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ECONOMY | 02-07-2022 22:55

Argentina's Economy Minister Martín Guzmán resigns as divisions grow

Shake-up raises doubts over whether Argentina can comply with a US$44-billion IMF programme, whose goals and objectives for the second half are seen by private economists view as too challenging to reach. 

Argentina's Economy Minister Martín Guzmán resigned Saturday, marking the biggest departure of President Alberto Fernández’s government after infighting within the ruling coalition escalated.

Guzmán announced his decision in a seven-page letter published on Twitter. No replacement was immediately announced.

The minister had come under pressure as Argentines battle heightened inflation of more than 60 percent. The shake-up also raises doubts over whether Argentina can comply with a US$44-billion programme with the International Monetary Fund, whose goals and objectives for the second half are seen by private economists view as too challenging to reach. 

Guzmán, a 39-year-old economist who conducted research at Columbia University alongside Nobel Prize winner Joseph Stiglitz, lost support over the last months from the far-left wing of the Frente de Todos coalition led by Vice-President Cristina Fernández de Kirchner. Lawmakers loyal to her in Congress voted against the IMF agreement he negotiated, even though the deal was approved with ample backing.  

Complaints against Guzmán had billowed recently with Fernández de Kirchner herself slamming the government’s management of inflation, the currency market and reserves in a May speech. In a Saturday speech ahead of the publication of Guzmán’s resignation letter, she once again criticised economic policy. 

In his exit note, Guzmán called for a “political agreement within the governing coalition.”

“That will allow whoever replaces me to have the ability to manage centrally the tools of macroeconomic policy that will be necessary to continue the advances we’ve made and the challenges ahead,” he wrote. 

 

Under pressure

Over his almost 31-month tenure, Guzmán restructured US$66 billion of international bonds with private creditors in 2020 and spearheaded talks for a refinancing of an IMF deal inked by the prior administration. While both deals bought the government time to repay Wall Street and the Washington-based lender, neither accomplished a boost in investor confidence. 

The nation’s bond prices remain in distressed territory, above 20 cents on the dollar, and the country’s parallel exchange rate – which indicates local confidence amid capital controls – slumped to a record low of 252 pesos per dollar this week. 

Guzmán was expected to travel to France ahead of a July 6 meeting to continue negotiations over US$2 billion owed to a group of creditor nations known as the Paris Club.

In addition to the challenges of curbing inflation and rolling over a growing pile of local debt, Guzmán was also tasked in the near-term with overseeing the reduction of energy subsidies through a process of segmenting fees based on income, a socially sensitive move that would allow the government to meet spending reductions necessary for the IMF plan. 

Guzmán also cut the government’s fiscal deficit last year after it ballooned at the peak of the pandemic in 2020. Fernández de Kirchner heavily criticised that belt tightening in September, after the ruling coalition lost control of the Senate in midterm elections.

 

Fractured coalition

One of the president’s most loyal ministers, Guzmán’s resignation lays bare the government’s internal divide between Fernández and Fernández de Kirchner. The president last month was forced to ask Productive Development Minister Matías Kulfas to resign, after he allegedly criticised members of the coalition in text messages to the press.

Guzmán had butted heads with some of his own deputies loyal to Fernández de Kirchner. In May 2021, local press reported a policy rift between Guzmán and a junior official in the Energy Ministry who Guzmán requested be fired. As the top economic policymaker, Guzmán had control over the Energy Ministry, but the official, aligned with Fernández de Kirchner, allegedly refused to quit and stayed in his post. 

Since the government sealed the IMF deal, Fernández’s focus has also shifted toward economic issues that have been spearheaded by other ministries. In March, the president declared a “war on inflation” and told ministers to take “all measures necessary” to combat elevated inflation but price gains continued escalating. While Guzmán played a role in the inflation strategy, measures on prices were mostly led by officials close to Fernández de Kirchner.  

Other Economy Ministry officials including Finance Undersecretary Ramiro Tosi, Tax Undersecretary Roberto Arias and Institutional Relations Undersecretary Rodrigo Ruete also presented their resignations late Saturday. 

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by Patrick Gillespie, Bloomberg

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