(Bloomberg) -- Argentina is hiking interest rates and devaluing its currency in a bid to reassure investors as assets went into free fall Monday after a populist who vowed to burn down the central bank won surprisingly strong support in a primary vote. 

The government rushed to devalue its official exchange rate as much as 18% to around 350 pesos per dollar and hiked its key interest rate by 21 percentage points to 118% in a drastic policy shift as it runs out of funds to defend its currency. The peso fell as much as 14% on parallel markets to a record low before paring losses, while the nation’s already-distressed debt led declines across emerging markets. Stocks also sank, with a US-traded ETF at one point plunging the most since March 2020. 

The selloff came after Javier Milei rode voter angst to the top spot in Sunday’s primary, capturing about a third of the ballots. The congressman identifies as a libertarian and supports dollarizing the economy. 

Read more: Outsider Milei Upends Argentina’s Election With Primary Win

“Investors like Milei’s economic message, but fear the execution and institutional risk, considering his lack of power in congress and aggressive style,” said Alejo Costa, jthe chief Argentina strategist at BTG Pactual in Buenos Aires.

The one-term congressman campaigned against a political class that he said mismanaged the economy for years, leaving the country to lurch from crisis to crisis. Argentina is poised for its sixth recession in 10 years and coping with inflation topping 100%. Milei says he can tame price increases by ditching the peso and replacing it with the US dollar — a move many economists say would cause financial mayhem. 

But if the few details Milei has revealed about his agenda baffle mainstream economists, Argentines desperate to chart a new course don’t seem too worried about his threats to “burn down” the central bank. Crowds cheer when he describes politicians as delinquents, thieves and criminals who ruined the economy.

Argentina’s center-right opposition coalition came in second Sunday night with around 28% of the vote, while the left-leaning incumbent party followed with around 27% with almost 90% of the votes counted.

“The message is very clear: The fed-up, anti-establishment vote to punish the political class has won,” said Fernando Losada, a managing director at Oppenheimer & Co. in New York.

Like Brazil’s Jair Bolsonaro and Donald Trump in the US — populist outsiders that Milei is often compared with — the Argentine also holds provocative social views. He’s said he would eliminate the newly created Women’s Ministry and a government-run institution advocating against racism, tighten abortion restrictions, and make it easier to buy a gun in a country largely devoid of household firearms.

Political analysts have said his galvanizing views on social issues may make it difficult to form coalitions and push through his agenda.

The “overall market read will be negative” given the unknowns about Milei and results showing the mainstream conservative coalition, Juntos por el Cambio, underperformed, said Patrick Esteruelas, head of research at Emso Asset Management in Miami. “This will prolong the uncertainty and we may see a knee-jerk selloff.”

Uncertainty to Continue

Investors may get a better sense of the candidates’ economic proposals in coming weeks. Argentina holds its presidential vote Oct. 22, and if necessary, a runoff Nov. 19. To avoid a second round, the top candidate must receive 45% of valid votes in the first round, or 40% of them while holding onto a 10 percentage-point lead over the runner-up. An outright victory would also boost the winning party’s performance in congress.

Milei’s outperformance means it’s unlikely any one candidate will reach the required threshold to win outright in October, according to said Javier Casabal, a fixed income strategist at Adcap Securities in Buenos Aires.

“For now, Milei represents uncertainty,” Casabal said. “Most voters are unlikely to leave their coalitions, at least in massive numbers, so the base case should be a runoff in November.”

No matter who wins the top job, the incoming administration will have the monumental task ahead of calming triple-digit inflation and bringing dollars back into the central bank’s reserves, which have slumped to a 17-year low. 

Read More: Here Are Argentina’s Assets to Watch Before Key Primary Vote

The next government’s first job will be unwinding unsustainable policies, according to Claudia Calich, the head of emerging-market debt at M&G Investments.

“That’s going to be absolutely critical because there’s a huge laundry list of things the new government, whoever that may be, will need to do,” she said.

--With assistance from Carolina Wilson, Netty Ismail and Vinícius Andrade.

(Updates market prices throughout. A previous version of this story corrected the interest rate in the second paragraph.)

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