Silvina Batakis has spent her first week as Argentina’s finance minister pledging to stick to IMF commitments and restore “order and balance”, but those reassurances have failed to calm investors who fear another sovereign debt default amid galloping inflation and poor public finances.
Batakis was selected July 4 to replace Martin Guzmán, the country’s more pragmatic minister who quit amid a split in the ruling coalition government over which direction the economy should take.
The appointment of 53-year old Batakis, a relatively unknown career civil servant, triggered a week of market turmoil as investors braced for possible policy changes that would undermine efforts to stabilise the Argentine economy and keep the already fragile $44bn IMF deal on track.
Batakis used her first official press conference in Buenos Aires on Monday to provide a reassuring message, saying that Argentina is “not going to spend more than we have,” and that as minister she was committed to the IMF programme agreed earlier this year.
“It is an agreement we signed as a state and we must comply,” Batakis told journalists. She added that she would continue her predecessor’s plans to cut energy bill subsidies and move towards interest rates that are positive when adjusted for sky-high inflation.
So far officials in Washington have publicly welcomed the new appointment. Kristalina Georgieva, the IMF’s managing director, said Batakis understood “the purpose of fiscal discipline,” and described having had a “very good” first call with the minister last week. Georgieva also stressed the “very complex” economic outlook the country faces.
But with Argentina’s economy in distress, the task will be a formidable one. Inflation is forecast to exceed 75 per cent this year, according to a central bank survey. Poverty is high and climbing higher. Savers have rushed to convert their holdings into more stable currencies fearing the economy could get a lot worse before it gets better.
Purchases of cryptocurrencies have also shot up in signs that these digital assets are increasingly seen as a store of value amid the economic turmoil.
Diana Mondino, an economist and professor at CEMA University in Buenos Aires, said Argentina’s economic crisis has become “incredibly difficult” to manage.
“The government has backed itself into a narrow financial corner . . . everything they do is increasing the amount of debt the country has,” she said.
The country’s sovereign bonds, already in distressed territory, have fallen to record lows. Two of the six dollar bonds that were restructured in 2020 fell below 20 cents on the dollar last week — levels that indicated a high probability of default.
Rather than printing money against hard currency, central bank policymakers have been issuing inflation-linked or dollar-linked treasury bonds, creating what could be a serious problem in the second half of the year, Mondino said.
Batakis must not only contend with the economy but also the country’s fraught politics. An open split between president Alberto Fernández and the more radical bloc of the leftwing Peronist coalition led by Cristina Fernández de Kirchner, Argentina’s powerful vice-president, is an additional hurdle.
Kirchner has been heavily critical of IMF pressure to trim government spending and reduce the budget deficit, which she blames for Peronist losses in midterm elections last year. She has repeatedly called for a looser fiscal stance and a tougher position in negotiations with the international lender, which Guzmán and his team had resisted.
It is not yet clear what role Batakis will play in addressing the tensions over how to reconcile the economy. Argentine economist Eduardo Levy Yeyati said she is probably a “place holder” minister, someone to fill the position for the time being who both political factions can call their own. Unlike under Guzmán, “the government has no margin for improvisation,” given the levels of distress in the economy, he said.
Investors are sceptical that a divided and unpopular government facing elections in 2023 can keep the IMF arrangement on track and implement the sweeping changes needed to bring down inflation while trying to shore up voter support.
Anti-government protesters mobilised in the capital’s main square over the weekend as confidence in a divided government waned. “This new minister is just a figure change, but it doesn’t change the direction of our economy,” said activist Celeste Fierro. “We, the workers, are the ones who are going to continue paying [the debt].”
Source: Economy - ft.com
