(CNN Spanish) — The new Minister of Economy, Productive Development and Agriculture of Argentina, Sergio Massa, took office on Wednesday and presented a program of economic measures to try to deal with the currency and financial crisis that is affecting the country.
Massa not only takes charge of the portfolio in the midst of a very difficult economic situation, with high levels of inflation and poverty, a currency that is devalued in parallel markets, lack of liquidity to face debt payments and a shortage of international reserves. His arrival also comes at a difficult political moment for the government of President Alberto Fernández.
A little over a month ago Silvina Batakis had been appointed as Minister of Economy, after the resignation of Martín Guzmán, who led the portfolio since the beginning of the Fernández Government in December 2019. Guzmán was being pressured by the economic situation in the country and by the tensions between Fernández and the vice president and former president Cristina Fernández de Kirchner, one of the most important leaders of the ruling coalition.
But Batakis did not last long in office: in the midst of a significant rise in the value of the dollar against the peso in parallel markets, Fernández announced last week that Massa, until then president of the Chamber of Deputies of the Argentine Congress and also one of the coalition leaders would replace her. Massa also concentrated in his ministry the portfolios of Productive Development and Agriculture and is thus considered a “super minister.”
Now the new minister has just presented his measures to try to contain the situation, based, according to a document shared with CNN and discussed this Wednesday during Massa’s announcements, on four axes: investment, production, exports, and the internal market.
“It was an assumption of signals; the announced measures are on the expected path, we have to see what happens with the ‘repo’ of foreign banks and the sovereign fund and if it will sustain political support,” the Argentine economist told CNN. Xavier Marcus.
“Repo” is what short-term loans between banks and with guarantees are called, according to BBVA.
Martín Uribe, professor of economics at Columbia University, told Pepe Gil Vidal on CNN Radio that “the announcements we saw yesterday are generally going in the right direction,” but he also warned that there are “shortcomings in the exchange market program.” . “Not pouring gasoline on the fire and instead pouring water on it is the right thing to do.”
What do the ads consist of and what do specialists consulted by CNN consider about it?
1 – Tax Order
In accordance with the principles of the program of the new Ministry of Economy, Development and Production, the first point refers to the fiscal order and establishes that the goal of maintaining the primary deficit at 2.5% will be met, in accordance with what has already been established in the budget.
Economist Jorge Neyro wondered on CNN Radio “how are they going to reach 2.5% of the fiscal deficit because adjusting in this country is the most difficult thing there is.” “(It would be) an adjustment within what can be implemented politically. It is what previous ministers have been implementing, but Massa has more back to make stronger adjustments.”
The document of principles also establishes that there will be no Treasury Advances, that is to say currency issuance for the rest of the year, and that it governs a brake on new hiring of public employees in the centralized public administration.
Finally, with regard to the segmentation of energy subsidies that had been initiated by his predecessor Batakis, progress will be made in an energy saving program for those households that retain subsidies, setting a monthly consumption cap that can be subsidized.
“It is not very different from what Minister Guzmán proposed at the time, the issue is to be able to execute it and the reality is that today they have given him (Massa) more power and it gives the possibility that these measures can be taken to unlock and be able to put the fiscal accounts in order,” Fabián Onetti, president of Winston Capital Advisors, told CNN’s Juan Pablo Varsky.
Neyro said on the other hand that “there are some strong changes such as the acceleration of the tariff segmentation, the fiscal issue where living with the collection is proposed, not asking the Central Bank for more money and meeting the 2.5% goal for the deficit fiscal”.
While Uribe pointed out that “it is good to have gone beyond Martín Guzmán in the way of increasing rates and putting a limit on consumption.”
2 – Trade surplus
In the second point of the program, the Ministry led by Massa will seek to create special regimes to promote exports of agribusiness, mining, hydrocarbons and the knowledge industry, without clarifying details.
“There is a message there: I get the impression that taxation is going to try to make a better exchange treatment. There is an expectation of these industrial groups that there will be an exchange rate improvement so that they are encouraged to liquidate exports. There is a positive expectation”, Onetti pointed out, referring to the gap between the official dollar (at 134.75 pesos per unit) and the dollar in the informal market, which weeks ago was quoted at 337 pesos and has now dropped a little in its price.
Neyro considered that “in discursive and political terms, the vision changes in terms of relationships. In terms of facts, an appreciable change is noted with the relationship of the countryside as a generator of foreign exchange in the country.”
Also, in accordance with the announced measures, credits will be launched at promotional rates for first exporters, and a traceability system will be developed to control the use of foreign currency for imports.
Finally, possible cases of under-invoicing of exports and over-invoicing of imports will be denounced in the Argentine justice system and in the anti-money laundering unit in the United States.
“The United States and Argentina have cooperation agreements in everything that refers to criminal activity in the area of tax evasion, and if Argentina makes complaints of abuse, they will be attended to. And I think that the United States will be in complete agreement with Argentina Onetti said.
3 – Strengthening reserves
At this point, the Argentine Government hopes to receive an advance of exports from the agriculture, fishing and mining sectors in the next 60 days and for a value of US$ 5,000 million, which will go to the reserves of the Central Bank of the Argentine Republic.
“The question is whether it is enough in the face of significant energy expenditures. That is why we must look at the fine print of the so-called agro dollar and the results of Massa’s tour in search of dollars,” said Marcus.
To this will be added US$1.2 billion in loans from international organizations and another US$750 million from the CAF – Development Bank of Latin America, according to the program.
Uribe stressed that “there are important shortcomings in the program on the foreign exchange issue and it is very worrying; the way to solve the reserves by asking for money from the world is not the best way, but to solve the exchange issue by trying to eliminate the gap.”
There will also be, according to the program, 4 “repo” offers to strengthen reserves and the repurchase of sovereign debt, 3 from international financial institutions and one from a sovereign fund,
In this regard, Onetti explained about the “repos” that “Argentina is going to deliver bonds that the Treasury has, the Government’s own bonds, as collateral, and against that guarantee they will lend money.”
The measures document also reported that a first meeting took place with the International Monetary Fund, with which Argentina signed an agreement in March to refinance the debt, to continue with the planned disbursements.
For Onetti, “the fact that Sergio Massa has contacted the IMF is positive and welcome, and in the announcements at no time was there a combative or aggressive tone of starting to fight back with the fund.”
“The relationship (with the IMF) has to continue with what is being done, affirm the goals until reality shows that they are achievable or not. And at the same time provide predictability in terms of what is announced,” said Neyro. “Massa is going to have to show results so that the relationship doesn’t become strained again.”
4 – Development with inclusion
The last point in the Massa ministry’s program refers to the difficult situation in Argentina and state aid programs for the most vulnerable sectors.
Thus, a reinforcement for retirees is established to mitigate the damage of inflation, and a series of meetings with business entities and workers to increase the income of workers in the private sector.
Regarding the social plans, a reordering will be sought to be carried out in the next 12 months and based on the axes of returning to the labor market, strengthening of cooperatives and protection in case of situations of vulnerability.
An audit will also be carried out on those who receive social plans and those who do not comply with it will be suspended. “Our idea of a country is that the plan is the emergency, and the work is permanent,” says the program.
For Marcus, “the audit of social plans does not change the paradigm but at least questions the course and shows action”.
Finally, the Government will seek to unify credit programs at promotional rates for productive sectors, small businesses and commerce for a value of 400,000 million pesos.
“It is not a plain and simple adjustment, but it is an adjustment with a social vision and an awareness that reserves must be reinforced,” said Neyro.
With information from Ignacio Grimaldi.