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Argentina’s new economy minister pledges to restore fiscal order

Argentina’s new economy minister has pledged to bring fiscal order to the country as the Peronist government tries to restore its crumbling credibility and regain market confidence by creating a “super ministry” to tackle double-digit inflation.

“I am not a wizard or a savior,” Sergio Massa, the third person to take charge of Argentina’s economy in just a month, said Wednesday. “The challenge is enormous.”

In his first speech since he was appointed last week, Massa, 50, announced a series of new measures, including a pledge to end printing money to fund the budget – instead fund through deficit reduction. or private sector lending — along with building dollar reserves and “reworking state subsidies to reduce the country’s large deficit and meet budget targets.”

The former Speaker of Argentina’s House of Commons faces the unenviable task of saving an economy ravaged by runaway inflation, dwindling reserves and an ever-growing pile of domestic debt, all while overcoming political infighting in the run-up to next year’s election.

Bond prices have risen since Massa was elected by President Alberto Fernández to oversee a new department dedicated to economic, manufacturing and agricultural policy. Investors seem more optimistic about his ability to guide reforms to curb inflation than his predecessor, Silvina Batakis, who held out for 24 days.

Batakis took over from Martín Guzmán on July 4, who unexpectedly quit after months of bickering within the left-wing ruling coalition over the direction of economic policy. Guzmán, an ally of the president, had called for spending cuts to contain the budget deficit and keep the IMF’s $44 billion debt restructuring deal on track.

Sentiment has deteriorated since then, leading to a run on the currency as savers fearing devaluation convert their pesos to more reliable positions like the US dollar, which in turn drives inflation.

Economists predict that inflation in Argentina will exceed 90 percent this year. Government bonds are traded in distressed territory. Poverty is high and the country is expected to enter a short-term recession, with contraction in the third quarter of this year, according to a central bank survey.

In an effort to contain a full-blown economic crisis, Fernández made the decision to put Massa at the helm of bailing out the country’s finances, hoping he can give investors and the public some reassurance.

But Argentina’s vice president, Cristina Fernández de Kirchner, is divided with the president on how to restore the economy. She and her allies believe the Peronists should spend more to protect voters from rising inflation ahead of the presidential race.

Analysts remain skeptical about the degree of control Massa will actually exert over the Department of Energy and other financial institutions. Economist Fernando Marull said that while a range of positions had been handed out as part of the reshuffle, “there are no new faces for now” pointing to a change in leadership at the Treasury Department.

“Today the economy is extremely vulnerable,” Marull said. “A strong economic plan is needed, with crushing measures like a devaluation, higher interest rates. . . Even though Massa has the political backing, we are still a long way from showing signs of a solid economic plan.”

To bolster credibility among investors, the new ministry must “put a credible brake” on pesos issued by the central bank, according to Nicolás Dujovne, a former finance minister for a previous center-right government. Without a reduction in money printing, “inflation will not fall,” he said.

Under the terms of its debt restructuring deal with the IMF, Argentina will be allowed to print 765 billion pesos ($5.8 billion) all year to finance its deficit. The central bank, under Governor Miguel Pesce, has printed 630 billion pesos this year, more than half of that since the beginning of June.

As part of his new role, Massa will oversee negotiations with the IMF. A spokesman for the fund confirmed on Wednesday that the team had “a productive meeting” with the new minister to discuss the implementation of the program ahead of a quarterly review in September.

Massa will also meet in August with the Paris Club of 22 countries to renegotiate more than $2 billion owed.

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