The weight of Argentina’s black market, watched closely by the financial market, fell on Monday after the country’s economy minister abruptly resigned over the weekend and was replaced by an economist more aligned with the far-left wing of the country. ruling Peronist coalition.
Argentine President Alberto Fernández swore in economist Silvina Batakis on Monday following the shocking departure of longtime minister Martin Guzman at a time of mounting economic crises and tensions within the government.
The dollar exchange rate on the popular black market dropped to about 267 to the dollar, well over double the official controlled spot rate, which dropped to 126 pesos. Stocks and bonds, already in distressed territory, also lost ground.
The South American country has widely divergent exchange rates due to strict exchange controls that limit dollar purchases to just $200 a month, pushing people into informal, shadow markets where dollars charge much higher premiums.
Guzmán was the architect of a $44 billion deal struck this year with the International Monetary Fund (IMF). His departure has brought up divisions in the government, further weakened President Fernandez ahead of the 2023 election and fueled investor fears of a looser monetary policy.
“Batakis’ first announcements are likely to be pivotal,” Citi Research said in a note, adding that any move toward price controls and other currency restrictions could push the country into economic “populism.”
So, “the deterioration of sentiment and market conditions that has been occurring in recent weeks could accelerate,” the bank added.
Currency controls in place since 2019 have kept the official peso exchange rate on a slow weakening path, but the gap to popular parallel markets has become increasingly wide due to economic crises, high inflation and debt fears.
Investors fear a shift to unorthodox or unorthodox economic policy. Guzmán was seen as a moderating influence, while Batakis is more aligned with the more left-wing wing of the Peronist coalition that wants more spending to alleviate high levels of poverty.
Local consultancy Portfolio Personal Inversiones said Batakis would likely be led largely by the ‘Kirchnerists’ around the vice president. Citi agreed that it would not create the same “balancing force” for the vice president that Guzmán had.
“This is undoubtedly a shift to less orthodox policies,” wrote Morgan Stanley economist Fernando Sedano.
Presidential spokeswoman Gabriela Cerruti told local radio that “there will be no changes” under Batakis.
“The economic direction is assured. The targets (with the IMF) for the first quarter were fully met. Now Silvina has to sit down and take over the ministry and work out her own operational scheme,” Cerruti said.
Source: CNN Brasil