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Argentine President Mauricio Macri has a tense night ahead of him waiting for U.S. markets to
reopen Tuesday after the Labor Day holiday. That’s when investors will give the thumbs up or
down to his proposals to save the economy from crisis.
The government announced emergency measures Monday including new export taxes in an
attempt to regain investor confidence after the peso tumbled 25 percent last month. Trading in
the currency on Monday was too thin to judge if the plan was a success or not. That verdict will
come Tuesday.
As investors give their response, Treasury Minister Nicolas Dujovne will be meeting with
International Monetary Fund Director Christine Lagarde in Washington to request faster
payments from a $50 billion credit line. While the IMF response to Macri’s proposals may be
positive, the market reaction is less clear. Early reviews on Monday of the new measures were
mixed.
"They’re a positive step," said Graham Stock, senior sovereign strategist for emerging markets
at $60 billion BlueBay Asset Management in London. "I expect the IMF response to be broadly
favorable but we need to see details including the revised monetary targets."
Others were less enthusiastic.
"I didn’t see any magic bullets in today’s speeches,” said Guido Chamorro, London-based senior
investment manager at Pictet Asset Management Ltd, who pointed to a recent survey that said
that most investors in euro-debt are overweight Argentina. “It’s unclear who is left to buy
bonds.”
In a presentation on Monday, Treasury Ministry officials said Argentina has $28.3 billion in
financing needs for 2019. Those payments will be met by rolling over bonds worth $12 billion
and IMF loans of $11.7 billion, while other global financial institutions cover the rest.
With U.S. markets closed, volume on foreign exchange markets were low. That didn’t stop the
central bank selling $100 million at an average price of 37.9780 per dollar just before the
market closed. The Merval stock index fell 1.7 percent.
The Proposals
Macri plans to halve the number of ministries and impose the levies on exports in an attempt to
balance the budget by 2019, a year earlier than previously expected. The measures come on top
of a previously announced government hiring freeze and reduced subsidies on utilities like
electricity. The subsidy cutbacks have become a source of anger for Argentines as they face
soaring bills at the same time as wages fail to keep up with price increases.
Extra Cash
Argentina expects to raise about $9 billion more through its new export taxes.
The backdrop to all these emergency measures is an economy heading for its second recession
in three years. Even before a sharp selloff in the peso last week, Dujovne said Argentina would
contract at least 1 percent this year.
Moreover, consumer prices are rising above 30 percent, a far cry from the government’s initial
inflation target of 15 percent. The peso is down more than 50 percent this year, the worst
performing currency in emerging markets.
The announcement marked the first time since the turmoil began that Macri took measures "of
the same scale as the crisis," according to local consulting firm Delphos Investment. The next
test will be his coalition’s ability to include cuts to public spending in the 2019 budget, which
will be submitted to congress this month.
"We still have serious doubts" about bipartisan support, analysts at Delphos wrote in a note.
“This may be a key determining factor to the success of the plan, especially with a government
that doesn’t have congressional majorities."