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 administration attempts to restore its crumbling credibility and regain market confidence by establishing a “super ministry” to tackle double-digit inflation.

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

In his first speech since being appointed last week, Massa, 50, announced a slate of measures including a vow to end money printing to fund the budget — financing it instead through deficit reduction or private-sector borrowing — along with building dollar reserves and “reworking” state subsidies in order to narrow the country’s large deficit and meet budget targets.

The former speaker of Argentina’s lower house of congress faces the unenviable task of saving an economy wracked by galloping inflation, dwindling reserves and an ever-increasing pile of domestic debt, while navigating political infighting ahead of an election next year.

Bond prices have rallied since Massa was selected by President Alberto Fernández to oversee a new department dedicated to economic, manufacturing and agricultural policy. Investors appear more optimistic about Massa’s ability to shepherd reforms to bring down inflation than his predecessor, Silvina Batakis, who lasted 24 days in the job.

Batakis took over on July 4 from Martín Guzmán, who quit unexpectedly following months of squabbling inside the leftwing ruling coalition over the direction of economic policy. Guzmán, an ally of the president, had called for a reduction in spending to rein in the budget deficit and keep Argentina’s $44bn IMF debt restructuring deal on track.

Sentiment has since deteriorated, leading to a run on the currency as savers fearful of a devaluation convert their pesos into more trustworthy holdings such as the US dollar — in turn driving inflation higher.

Economists forecast inflation in Argentina to exceed 90 per cent this year. Sovereign bonds are trading in distressed territory. Poverty is high and the country is expected to enter a brief recession with a contraction in the third quarter of this year, according to a central bank survey.

In an attempt to contain a full-blown economic crisis, Fernández decided to install Massa at the helm of rescuing the country’s finances, in the hope of giving reassurance to investors and the public.

But Argentina’s vice-president, Cristina Fernández de Kirchner, has split with the president over how to fix the economy. She and her allies believe the Peronists should spend more to shield voters from rising inflation ahead of the presidential race.

Analysts remain sceptical about the level of control Massa will actually wield over the energy ministry and other financial institutions. Economist Fernando Marull said that while a string of positions had been handed out as part of the reshuffle, “for now, there are no new faces” that signal a change in the direction of leadership at the finance ministry.

“Today the economy is extremely vulnerable,” Marull said. “It needs a strong economic plan that involves bruising measures like a devaluation, higher interest rates . . . even though Massa has the political support, we’re still a way off from signs that there is a solid economic plan in place.”

To shore up credibility among investors, the new ministry “must put a credible brake” on the pesos being issued by the central bank, according to Nicolás Dujovne, a former finance minister for a previous centre-right administration. Without a reduction in money printing, “inflation will not come down”, he said.

Under the terms of its debt restructuring deal with the IMF, Argentina is limited to printing 765bn pesos ($5.8bn) for the full year to fund its deficit. The central bank, under governor Miguel Pesce, has printed 630bn pesos this year, more than half of that since early June.

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

Massa will also meet the Paris Club of 22 nations in August to renegotiate more than $2bn owed.

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