has signalled that he favours a voluntary swap for treasury debt. This is a advance that critics argue would advance burden Argentina’s already bleak public finances, but proponents say it would send a strong sign to markets that Milei’s administration will no longer rely on inflation-fuelling money printing.
On the latter, Caputo has already travelled to Washington to confront fund officials and US treasury staff.
Dollarisation appears to be on hold for now. A May report from Caputo’s Anker consultancy argued that dollarisation would be “difficult” though “not impossible”, and that the “backbone” of the next government’s scheme “must be fiscal balance”.
The 2017 Paradise Papers leak exposed Caputo’s ties to offshore funds that had invested in high-risk emerging market bonds, triggering a so-far unresolved federal investigation into whether he failed to disclose those interests when he joined Macri’s government in 2015. Caputo has previously said he cut ties with the funds before entering government.
The scope of Caputo’s new role is unclear. Milei has already assigned several of the secretariats that have previously reported to the economy minister, including mining and energy, to his infrastructure minister.
One prominent business leader who spent the campaign period fretting about Milei’s radical plans said he felt “calmed” by the Caputo news, though not entirely optimistic about the next few months.
“We maybe wanted a more comprehensive macroeconomist, but Caputo is a very credible person,” he said. “That’s the best we could hope for at this stage.”
Additional reporting by Joshua Franklin and Mary McDougall in London
