Monday, July 15, 2024

ARGENTINA | 13-07-2023 15:51

Rodríguez Larreta plans spending cuts to help peso

Juntos por el Cambio presidential hopeful plans to cut spending by 4% of GDP; Move intends to allow peso to weaken gradually to level between official and parallel rates, reveals Lacunza.

Centrist presidential candidate Horacio Rodríguez Larreta would cut spending by four percent of gross domestic product as part of a plan that would help cushion the decline of the country’s currency, according to his top economic adviser. 

If implemented, the plan would allow the peso to weaken gradually to a level between the current official and parallel rates, former economy minister Hernán Lacunza said during a Tuesday speech to corporate executives, according to two people familiar with the meeting who requested anonymity to share details of it.

Rodríguez Larreta will face off against Patricia Bullrich for the opposition coalition’s nomination in an August 13 primary vote, with the winner advancing to the October 22 general election. The contest is taking place against the backdrop of Argentina’s intensifying economic woes, as rapid inflation and a record drought push it to the brink of recession.

Many polls, which have a spotty track record, show Rodríguez Larreta and Bullrich neck-and-neck in the primary. Spokespersons for Rodríguez Larreta and Lacunza declined to comment. 

The former minister estimated that the official exchange rate would reach 400 pesos per dollar, adjusted for inflation, by the end of this year. The outlook implies that the official and parallel rates — currently at 265 and 523 pesos per dollar, respectively — will converge in the middle rather than at the higher level. 

While other local economists also see the peso near 400 this year, they project the currency shooting to over 900 per dollar by the end of 2024, suggesting a major devaluation would happen under a new government. 

Lacunza cautioned against immediately lifting Argentina’s cobweb of currency controls, a reversal from his party’s stance in 2015, when former president Mauricio Macri ended them overnight and triggered a massive price spike. 

The release of dollars trapped by the current controls would happen in stages under Lacunza’s plan, he told executives. He would free up dollar access for corporate debt contracted by third parties first, then move on to imports and debts within companies. Dividends from banks and corporations would come last.

But the spending cuts would be his first priority, he told the executives. The reductions would centre around Argentina’s generous utility subsidies and expenditures at state-run companies. 

By quickly reducing spending and gradually lifting controls, Lacunza expects Argentina’s Central Bank to build up US$100 million in foreign reserves per day. The monetary authority is currently running out of dollars and most recently made a payment to the International Monetary Fund in Chinese yuan. 

Lacunza didn’t provide details on when citizens can expect more dollar access. Currently, savers can only exchange pesos for US$200 a month and must pay three taxes implemented by the ruling Peronist bloc, which will also field a candidate in the election. ​

by Ignacio Olivera Doll, Bloomberg


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