New Finance Minister Hernán Lacunza got straight to work this week, declaring that Argentina would use “all available tools” to stabilise the peso after last week’s currency slump.
And the new minister enjoyed a brief honeymoon on the exchange front at least. Yesterday’s closing figure of 57 pesos was virtually identical to the previous (even if up from the 54.83 around the time he took office).
Lacunza said “guaranteeing the exchange rate is a first-order objective.” He also assured that Argentina would maintain 2019 fiscal targets that it set out as a condition to get a record loan of more than US$56-billion from the IMF to try to curb the country’s economic crisis.
“This is a complex situation,” the new treasurer told reporters moments after being sworn in as treasury minister by President Mauricio Macri.
“We will guarantee compliance with the fiscal targets,” he added. “Allowing more volatility would only add uncertainty and inflationary pressure.”
After the ceremony, Macri greeted those present and delivered a brief speech in which he said: “I want to thank Hernán Lacunza for accepting this complex responsibility in such a difficult time. And also the family, because we always need that support.”
Lacunza, the former economy minister for the Buenos Aires Province government, took the oath of office before President Mauricio Macri in the Salón Blanco of the Casa Rosada at 8am Tuesday morning, in front of a group of national and provincial officials.
His former boss, Buenos Aires Province Governor María Eugenia Vidal, was among those in attendance as a sign of support. His arrival comes in the wake of the disappointing PASO primary loss for the president.
Meanwhile, a representative from the International Monetary Fund (IMF) said Tuesday it was in talks with the government and promised to send a delegation to visit the country “soon.”
President Macri said Thursday that an IMF team would visit next week.
Argentina’s peso and sovereign bonds have slumped to record lows since the surprising result of the August 11 primary election, which left opposition candidate Alberto Fernández as the clear favourite to win the October 27 presidential election. The Peronist hopeful emerged with a 15-point lead over President Mauricio Macri.
Investors fear Fernández may seek to renegotiate debt obligations with the IMF and bondholders. Fitch Ratings and S&P Global on Friday downgraded the country’s credit rating deeper into junk territory, citing the possibility of a sovereign debt default
Lacunza also said he expects to record a primary fiscal deficit of 0.5 percent this year, wider than the previous goal of a 0.3 percent deficit. The net fiscal cost of the measures that President Mauricio Macri announced last week to help curb the effects of the peso drop is five billion pesos (US$90 million).
The government is working with the Central Bank to reduce volatility in the peso that may translate to higher inflation, Central Bank chief Guido Sandleris told reporters right after Lacunza’s remarks. The monetary authority will continue intervening to support the peso and introduce more measures to curb inflation, he added.
When asked if there was a plan B, Sandleris said: “No. I’m confident with the current plan.”
The Central Bank governor also warned that the recent exchange rate shock was having “a negative impact on prices.” But he said the bank would continue to act to halt the currency’s slide.
“Inflation will rise unfortunately in September and October,” Sandleris told reporters.
The government is working to keep the currency within last week’s range of 45.20 to 60.40 pesos per dollar, the news minister said in his first press conference.
“We have reason to believe that the current exchange rate is weaker than the equilibrium value,” Lacunza said. “To allow more volatility or a weakening trend would only increase uncertainty and inflationary pressure.”
Lacunza was named to the role Saturday after former minister Nicolás Dujovne resigned following the market turmoil. He added that he plans to meet with the main economic advisers of opposition political parties to avoid public comments that could destabilise the economy.
Dujovne, a minister since January 2017 who was closely associated with the IMF deal, was seen as responsible for the economic austerity that led to the electoral collapse.
The outgoing minister, who led bail-out negotiations between Argentina and the IMF last year, justified his departure by saying the government needs “significant renewal in the economic area.”
“No doubt we’ve made mistakes, which we never failed to acknowledge and which we tried to correct as much as possible,” Dujovne wrote in a letter to the president. “It’s been an honour for me to serve in your government.”
“My resignation is consistent with a government and political space that listens to the people and that acts accordingly,” he said.
Political analyst Carlos Fa r a d e s c r i b e d Dujovne’s departure is “natural,” saying his economic management had been “very questioned.”
“Now the government goes out to play differently. There are 10 weeks left for the election, so fiscal balance is no longer useful. It is preferable to apologise to the Monetary Fund than to try to comply with the Fund losing the election,” Fara told the AFP news agency on August 16.
In a statement that followed the press conference, the Economy Ministry also announced it paid US$2.6 billion to banks to settle repo agreements, allowing it to recover US$12.8 billion of bonds it had put up as collateral and reducing its public debt held in foreign currency.
Profile: Hernán Lacunza
Jorge Roberto Hernán Lacunza, 50, was born in the City of Buenos Aires and is married with two children. He studied economics at the University of Buenos Aires (UBA) and completed a postgraduate degree at the Torcuato Di Tella University (UTDT).
His life in the public sector began as the director of the Centre for International Economy, a Foreign Ministry think-tank, which he led between 2002 and early 2005. After that experience he assumed as general manager and chief economist of the Central Bank between 2005 and 2010, when Martín Redrado was president.
From 2010, Lacunza served as director of Empiria Consultores, until in December 2013, Mauricio Macri, as mayor of Government of Buenos Aires City, asked him to take up the position of general manager of Banco Ciudad, during which time he served under the then-president and current Interior Minister Rogelio Frigerio.
When María Eugenia Vidal was elected governor of Buenos Aires Province in December, 2015, Lacunza became the provincial economy minister.
A big football fan, Lacunza – the elder brother of former Buenos Aires Herald editor Sebastián Lacunza – speaks calmly and will need a cool head to maintain an open channel with the IMF while attending to the needs of Argentines. As the peso’s drop increases prices of imported goods, inflation is likely to accelerate again, adding to the pain of a country suffering double-digit unemployment.
“I’m deeply sorry that Hernán Lacunza will have to take care of this disaster,” Guillermo Nielsen, an economic adviser for Fernandez, said in a Twitter post. “A professional with his track record and integrity deserves to take care of a more normal situation.”
What Lacunza said in his first press conference
New Finance Minister Hernán Lacunza said he would meet with the economic leaders “of all political spaces” that will participate in the October 27 elections this week, adding that his priority was “exchange rate stability and price stability.”
Here’s what else he said:
– “We are in a complex moment and we are concerned about the situation facing the population”
– “We have reason to believe that the current exchange rate is weaker than the equilibrium value. To allow more volatility or a weakening trend would only increase uncertainty and inflationary pressure.”
– “There are a third of Argentines who cannot get out of the situation of poverty.”
– “Macri’s instruction is to stabilise the exchange rate.”
– “There is no need for a higher exchange rate.”
– “The volatility of the markets ends up affecting ordinary people.”
– “Allowing an uptrend will only generate more uncertainty [for everyone].”
– “We want to freeze inflationary impulses.”
– “We will meet with the IMF in the next few days for the fifth revision of the agreement.”
– “More important than the government can do is what the opposition can say.”
– “The legacy for the next term will be a more robust platform.”
– “Since I was born 50 years ago, we haven’t had sustained growth.”