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Argentina’s new economy minister presents measures to lift the country out of the crisis

The new Minister of Economy, Productive Development and Agriculture of Argentina , Sergio Massa took office this Wednesday (3) and presented a program of economic measures to try to deal with the currency and financial crisis that affects the country.

Massa not only assumes the reins of the ministry in the midst of a very difficult economic situation, with high levels of inflation and poverty, a devalued currency in parallel markets, a lack of liquidity to pay debts and a shortage of international reserves. His arrival also comes at a difficult political moment for the government of President Alberto Fernández.

Just over a month ago, Silvina Batakis had been appointed Minister of Economy, following the resignation of Martín Guzmán, who has led the portfolio since the beginning of the Fernández government, in December 2019.

Guzmán was being pressured by the country’s economic situation and tensions between Fernández and the former president, who is now vice president, Cristina Fernández de Kirchner, one of the most important leaders of the ruling coalition.

But Batakis did not last long in office: amid a significant appreciation of the dollar against the peso in parallel markets, Fernández announced last week that Massa, until then president of the Chamber of Deputies of the Argentine Congress and also one of the leaders of the coalition, would replace it.

Massa also concentrated the portfolios of Productive Development and Agriculture in his ministry and, therefore, is considered a “super-minister”.

Now, the new minister has just presented his measures to try to contain the situation, based on, according to a document shared with the CNN and discussed this Wednesday during Massa’s speeches, in four axes: investment, production, exports and domestic market.

“It was an assumption of signs. The announced measures are on the expected path, we have to see what happens with the ‘repo’ of foreign banks and the sovereign wealth fund and if it will sustain political support,” Argentine economist Javier Marcus told CNN .

“Repo” is what short-term loans between banks and with guarantees are called, according to the Spanish banking group BBVA.

Martín Uribe, an economics professor at Columbia University, told CNN Radio that “the announcements we hear are generally going in the right direction”, but also warned that there are “deficiencies in the foreign exchange market program”. “Not pouring gasoline on the fire, instead, pouring water is the right thing to do.”

But what do the advertisements consist of and what do the experts consulted by the CNN ?

1 – Tax Order

In accordance with the principles of the program of the new Ministry of Economy, Development and Production, the first point refers to the fiscal order and establishes that the goal of maintaining the primary deficit at 2.5% will be met, as already established in the budget. .

Economist Jorge Neyro questioned “how they are going to reach 2.5% of the fiscal deficit, because adjusting in this country is the hardest thing there is”. “(It would be) an adjustment within what can be implemented politically. This is what the previous ministers have been implementing, but Massa has more support to make stronger adjustments”.

The document also establishes that there will be no Treasury Advances, that is, issuance of foreign exchange for the rest of the year, and that it regulates in order to stop new hiring of civil servants in the centralized public administration.

Finally, with regard to the segmentation of energy subsidies initiated by its predecessor, Batakis, progress will be made in the energy saving program for families that maintain subsidies, establishing a monthly consumption limit that can be subsidized.

“It is not very different from what Minister Guzmán proposed at the time, the issue is being able to execute it and the reality is that today they have given him (Massa) more power and it gives the possibility that these measures can be taken and be able to put the fiscal accounts in order”, said Fabián Onetti, president of Winston Capital Advisors.

Neyro said that “there are some strong changes such as the acceleration of tariff segmentation, the fiscal issue where it is proposed to live with the collection, not asking for more money from the Central Bank and meeting the 2.5% target for the fiscal deficit”.

While Uribe highlighted that “it is good to have gone beyond Martín Guzmán in the sense of increasing taxes and limiting consumption”.

2 – Trade surplus

In the second point of the program, the ministry led by Massa will seek to create special regimes to promote exports from agribusiness, mining, hydrocarbons and the knowledge industry, without clarifying details.

“There is a message there: I have the impression that taxation will try to provide better exchange rate treatment. There is an expectation from these industrial groups that there will be an exchange rate improvement so that they are encouraged to liquidate exports. There is a positive expectation”, highlighted Onetti, referring to the difference between the official dollar (at 134.75 pesos per unit) and the informal market dollar, which a few weeks ago was quoted at 337 pesos and has now fallen a little.

Neyro considered that “in discursive and political terms, the vision changes in terms of relationships. In terms of facts, there is an appreciable change with the relationship of the countryside as a generator of foreign exchange in the country”.

Also, according to the announced measures, credits will be launched at promotional rates for the first exporters and a traceability system will be developed to control the use of foreign currency in imports.

Finally, cases of under-invoicing of exports and over-invoicing of imports will be denounced in the Argentine courts and in the US anti-money laundering unit.

“The United States and Argentina have cooperation agreements in everything related to criminal activity in the area of ​​tax evasion, and if Argentina makes allegations of abuse, they will be dealt with. And I think the United States will totally agree with Argentina,” Onetti said.

3 – Reinforcement of reserves

At this time, the Argentine government expects to receive an advance on exports from the agriculture, fishing and mining sectors over the next 60 days and in the amount of US$ 5 billion, which will go to the reserves of the Central Bank of Argentina.

“The question is whether it is sufficient in the face of significant energy expenditures. So we should look at the fine print of the so-called agrodollar and the results of Massa’s voyage in search of dollars,” said Marcus.

To this will be added US$ 1.2 billion in loans from international bodies and another US$ 750 million from CAF – Development Bank of Latin America, according to the program.

Uribe highlighted that “there are important deficiencies in the program on the exchange rate issue and it is very worrying; the way to solve the problem of reserves by asking the world for money is not the best way, but rather solving the exchange rate issue by trying to close the gap”.

There will also be, according to the program, four “repo” offers to reinforce reserves and repurchase sovereign debt, three from international financial institutions and one from a sovereign wealth fund.

In this regard, Onetti explained about the “repos” that “Argentina will deliver bonds that the Treasury has, government bonds, as a guarantee, and for this guarantee they will lend money”.

The measures document also informs that a first meeting was held with the International Monetary Fund (IMF), with which Argentina signed an agreement in March to refinance the debt, to continue with planned disbursements.

For Onetti, “the fact that Sergio Massa has contacted the IMF is positive and welcome, and in the announcements at no time was there a combative or aggressive tone of starting a fight with the Fund”.

“The relationship (with the IMF) has to continue with what is being done, affirm the goals until reality shows that they are achievable or not. And at the same time provide predictability in relation to what is announced”, said Neyro. “Mass will have to show results so that the relationship doesn’t get tense again.”

4 – Development with inclusion

The last point of the Massa ministry’s program refers to the difficult situation in Argentina and the state aid programs for the most vulnerable sectors.

Thus, a reinforcement for retirees is established to mitigate the damage of inflation, and a series of meetings with business entities and workers to increase the income of employees in the private sector.

Regarding the social plans, a reorganization is sought to be carried out in the next 12 months and based on the axes of returning to the labor market, strengthening cooperatives and protection in case of situations of vulnerability.

An audit will also be carried out on those who receive the social plans and those who do not comply with the rules will be suspended. “Our idea of ​​a country is that the plan is an emergency, and the work is permanent”, says the program.

For Marcus, “the audit of social plans does not change the paradigm, but at least questions the course and shows action”.

Finally, the government will seek to unify credit programs at promotional rates for productive sectors, small businesses and commerce in the amount of 400 billion pesos.

“It is not a pure and simple adjustment, but it is an adjustment with a social vision and awareness that reserves must be reinforced”, said Neyro.

*With information from Ignacio Grimaldi.

Source: CNN Brasil

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