The printing of foreign money results in inflation which is now over 60 p.c in Argentina and is predicted to succeed in 90 p.c by the top of the 12 months.
Argentina’s new financial system minister, Sergio Massa, pledged Wednesday night time to cease printing cash that helps beat inflation, whereas outlining his technique to handle the nation’s deepening disaster.
Massa ready his financial roadmap after President Alberto Fernandez was sworn in because the third such minister in a month. Massa’s measures additionally targeted on boosting exports, decreasing the nation’s fiscal deficit and growing the central financial institution’s dwindling reserves.
Massa has inherited the large problem of overcoming inflation which is now over 60% and is predicted to succeed in 90% by the top of this 12 months. Reduce off from worldwide capital markets, Fernandez’s authorities has relied on printing cash to cowl its previous fiscal deficit.
“Magic doesn’t exist,” Massa frankly told reporters in Buenos Aires. “We have to face inflation with determination.”
The government would finance its budget either by reducing its deficit or through private borrowing. The country is considering four loan proposals by three international banks and a sovereign wealth fund, he said, without providing potential deal figures.
Separately, Massa is launching a voluntary local debt swap in pesos for bonds maturing in the next 90 days. He said the swap already has 60% “adhesion,” without providing further details at the press conference.
According to people with direct knowledge of the matter, the government initiated discussions with some banks to offer so-called double bonds to swap securities with maturities of less than 90 days. Finance Secretary Eduardo Setti offered the double bond, an instrument in which investors receive the highest rate of the two options at the time of the asset’s maturity. In this case, either the inflation-linked rate or the dollar-linked rate.
A spokesperson for Massa did not respond to a request for comment on the double bond.
While highlighting the specifics, Massa remains committed to meeting the government’s primary deficit target this year, a key pillar of his $44 billion program with the International Monetary Fund. Massa said he spoke to IMF staff on Wednesday to discuss the future of the programme. An IMF spokesman said in a statement that its staff spoke to Massa about implementing the program.
Investors said Massa needed to provide more granular details to address market concerns.
“Massa’s speech had a strong political component and some aspirational component, but was weak on the technical aspects that the market was demanding,” said George Piedrahita, managing partner at Gear Capital Partners in New York.
It remained unclear how Massa will bridge the deficit next week while providing a one-time payment to retirees as well as “income recovery” for low-wage private sector workers. He referred to the “reversal” of social welfare schemes focused on getting recipients back into the job market, including the suspension of welfare schemes for those who do not attend the hearing on August 15.
“Despite a commitment not to tap additional central bank funding, the measures do little to undermine fiscal credibility, so a fiscal anchor remains absent,” said Ramiro Blazquez, head of strategy at BankTrust & Co in Buenos Aires. “Bottom-line, implementation details are scarce.”
Other measures Massa announced:
- New export “rules” for sectors including agriculture, mining, technology and fossil fuel production
- New loan program with loan interest rates for first time exporters
- Taking legal action against exporters in Argentina and the US for under-invoicing exports or over-invoicing imports
- Maintaining a previously announced public sector hiring freeze
- Program to make 70,000 computer programmers in 12 months
- Meeting with the leading leaders of the agricultural sector known in Spanish as “Mesa de Enales”
- Requesting Congress pass legislation aimed at providing tax relief to various industrial sectors