Argentina: Markets do not welcome new economic chief

BUENOS AIRES, Argentina (AP) — Markets welcomed Argentina’s new economy minister, Sergio Massa, on Thursday, amid questions about how he will achieve his key goal of reducing the fiscal deficit , he appeared cautiously optimistic, while left-wing groups criticized his initial plans they said would inevitably lead to strong austerity measures.

The peso edged up in financial markets, seen as an important gauge of confidence, given the government’s tight control over the official exchange rate. The value of the U.S. dollar on the black market, known locally as the “blue” dollar, fell from 297 pesos to 291 pesos.

Argentine government bonds posted early gains in the first few hours of trading after Massa was sworn in on Wednesday afternoon, but those largely disappeared in the afternoon. Argentine stocks also posted modest gains locally and in New York on a day of general gains.

In his first news conference as economy minister on Wednesday night, Massa issued several favorable signals for the market, including a target to increase the country’s hard currency reserves, reduce the deficit and no longer use the central bank to fund government operations ‘s oath.

Massa’s resignation as speaker of the lower house of Congress to take over the strengthening economy ministry, which includes the previously independent ministries of production and agriculture, is a gamble by President Alberto Fernandez in the face of a deepening economic crisis that has also exposed the deep government in power Divisions within the league.

In an example of the balancing act Massa must take now, his initial words were not welcomed by left-wing groups, even more left-leaning elements in the ruling coalition, who demanded more benefits for the poorest members of society. It has been hit hard by one of the highest inflation rates in the world, currently running at over 60% a year.

Economic analysts say Massa, who has close ties to the country’s business elite and has forged ties in the U.S. over the years, appears committed to cutting spending and achieving a budget deficit of 2.5 percent of gross domestic product, a move the country has with the International Monetary Fund. Part of a commitment to restructure Argentina’s debt of about $45 billion.

Left-leaning members of the ruling coalition, including former president and vice-president Cristina Fernández, have been highly critical of the deal with the IMF.

“There is a feeling, especially the vice president, of how much foreign reserves fell and how much inflation increased in July,” said Camilo Tiscornia, head of local consultancy C&T Asesores Economicos. The government is more afraid and willing to take more unpopular measures.”

Tiscornia said the “solidest” part of Massa’s first announcement included a larger-than-expected cut in utility subsidies.

However, other parts of his original plan were imprecise, especially those related to lowering inflation.

“These announcements don’t seem to be enough,” Tisconia said.

Others agree that a larger plan is needed if Massa is to succeed in his new role.

“To face an inflationary process as large as the current one, which could reach 100% per year, requires an overall plan consisting of a coordinated set of fiscal, monetary, exchange and revenue measures,” Víctor Beker said. Said the Center for New Economic Research at the University of Belgrano. “That didn’t appear for the time being.”

Analysts and opposition leaders also questioned Massa’s failure to detail how he would increase central bank reserves or his currency policy, although he did stress that a sharp devaluation was not part of his plan.

The main opposition unite for change said Massa’s statement was too general and “in no way constitutes an economic plan, nor a plan to stabilize the economy, which is essential and must be implemented immediately.”

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