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New ‘super-minister’ tasked with saving Argentina’s ailing economy

Three ministries are merged into one, giving greater powers to the new economy minister, the third in one month.

BUENOS AIRES, Argentina (CN) — Argentina’s new Economy Minister Sergio Massa has outlined his strategy to restore fiscal control and reverse runaway inflation with the government creating a "super ministry" as the country faces a deep financial crisis.

As the economy ministry absorbs the production and agricultural departments, Massa takes office as the third economy minister in a month. After the surprise resignation of Martín Guzmán, who led negotiations with the IMF to restructure the nation’s debt on July 2, his successor Silvina Batakis lasted just 24 days.

Massa, who moves from his role as leader of the lower house of congress, is a centrist from the Renewal Front party that is part of the coalition government. “I’m not a super anything, nor a magician nor savior,” said Massa on Aug. 3 during his first speech since being sworn in. “Argentina has a huge lack of confidence in its currency,” he added. “We are going to face inflation with determination.”

He ran for president in 2015 but was defeated in the first round after finishing third behind Daniel Scioli and eventual president Mauricio Macri. Massa announced a second run for the 2019 elections but stepped back when current president Alberto Fernández decided to put himself forward. During his speech, he outlined a set of measures to deal with dwindling foreign reserves and a sick economy with one of the world’s highest inflation rates, expected to reach 90% by the end of 2022.

Argentina currently has one of the highest inflation rates in the world. IMF and Trading Economics

The policies range from investment and production to exports, pensions and the domestic market as well as touching on sensitive relations with the IMF. Although broad in scope, much of the details are lacking. 

“Overall, a bit underwhelming,” said Matías Vernengo, summarizing Massa’s economic measures. “Massa created expectations for a stabilization plan that could resolve the persistent crisis, but the measures seem a bit like a continuation of Guzmán and the brief tenure of Batakis,” said the professor of economics at Bucknell University. “There are the conventional things agreed with the IMF on fiscal balances and energy prices. There are things pertaining to the current account, imports of natural gas and the investment of a gas pipeline that would reduce imports. But there is little on how to fix the problem, the lack of dollars, of international reserves of the central bank and the inability to repay the external debt in the long run.”

Massa recommitted to the target agreed with the IMF of a 2.5% fiscal deficit this year, with a fiscal pathway of 1.9% in 2023 and 0.9% in 2024. The IMF, to which Argentina owes $44 billion, wants the government to pass stricter monetary policies. In response, Massa vowed to stop printing pesos to service the public debt as well as freeze the growth of the public sector workforce — a measure that was set by Batakis.

The government hopes to collect more revenue by unwinding gas and electricity subsidies. Recently, 9 million households requested subsidies, which will now be capped at 400 kilowatts per month. Around 4 million households didn’t apply and will begin to pay the full cost of energy prices.

To unlock the blockages of dollars entering the country, the government is incentivizing the agriculture, fishing, and mining sectors to export products that they’ve been holding onto in expectation of a greater peso devaluation. The central bank’s foreign reserves have been cut in half over the last 3 years to around $32 billion. In Argentina, the currency of the countryside is crops, and crops equate to dollars. By unlocking greater exports, the government is hoping to halt the emptying of foreign reserves.

Argentina’s foreign reserves in billions of US dollars. The IMF and Trading Economics

Massa announced a “special benefit” for the agriculture, fishing, and mining sectors, hoping to incentivize the export of products that are idling in soy silos and warehouses, whose dollar value vanishes as they spoil. While this benefit remains undefined, it’s expected to be an extension of the “soy dollar”, which gives exporters a favorable exchange rate. The government is hoping to collect $5 billion through this mechanism within the next 3 months.


“It’s a good measure, perhaps the only one,” said Vernengo, “It pays a better, higher price in pesos for the dollars that exporters liquidate at the central bank. But if you want to get people to hold pesos, or I should say peso-denominated assets, then the interest rate in pesos (of the peso bonds) has to be higher than the expected depreciation of the peso.”

If not, exporters are going to hold onto dollars. “This is something that this government, the previous one by Macri, and the Kirchners before failed to do,” Vernengo said. “So a higher, considerably higher interest rate is needed.”

At the same time, they are looking to bring in more lines of credit to bolster the low levels of reserves. “It seems Massa is banking on obtaining some funds from abroad — sovereign funds or banks — and significantly depreciating the peso. That would be a mistake in my view,” Vernengo said. “It would be highly inflationary, and it would not help in accumulating reserves which is the fundamental challenge of his tenure as minister. He may think that if he manages to do it, he would be in a strong position to be the Peronist candidate for the presidency. I think his chances are very slim.”

The new economy minister also announced a crackdown on underinvoicing of exporters and overinvoicing of importers, with cases of these illegal practices being sent to the anti-laundering unit of the U.S. in addition to the domestic justice system.

In an effort to help pensioners, the government has increased pensions by 15.5% to prevent inflation eating deeper into payments, with the minimum pension being raised to 50,000 pesos — around $370. This would bring pension increases this year to 73.3%, just above current inflation figures of 71%.

One of the more controversial measures that Massa announced was the “reorganization” of social security. It includes a program to provide people jobs while keeping their unemployment insurance as a base salary for one year. The employer would then pay the difference of an agreed salary plus health insurance. After 12 months, the worker then opts to continue in the job or not.

Argentina’s unemployment rate is 7%, representing around 900,000 people — although official figures count the large informal workforce as employed. The government hopes the mechanism will act as a bridge toward boosting the national workforce. But there are concerns that it would provide businesses with cheap labor as the government would be, in effect, subsidizing low worker wages. In addition, if businesses have to pay workers in full after one year, it could disincentive them to keep the workers.

If the principal aim is to resupply foreign reserves, then the focus on social spending — which is being cut in other areas such as energy subsidies — should be more of a secondary issue, according to Vernengo. “The only way social spending impacts the external is through imports, and those can and have been controlled to some extent by the secretary of commerce,” he said. “The use of dollars is significantly controlled. And besides social spending is necessary, since the conditions for the population have been harsh.”

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