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BUENOS AIRES, Argentina – The market greeted Argentina’s new Economy Minister Sergio Massa on Thursday with what appeared to be a cautiously optimistic stance on how he would meet a key target of reducing the budget deficit, while left-wing groups have slammed his initial plans, saying they are inevitable on austerity measures to lead.
As an example of the balancing act Massa must now perform, his opening remarks did not sit well with left-wing political parties and elements of the governing coalition, who are calling for more welfare for the poorest members of society, who have been hit particularly hard. affected by one of the highest inflation rates in the world, currently exceeding 60% annually.
“Massa is an establishment man who works for big business, for the interests that constitute debt settlement,” Eduardo Belliboni, a Labor Party leader, told the Associated Press. The new minister “comes to rescue the government from a political crisis using the same method that led us to this catastrophe”.
Analysts and opposition leaders also questioned that Massa had failed to detail how he would increase central bank reserves or what his exchange rate policy would be, although he stressed that a sharp devaluation was not part of his plan.
United for Change, the main opposition force, said that Massa’s announcements were too general and “in no way constitute an economic plan and do not constitute a program to stabilize the economy, which is essential and must happen immediately”.
The peso edged higher in the financial market, which is seen as a key indicator of confidence given the government’s tight grip on the official exchange rate. The value of the 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 hours of trading after Massa’s swearing in on Wednesday afternoon, but those gains were largely erased by the afternoon. Argentinian stocks also posted modest gains both locally and in New York on a day when stocks generally posted gains.
In his first press conference as economy minister on Wednesday night, Massa sent several pro-market signals, including aiming to increase the country’s hard currency reserves, reducing the deficit and pledging to stop using the central bank to fund government operations.
Massa, who resigned as leader of the lower house of Congress, the Chamber of Deputies, to take charge of a strengthened economy ministry that includes the previously independent ministries of production and agriculture, is President Alberto Fernández’s bet to confront a growing economic crisis that is threatening has also revealed deep divisions within the governing coalition.
Economic analysts said that Massa, who has strong ties to the country’s business elite and has spent years developing contacts in the United States, appears determined to cut spending and meet the goal of reaching a budget deficit of 2.5% of gross domestic product, which, in fact, was part of the country’s commitment to the International Monetary Fund to restructure some $45 billion of Argentina’s debt.
Left-wing members of the governing coalition, including Vice President Cristina Fernández, a former president, have sharply criticized the deal with the IMF.
“You get the feeling that the vice president in particular was shocked by how much reserves fell in July and how much inflation rose,” said Camilo Tiscornia, head of local consultancy C&T Asesores Economicos. “The government is more scared and ready to take more unpopular action.”
Tiscornia said the “solidest” part of Massa’s initial announcements involved a larger-than-expected cut in public utility subsidies.
However, other parts of his original plan were imprecise, particularly those dealing with falling inflation.
“The announcements seem to fall short,” Tiscornia said.
Others agreed that if Massa was to thrive in his new role, a bigger plan would be needed.
“To confront an inflationary process as large as the current one, which threatens to reach 100% annually, requires an integral plan consisting of a coordinated set of fiscal, monetary, currency and revenue measures,” said Víctor Beker of the Center for the Study of the New Economy of the University of Belgrano. “That doesn’t appear for the time being.”
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