Monday, May 20, 2024

ECONOMY | 24-12-2019 09:02

Government publishes emergency economic measures in Official Gazette

Sweeping economic passage published as Alberto Fernández reveals IMF team will arrive in Buenos Aires for talks "in the coming days." President admits he hopes for single-digit inflation by 2023.

The government has finally published the text of its "Emergency Law of Social Solidarity and Productive Reactivation," in the Official Gazette (Boletín Oficial), promulgating the measure into law.

The new legislation, among other steps, immediately introduces a 30 percent surcharge on dollar and foreign currency purchases.  It also suspends existing updates to pension payments for 180 days as contribution levels are studied and increases duties on agricultural exports, in some cases reaching as high as 33 percent.

The government estimate it will bring in around US$7 billion annually.

Law 27.541 – as it is technically known – was sanctioned in just 48 hours by Congress. The bill passed the lower house of Congress on Friday and the Senate on Saturday.

The emergency economic package was announced by new President Alberto Fernández, who took office two weeks ago with a vow to put Argentina back on its feet.

The emergency measures were announced just after 5pm in the government publiction – several hours after it was expected due to some last-minute changes.


Fernández's plan involves tax hikes on foreign currency purchases, agricultural exports and car sales. 

The government says the tax hikes will only affect the upper and middle classes.

Fernandez has described the crisis facing Argentina as almost as bad as that of 2001 – when the country defaulted on a US$100-billion debt. Its current foreign debt stands at around 90 percent of GDP.

"It is not the same as 2001. But it is similar. At that time, poverty was at 57 percent, today we have 41 percent poor people; then we had a debt default, today we are in virtual default," Fernández said in an interview with TV programme La Cornisa on Sunday.

The new law will allow the executive extra powers over finance, tax, administration, pensions, tariffs, energy, health and social issues.

The government's aim is to "attend to the needs of the most vulnerable sectors and to ... spark growth," Social Security Administration chief Alejandro Vanoli said.

The government has vowed to "tackle hunger" and has announced a 10,000 (US$160) peso bonus for pensioners and a six-month freeze on public utility prices.

"It's a difficult situation, it's a country that has had to restructure its debt, with a deep fiscal and financial deficit, in a situation of recession and inflation," said Vanoli. "The state is putting all its efforts into those suffering the most from the social situation."

IMF on the way?

Former president Mauricio Macri had planned in September to negotiate a restructuring of debt repayments with the International Monetary Fund, with which he'd agreed a US$57-billion bailout loan last year. 

The government has already received US$44 billion of that loan but Fernández has said that he will refuse the remaining disbursements. 

Speaking at a pre-Christmas toast for journalists, the president told reporters on Monday that an IMF delegation is due in Argentina "in the next few days."

The president also said that if "one-digit inflation is achieved by 2023," he said, "I will be satisfied."

Fernández said his main "concern is to stabilise the economy, reassure the economy, to be all a little quieter."

Argentina's economy is expected to shrink by 3.1 percent in 2019, inflation is hovering around 55 percent and unemployment is rising to 10.5 percent.

"That's what we inherited. We can't face up to it and pay the obligations that we've been landed with," Fernández said on Sunday, as he made comparisons with the 2001 crisis.

"We had massive unemployment, we also have that now. What we didn't have [then] is inflation [but] now we have it."

Economist Claudio Loser of the Washington-based Centennial Group says Fernández wants to "make it clear to creditors that they're going to have to negotiate a restructuring with Argentina."

"He's referring to a virtual default to dramatise the situation and show that Macri left him a huge problem."


On Friday, Argentina unilaterally postponed a US$9-billion maturities payment until August, a move that saw rating agencies Fitch and S&P downgrade its credit rating.

On Monday, though, Fitch restored Argentina's rating to "CC" from "restricted default" but warned of "a high probability of another default of some kind."

"We're in a huge freefall ... in two years, Argentina has massively increased its debt," said Fernández.

Argentina owes US$335 billion, just over 90 percent of its gross domestic product. That figure was a little over 50 percent in 2016, soon after Macri came to power.

One of Argentina's main problems is its people prefer to hold dollars rather than pesos, meaning they try to sell their local currency and often keep their dollars in foreign bank accounts.

"Argentina has no more dollars. Macri lost $100 billion. Argentina needs dollars to come back in," said Fernández, who has maintained the monthly US$200-limit of buying foreign currency imposed by Macri last August.

"Dollars are scarce, as there aren't any, they have to be expensive" to buy, he said.



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