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Argentina has a new finance minister amid economic crisis

BUENOS AIRES, Argentina (CN) — Argentine Economy Minister Martín Guzmán has resigned and been replaced by economist and politician Silvina Batakis amid worsening tensions within the government and spiraling of inflation.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 lender.

The deal was approved by Congress last March, but has 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 contracted in 2018 by the right. -the wing government of the then president, Mauricio Macri.

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

He also alluded to internal divisions within the coalition government, calling for his replacement to have “the centralized management of the macroeconomic policy instruments needed to consolidate progress and face future challenges”, which will help efforts of “economic and social progress”. with the political support necessary for their effectiveness.

President Fernández has since appointed Batakis Minister of Economy. She outlined her economic views last week as anxiety rose to match the surge in the U.S. dollar black market. The official exchange rate, which the government controls, places 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 (grey) and the parallel dollar (green) on the black market, in pesos, from January 2, 2020 to July 4, 2022. Courtesy of BCRA and BNA

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

“The blue exchange rate is very marginal, but unfortunately it’s in the collective consciousness of all of us,” Batakis said in his first in-depth interview with the TN news channel. “You have to understand that the market is made up of people who think, play and speculate like everyone else.”

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

The government has so far resisted devaluations, preferring a gradual weakening of the peso in order to control inflation. Those who can dollarize their savings to protect themselves from the painful effects of soaring inflation, which runs at 60.7% per year in Argentina. Yet there are strict restrictions and high fees in place on buying dollars at the official rate, with a purchase limit of $200 per month at banks and a 65% tax – including a 30% tax which was set up by Guzmán.

“Most social classes are excluded from the foreign exchange market,” said Andrés Fioriti, an economist at the National University of the South. “The working class has no instrument to protect itself against inflation, which leads to less well-being and more discomfort with the government. However, the upper class seems largely spared, since it operates in the external sector; it is mainly integrated with agricultural landowners.

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

As Batakis begins to take control of the macroeconomic reigns, Argentina is waiting to see its political priorities in the face of the economic crisis. “At the moment, in terms of differences in their outlook, it is difficult to mark a substantial difference between Guzmán and Batakis,” said Nicolás Dvoskin, economist and political scientist at the University of Lanús.

“Guzmán is a person who specializes more in finance and debt issues and has been appointed to the Ministry of Economy with the main task of restructuring the previous government’s debt mess and channeling the macroeconomic problem of finance management,” Dvoskin said. .

“One would think that the axis of his management was to put the management of the Ministry of the Economy mainly at the service of financial order”, he added, in particular the reduction of the 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 responsible for the Ministry of Economy of the province of Buenos Aires,” Dvoskin said. “So she seems to have a more production-related profile.”

Batakis spoke about the importance of increasing production in his televised address. “We have to manage the reserves so that there are a lot more dollars for the country to develop and move into production,” she said. “We need our exporters to export more, not to speculate on what will happen next month. The exchange rate is at levels that have been competitive as at other times in Argentina’s history. This is a huge opportunity for our country. We have all the conditions to generate hydrogen, develop lithium and develop oil and gas.

Batakis has already met with IMF chief Kristalina Georgieva, with the two agreeing to continue working together to stabilize Argentina’s economy.

“It’s convenient for the monetary fund to have good relations with Argentina – it’s their main debtor,” Dvoskin said. “Furthermore, Batakis also won’t want to hurt this relationship because it is indeed a time of a lot of financial noise and high volatility.”

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

If Batakis decides to stray from the goals agreed upon by Guzmán and the fund, it could undermine the relationship. “If they expand fiscal policy, the country will not be able to meet the targets signed in the agreement,” Fioriti said. “If the IMF decides that the country does not behave, according to the terms agreed with Guzmán, Argentina will not be able to maintain its reserves at a healthy level in the medium term and the country’s risk will skyrocket, with a loss of credibility. and be excluded from international credit.

But so far the Argentine government has met the targets set by the IMF, Dvoskin said.

“Yet what is clear is that there is a problem looming on the horizon, because from 2026 we will have to start paying back this money and that involves another discussion,” he said. -he declares. “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.

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