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ECONOMY | 11-07-2022 15:32

Argentina needs to stick to IMF agreement, says minister

In her first press conference, Silvina Batakis said Argentina would continue working to balance its fiscal accounts, promote positive real interest rates, and move forward with reducing energy subsidies.

Argentina needs to achieve a balanced budget and fulfill its agreement with the International Monetary Fund, new Economy Minister Silvina Batakis said in an attempt to calm market jitters after a turbulent week.

In her first press conference since being appointed to the government’s top economic job last week, Batakis said Argentina would continue working to balance its fiscal accounts, promote positive real interest rates, and move forward with reducing energy subsidies to continue meeting targets laid out in the country’s US$44-billion agreement with the IMF. 

“We are going to implement measures that will ensure fiscal balance,” Batakis said in Buenos Aires on Monday. “We are not going to spend more than what we have.”

Flanked by Central Bank Chief Miguel Pesce, Batakis said Argentina’s official exchange rate is in “equilibrium” and is competitive for exporters, appearing to rule out a devaluation. Argentina will also create a committee to oversee the local debt, and has restarted talks with the Paris Club group of lenders, the minister said.

Argentina’s benchmark sovereign bonds due 2030 edged down 0.1 cent to 20.2 cents on the dollar at noon in Buenos Aires, after falling to record distress levels last week. Argentina’s parallel exchange rate, known locally as the blue-chip swap, strengthened 0.2 percent to 295 pesos per dollar.

Batakis took over the Economy Ministry after the sudden resignation of Martín Guzmán on July 2, after repeated disagreements with the left-leaning wing of Argentina’s ruling coalition over economic policy. Inflation, currently running above 60 percent, is expected to reach 76 percent by the end of the year according to a Central Bank survey, amid a fast depreciation of the parallel exchange rate and a slump in the price of Argentine debt.

“After the spending spree in the first half of the year, Batakis is suggesting some rationality,” said Ramiro Blazquez, head of strategy at BancTrust & Co in Buenos Aires. “On the other hand, these measures are not very different to what former Minister Guzmán intended to put into practice, which ultimately ended in his departure.”

Batakis declined to give a forecast for year-end inflation and said the country is affected by the general instability of the global economy. She said Argentina won’t allow “price increase abuses” and that accelerating consumer prices over the past week were speculative and without technical grounds. 

While the measures to cut spending are better than expected, the minister’s plan lacked a plan to anchor inflation or stop the ongoing decline in reserves, said Juan Manuel Pazos, chief strategist at TPCG Valores in Buenos Aires. 

“Without something to anchor inflation, I’m concerned these good fiscal measures will go to waste,” he said. 

Analysts say they’re sceptical Batakis will implement the sweeping changes the economy requires. Argentina needs a faster drop in spending, drastic cuts to energy subsidies, slower money printing and a devaluation of the official peso, according to Patrick Esteruelas, head of research at Emso Asset Management in New York. 

“Batakis wasn’t brought on board to remedy the crisis, but was brought on board to administer the crisis,” Esteruelas said in an interview on Friday. “She doesn’t have the gravitas, inclination, political capital, or endorsement for that matter to push for the policy solutions that Argentina needs.”

Other measures mentioned by Batakis:

– Implement a hiring freeze on government jobs
– Incorporate new instruments to safeguard the exchange rate
– Move toward real positive interest rates
– Regulate retail prices by defending competition
– Argentina’s monthly budget quota will be set by what is available in government coffers
– Modification of the financial administration law so that government funds are spent more efficiently
– Proceeds from Argentina’s soy harvest will cover increases in energy prices
– Real-estate valuations will be overseen by the Economy Ministry
 

by Scott Squires & Ignacio Olivera Doll, Bloomberg

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