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Argentina gets new finance minister amid economic crisis

Argentina's new economic chief takes over as the nation grapples with one of the world’s highest inflation rates.

BUENOS AIRES, Argentina (CN) — Argentina’s economy minister Martín Guzmán has resigned and been replaced by economist and politician Silvina Batakis amid deepening tensions within the government and soaring inflation.

Guzmán, who was an independent before joining the center-left government, had led negotiations with the IMF to restructure the country’s $44.5 billion debt with the money lender.

The deal was approved by Congress this past March but amplified tensions between those aligned with center-left President Alberto Fernández — including Guzmán — and populist Vice President Cristina Kirchner, who has questioned the legality of the loan that was taken out in 2018 by the right-wing government of then-President Mauricio Macri.

In his resignation letter shared on social media, Guzmán defended the debt-restructuring deal with the IMF. "We had to negotiate an economic policy program to avoid falling into default and destabilizing the Argentine economy,” he wrote. 

He also hinted at internal divisions within the coalition government, calling for his replacement to have “the centralized management of the macroeconomic policy instruments necessary to consolidate the advances and face the challenges ahead,” which will help in efforts to make “economic and social progress with the political support that is necessary for them to be effective.”

President Fernández has since appointed Batakis as economy minister. She laid out her economic views this past week as anxiety grew at the same level as the ballooning black market U.S. dollar The official exchange rate, which the government controls, put the dollar at 133 Argentine pesos. In the parallel market, known as the blue dollar, it reached 268 pesos.

The difference between the official dollar (gray) and the parallel dollar (green) in the black market, in pesos, from Jan. 2, 2020 to Jul. 4, 2022. Courtesy of BCRA and BNA

With the parallel exchange rate moving further away from the official rate, Batakis sought to calm the fears of devaluation. 

"The blue exchange rate is very marginal, but unfortunately it is in the collective consciousness of all of us,” said Batakis during her first in-depth interview with news channel TN. "You have to understand that the market are people who think, play and speculate like any other."

She added: "The dollar is embedded in many prices of goods and services. When one looks at the multilateral exchange rate, it is competitive and there is no reason to devalue.”

The government has resisted devaluations until now, preferring a gradual weakening of the peso in order to tame inflation. Those who can dollarize their savings to shelter from the painful effects of soaring inflation, which is running at 60.7% annually in Argentina. Yet there are tight restrictions and high fees in place on purchasing dollars at the official rate, with a $200 purchase limit per month at banks and a 65% tax — including a 30% tax that was put in place by Guzmán.

“Most of the social classes are being ruled out of the exchange market,” said Andrés Fioriti, an economist at the National University of the South. “The working class has no instrument to protect against inflation, resulting in less welfare and more discomfort with the government. Yet the upper class seem largely unaffected, since they operate in the external sector; it’s mostly integrated with agricultural landowners.”

As the markets closed for the week this past Friday, the informal exchange rate hit 273 pesos, an increase of 34 pesos since Monday. So far in 2022, almost half of the increase was packed into the five business days of last week — with a 115% difference in value between the official and the blue dollar.

As Batakis begins to take control over the macroeconomic reigns, Argentina waits to see her policy priorities in the face of economic crisis. “For the time being, in terms of differences in their outlook, it is difficult to mark a substantial difference between Guzmán and Batakis,” said Nicolás Dvoskin, an economist and political scientist at the University of Lanús. 

“Guzmán is a person who specializes more in issues related to finance and debt and was appointed to the Ministry of Economy with the main task of restructuring the debt disorder of the previous government and channeling the macroeconomic issue from the management of finances,” said Dvoskin.

“One could think that the axis of his management was to put the management of the Ministry of Economy mainly at the service of the financial order,” he added, including the reduction of debt and the creation of a capital market in pesos.

As for the incumbent, “Batakis has a more productive profile. She had worked with the coordination of the federal development plan and was in charge of the Ministry of the Economy for the Province of Buenos Aires,” said Dvoskin. “So she seems to have a profile more linked to production.”

Batakis brought up the importance of increasing production in her televised talk. “We have to manage the reserves so that there are much more dollars for the country to grow and turn to production," she said. “We need our exporters to export more, not to speculate on what is going to happen next month. The exchange rate is at levels that have been competitive like other times in Argentina’s history. It’s a huge opportunity for our country. We have all the conditions to generate hydrogen, develop lithium and expand oil and gas.”

Batakis has already met with the head of the IMF, Kristalina Georgieva, with both agreeing to keep working together to stabilize Argentina's economy.

“It’s convenient for the monetary fund to have a good relationship with Argentina — it’s their main debtor,” said Dvoskin. “Also, Batakis will not want to damage that relationship either because effectively this is a moment of much financial noise and high volatility.”

Batakis' appointment marks a key moment in the relationship between Argentina and the IMF. The fund recently approved the first review of its $44.5 billion loan package, which is tied to criteria such as reducing energy subsidies, increasing reserves and meeting fiscal deficit targets. The approval unlocked $4 billion in funding for the government.

If Batakis decides to move away from the objectives agreed by Guzmán and the fund, it could undermine the relationship. “If they expand the fiscal policy, the country won’t be able to achieve the goals signed in the agreement,” said Fioriti. “If the IMF decides that the country is not behaving, according to the terms settled with Guzmán, Argentina won’t be able to keep reserves at a healthy level in the medium term and the country’s risk will skyrocket, with a loss of credibility and being shut out from international credit.” 

But so far, the Argentine government has been meeting the goals set by the IMF, Dvoskin said.

“Yet what is clear is that there is a problem that appears on the horizon, because as from 2026 it will be necessary to start paying this money back and that implies another discussion," he said. "But talking about 2026 today, when we don’t know what will happen next week, is a bit utopian.”

James Francis Whitehead reports for Courthouse News from Buenos Aires, Argentina.

Categories: Economy International

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