Argentina: the markets warmly welcome the leader of the new economy

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 meet a key target of reducing the budget deficit, while left-wing groups criticized his first of the plans which they said would inevitably lead to strong austerity measures.

The peso strengthened slightly in the financial market, seen as an important indicator of confidence as the government maintains a tight grip on the official exchange rate. The value of the dollar on the black market (locally known as the “blue” dollar) fell from 297 pesos to 291 pesos.

Argentinian government bonds posted early gains in the first hours of trading after Massa was sworn in on Wednesday afternoon, but these were largely wiped out in the afternoon. Argentinian stocks also posted slight gains both locally and in New York on a day when stocks in general recorded gains.

During his first press conference as economy minister on Wednesday evening, Massa sent several favorable signals to the market, including a target to increase the country’s hard currency reserves, a decrease in the deficit and a vow not to no longer use the Central Bank to finance government operations. .

Massa, who resigned as head of the lower house of Congress, the Chamber of Deputies, to assume a strengthened economy ministry that includes the previously independent ministries of production and agriculture, is betting of President Alberto Fernández to face a growing economic crisis that has also exposed deep divisions within the ruling government coalition.

In an example of the balancing act Massa will now have to pull off, his opening words have not gone down well with left-wing groups and even more so with left-leaning elements in the ruling coalition who demand more well-being. to be for the poorest members of society who have been particularly hard hit by one of the highest rates of inflation in the world, which currently stands at over 60% per year.

Economic analysts said Massa, who has close ties to the country’s business elite and has spent years building contacts in the United States, appears determined to cut spending and hit the target of reaching a budget deficit of 2.5% of gross domestic product, which was part of the country’s commitment to the International Monetary Fund to restructure some $45 billion of Argentine debt.

Left-wing members of the ruling coalition, including Vice President Cristina Fernández, a former president, have strongly criticized the IMF deal.

“There is a feeling that the vice president in particular was scared of the fall in reserves in July, the rise in inflation,” said Camilo Tiscornia, head of local consultancy C&T Asesores Economicos. “The government is more afraid and ready to take more unpopular measures.”

Tiscornia said the “strongest” part of Massa’s early announcements included a bigger-than-expected cut to utility subsidies.

Other parts of his original plan, however, were not specific, especially those relating to lowering inflation.

“The ads seem to be failing,” Tiscornia said.

Others agreed that a larger scale plan was needed if Massa had any hope of success in his new role.

“Dealing with an inflationary process as large as the current one, which threatens to reach 100% per year, requires an integral plan consisting of a set of coordinated fiscal, monetary, exchange and revenue measures,” said Víctor Beker from the Center for the Study of the New Economy of the University of Belgrano. “It does not appear at the moment.”

Analysts and opposition leaders have also questioned the fact that Massa did not specify how he would increase central bank reserves or what his exchange rate policy would be, although he stressed that a sharp devaluation was not part of his plan.

United for Change, the main opposition force, said Massa’s announcements were too general and “in no way constitute an economic plan and do not constitute a stabilization program for the economy, which is essential and must be immediate”.

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