ANALYSIS-The hasty exit of the Argentine economy minister could worsen the market crisis

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Band Jorge Otaola and Eliana Raszewski

BUENOS AIRES, July 3 (Reuters)The abrupt departure of Argentina’s economy minister and the lack of a clear successor could threaten to further destabilize an economy already rocked by soaring inflation, rising energy costs and growing fears of possible new defaults. debt payment.

Martin Guzman, the architect of the South American country’s recent $44 billion deal with the International Monetary Fund (IMF), resigned on Saturday as tensions within the government boiled over over how to handle the economic crisis in one of the world’s leading grain producers.

Relatively moderate, he had clashed with the more militant wing of the ruling Peronist coalition around powerful Vice President Cristina Fernandez de Kirchner, who had publicly criticized Guzman and called for more public spending.

The resignation, the most publicized since President Alberto Fernandez took office in late 2019, exposed deep fissures in the government that threaten to upend the country’s economic management.

“Minister Guzman’s resignation really reveals the internal rupture within the government,” said Eugenio Mari, chief economist at Fundacion Libertad y Progreso, adding that he had been an “anchor point” for economic policy despite its difficulties.

“From an economic point of view, this amplifies the dynamics of uncertainty in which Argentina already found itself.”

On the table now are policies around the country’s peso currency, which is protected by strict capital controls that have stemmed exchange rates parallel to double the official rate. Guzman also oversaw tax regimes related to grain and energy policy.

Inflation is above 60% and expected to rise further, while high energy import costs have hampered the country’s ability to increase its depleted foreign exchange reserves. Sovereign bonds plunged towards 20 cents on the dollar.

Guzman is due to travel to France for talks on July 6 to restructure some $2 billion in debt with the Paris Club of sovereign lenders, seen as key to reopening access to foreign direct investment needed for infrastructure and development. ‘energy.

ECONOMIC “VACUUM”

Daniel Marx, a former finance secretary and debt negotiator, said that had become untenable for Guzman amid strong opposition in government. The key now: who replaces him?

“It seems important to me how the void is filled,” Marx said. “Not just the person but the direction of economic policy to get out of all the skepticism and issues that have been dragging on for some time.”

As of Sunday morning, there was no news on a successor and President Fernandez had yet to publicly announce the departure, suggesting the government had been caught off guard by the exit.

Some investors worried about the impact of the departure on the country’s ability to meet its obligations to the IMF, which include inflation targets, reserve levels and the fiscal balance – all already under pressure.

“It is not good and confirms that there is a political problem,” said Maria Castiglioni, economist at C&T Asesores, adding that it raises the question of whether the government would be able to take the necessary steps to exit. of the crisis.

Inside the Economy Ministry, where much of Guzman’s team also quit, there was a feeling that it had become difficult to get things done effectively.

“When things were going fast, decisions had to be made quickly. When you don’t have a decision at the money table, it’s tough,” a ministry source said.

Horacio Larghi, an economist and director of consultancy Invenomica, said what mattered most was whether the new economy minister was a lame duck or had a license to act.

“As for who replaces him, the name doesn’t matter so much. What matters is whether or not the person will have the power to do anything,” he said.

GRAPHIC-Argentina US Dollar Bonds https://tmsnrt.rs/3fz89Zs

CHART-Argentina’s US Dollar Bonds (Interactive Chart)https://tmsnrt.rs/3FzHvdH

GRAPH-Argentina: inflationary spirals https://tmsnrt.rs/3pWg2Ne

CHART-Argentina: inflation spirals (Interactive chart)https://tmsnrt.rs/3s8mjZ7

GRAPH-Argentina’s double dollarhttps://tmsnrt.rs/3zXEJ2y

CHART-Argentina’s Double Dollar (Interactive Chart)https://tmsnrt.rs/3HFqAsJ

Argentina’s economy minister, architect of IMF deal, resigns as government crisis deepens

(Reporting by Jorge Otaola, Eliana Raszewksi, Jorgelina do Rosario; Writing by Adam Jourdan; Editing by Lisa Shumaker)

((adam.jourdan@thomsonreuters.com; +54 1155446882; Reuters Messaging: adam.jourdan.thomsonreuters.com@reuters.net))

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


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