Argentina’s new economy minister vows to restore financial system

Argentina’s new economy minister has vowed to replace the country’s financial system as the Peronist administration attempts to restore its crumbling credibility and restore market confidence by creating a “grand ministry” to tackle double-digit inflation.

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

In his first speech since his appointment last week, Massa, 50, announced a slate of measures including a pledge to end printing money to finance the budget — financing it instead by cutting deficits or borrowing from the private sector — along with building dollar reserves. and “recast” government support in order to narrow the country’s large deficit and achieve budget targets.

The former speaker of Argentina’s House of Representatives faces the unenviable task of rescuing an economy reeling from high inflation, dwindling reserves and an ever-growing pile of domestic debt, while grappling with an internal political struggle ahead of next year’s elections.

Bond prices have risen since President Alberto Fernandez chose Massa to oversee a new department dedicated to economic, manufacturing and agricultural policy. Investors appear more optimistic about Massa’s ability to nurture reforms to lower inflation than his predecessor, Silvina Patakis, who lasted 24 days in the job.

Patakis took over on July 4 from Martin Guzman, who unexpectedly resigned after months of wrangling within the left-wing ruling coalition over the direction of economic policy. Guzmán, an ally of the president, has called for spending cuts to curb the budget deficit and keep Argentina’s $44 billion debt restructuring deal with the International Monetary Fund on track.

Sentiment has since deteriorated, leading to a currency run as savers fear devaluations will convert their pesos into trustworthy holdings like the US dollar – which in turn has fueled inflation.

Economists expect inflation in Argentina to exceed 90 percent this year. Sovereign bonds are trading in distressed territory. A central bank survey showed that the poverty rate is high and the country is expected to enter a short recession with a contraction in the third quarter of this year.

In an effort to contain a complete economic crisis, Fernandez decided to put Massa at the helm of saving the country’s financial resources, hoping to give reassurance to investors and the public.

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

Analysts remain skeptical about the level of control Massa will actually exercise over the Department of Energy and other financial institutions. Economist Fernando Marol said that while a series of positions were handed over as part of the cabinet reshuffle, “at the moment, there are no new faces” indicating a change in the direction of leadership in the Finance Ministry.

“Today the economy is very weak,” Marol said. He needs a strong economic plan that includes tough measures like currency devaluation, and higher interest rates. . . Although Massa has political support, we are still far from signs of a solid economic plan.”

To boost credibility among investors, the new ministry must “set a credible limit” to the peso issued by the central bank, according to Nicholas Dugovny, a former finance minister in a former centre-right administration. Without reducing money printing, he said, “inflation will not go down”.

Under the terms of a debt restructuring deal with the International Monetary Fund, Argentina is limited to printing 765 billion pesos ($5.8 billion) for the whole year to fund its deficit. The central bank, under Governor Miguel Besso, has printed 630 billion pesos this year, more than half of that since early June.

In his new position, Massa will also oversee negotiations with the International Monetary Fund. A spokesperson for the fund confirmed Wednesday that the team had a “productive meeting” with the minister to discuss program implementation ahead of the quarterly review in September.

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

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