President Mauricio Macri begins week by announcing austerity package, Central Bank chief Luis Caputo ends week with honest assessment of economic outlook, as peso calms slightly against the dollar.
The government yesterday warned that a “long and painful” recession lies ahead for Argentina’s economy, after another challenging week for the Mauricio Macri administration drew to a close.
While the outlook remains gloomy, President Macri and his economic officials ended the week on a positive note as Argentine peso temporarily found its footing against the dollar.
“We’ve suffered six consecutive storms in the past nine months,” the president told reporters in Mendoza Province, as he faced the press flanked by Governor Alfredo Cornejo of the Radical Civic Union (UCR) and Interior Minister Rogelio Frigerio.
Macri, who expressed confidence that his administration would be able to secure an agreement with provincial governors over the 2019 budget at a key meeting on Tuesday, appeared relaxed as the peso continued on an upward trajectory for a third consecutive session on Friday. That run bore stark contrast to the previous week’s rollercoaster ride that saw the currency hit a record low of 42 pesos to the US dollar.
Earlier in the day, Central Bank President Luis Caputo made a rare public appearance at a finance conference in the same province, where he acknowledged the country is “in a clear recessionary trajectory” that will be “slow and painful.”
However, he argued the International Monetary Fund (IMF) had essentially over-funded the nation in an “exaggerated” manner with the US$50-billion agreement sealed back in June.
The Central Bank chief also confirmed his team had proposed a new methodology to utilise in the currency market to shore up the value of the currency, noting “there are some great professionals at the IMF that want to help out, their reputation is on the line and they are doing the impossible for this to work out.” Caputo also told the crowd that the Central Bank will pursue a free-float with pointed interventions.
Macri kicked off the week with a pre-recorded speech from the Casa Rosada where he announced the return of export duties and his intention to reduce the number of ministries from 22 to 10 in order to streamline decision-making and show the government was committed to cuttiny costs.
Macri asked the population to double-down on their efforts to “reach the other side of the river” pointing to the fiscal deficit as the main cause of the country’s economic problems. Ministers have promised a zero deficit by the end of 2019.
Argentina is one of the world’s biggest exporters of corn and soy oil. Macri’s market-friendly approach had previously seen him cut taxes on major grain exporters, yet circumstances have forced him to change tack.
Addressing rich agricultural exporters who will now face increased export duties, he said: “We know it’s a bad tax, but I ask you to understand that it’s an emergency.”
“We ask those who have more capacity to contribute, those who export, that they make a greater contribution,” he added.
In a bid to reassure worried Argentines, he said he would allocate more aid to the country’s poor as 25 percent inflation has left many struggling.
“We will overcome the crisis by taking care of the most needy,” he said, promising “increased allocations, food programmes and price caps on some commodities.”
Highlighting the challenging times the government has faced of late, he said it was the worst months of his life since his kidnapping in 1991.
Immediately after the president’s speech, Economy Minister Nicolás Dujovne took the stage, noting many of Argentina’s problems stemmed from a difficult international climate, but recognising in a press conference later that “mistakes had been made.”
Argentina has already pledged to cut the budget deficit to 1.3 percent of GDP in 2019, but Dujovne said it would now go further next year.
The current deficit target for 2018 is 2.7 percent of GDP.
On the restored export duties, Dujovne said the tax would be temporary and would mean an extra US$1.7 billion in state coffers in 2018, and more than US$7 billion next year.
Dujovne was speaking before flying to Washington for meetings with the IMF to finalise a deal to speed up disbursement of the loan package. By Friday, he had reportedly all but secured an agreement with the International Monetary Fund to advance an emergency loan that would guarantee Argentina’s financing necessities in the medium-term.
“This agreement with the IMF will bring us tranquility,” the president said Friday.
ON THE STREETS
Despite the relative calm in the markets, on the streets the temperatures are rising.
Hundreds of people protested yesterday outside ministries that have been absorbed into other portfolios as a result of the government’s austerity package, in the latest of a series of rallies. Demonstrators chanted, waved flags and signs and stuck up posters calling on the Macri administration to change tack.
Although the government did not specify the budgetary changes that would come as a result of a reduction in the number of ministries, it is widely presumed that the measures will imply job lay-offs.
“There is a lot of uncertainty about the number of dismissals this situation will generate,” said Juan Manuel Sueiro, the deputy secretary of ATE state-workers union said, as he demonstrated outside the building that formerly housed the Labour Ministry.
Outside the former Agro-Industry Ministry, protesters also rallied.
“As of last Friday I am unemployed after 11 years of work,” said Karina Buscoski, 40, between tears.
“Yesterday the telegram arrived,” lamented 33-year-old Anabel Soria, who had also been laid off. “In this economic situation, we are not going to get work.”
Ministries cut in austerity package
Halving the number of ministries in President Mauricio Macri’s Cabinet and new export duties figured prominently in an austerity package announced last Monday to eliminate the fiscal deficit next year and ease renewed negotiations with the IMF.
Macri downsized his Cabinet from 19 to 10 portfolios – Nicolás Dujovne (Economy, previously Treasury), Rogelio Frigerio (Interior), Carolina Stanley (Social Development now absorbing Health), Dante Sica (Production, now absorbing Agriculture and Labour), Patricia Bullrich (Security), Guillermo Dietrich (Transport), Germán Garavano (Justice), Jorge Faurie (Foreign), Alejandro Finocchiaro (Education, now absorbing Culture and Science & Technology) and Oscar Aguad (Defence) all survive as ministers.
Of the ex-ministers, Andrés Ibarra (Modernisation) is now Cabinet Chief Marcos Peña’s deputy while Pablo Avelluto (Culture), Lino Barañao (Science and Technology), Sergio Bergman (Environment), Luis Miguel Etchevehere (Agriculture), Javier Iguacel (Energy), Hernán Lombardi (Public Media), Adolfo Rubinstein (Health), Gustavo Santos (Tourism) and Jorge Triaca (Labour) are all staying on as secretaries, at least for now. But Ibarra displaces Mario Quintana and Gustavo Lopetegui, who previously seconded Peña.
Meanwhile, the new export duty differs from its forerunners by not being a percentage but a fixed sum of three pesos per dollar earned abroad and four pesos in the case of primary products.