Argentina: New economy chief met by market, political doubts
BUENOS AIRES, Argentina (AP) — The market welcomed Argentina’s new Economy Minister Sergio Massa on Thursday with what appeared to be a cautiously optimistic attitude amid questions about how he would fulfill a key goal of reducing the fiscal deficit, while leftist groups criticized his initial plans they said would inevitably lead to austerity measures.
In an example of the balancing act that Massa will now have to carry out, his initial words were not well received by leftist political parties and elements of the ruling coalition who are demanding more welfare for the poorest members of society who have been particularly hard-hit by one of the world’s highest inflation rates, currently running at more than 60% annually.
“Massa is a man of the establishment who works for big capital, for the interests that represent the payment of the debt,” Eduardo Belliboni, a leader in the Workers’ Party, told the Associated Press. The new minister “is coming to rescue the government from a political crisis with the same method that led us to this disaster.”
Analysts and opposition leaders also questioned that Massa failed to detail how he would increase Central Bank reserves or what would be his exchange-rate policy, even though he did emphasize a strong devaluation was not a part of his plan.
United for Change, the main opposition force, said that Massa’s announcements were too general and “in no way make up an economic plan and do not constitute a program to stabilize the economy, which is essential and must be immediate.”
The peso strengthened slightly in the financial market, seen as an important metric on confidence considering the government keeps a tight grip on the official exchange rate. The value of the dollar in the black market (known locally as the “blue” dollar) decreased from 297 pesos to 291 pesos.
Argentine government bonds saw early gains in the first few hours of trading after Massa’s swearing-in Wednesday afternoon but these were largely wiped out by the afternoon. Argentine stocks also saw slight gains both locally and in New York on a day in which equities in general saw gains.
In his first news conference as economy minister Wednesday evening, Massa sent several pro-market signals, including a goal of increasing the country’s hard-currency reserves, a decrease in the deficit and a vow to no longer use the Central Bank to finance government operations.
Massa, who resigned as head of Congress’ lower house, the Chamber of Deputies, to take on a strengthened Economy Ministry that includes the previously independent Production and Agriculture ministries, is President Alberto Fernández’s bet to face a growing economic crisis that has also exposed deep divisions within the government’s ruling coalition.
Economic analysts said that Massa, who has close relationship with the country’s business elite and has spent years building contacts in the United States, appears committed to slashing spending and fulfilling the goal of reaching a fiscal deficit of 2.5% of Gross Domestic Product, which was part of the commitment the country made with the International Monetary Fund to restructure some $45 billion in Argentine debt.
Left-leaning members of the governing coalition, including Vice President Cristina Fernández, a former president, have been highly critical of the agreement with the IMF.
“There’s a feeling that the vice president in particular got scared at how much reserves fell in July, how much inflation increased,” Camilo Tiscornia, head of local consultancy C&T Asesores Economicos. “The government is more scared and is willing to take more unpopular measures.”
Tiscornia said that the “most solid” part of Massa’s first announcements included a larger than expected cut in subsidies for public utilities.
Other parts of his initial plan, however, were not precise, particularly those that had to do with decreasing inflation.
“The announcements appear to fall short,” Tiscornia said.
Others agreed a larger scale plan was needed if Massa has any hope of success in his new role.
“To face up to an inflationary process as large as the current one, which threatens to reach 100% annually, requires an integral plan made up by a group of fiscal, monetary, exchange and revenue measures that are coordinated,” said Víctor Beker of the University of Belgrano’s Center for the Study of the New Economy. “That is not appearing for now.”