Argentina will stand by the fiscal targets it has agreed with the International Monetary Fund and work to stabilize the peso, the country's new treasury minister said on Tuesday in remarks that failed to stop the currency's sharp recent slide.
Minutes after being sworn in by President Mauricio Macri, Treasury Minister Hernan Lacunza told reporters the government will stick with the goal of erasing its primary fiscal deficit this year, despite a series of spending measures announced last week aimed at spurring growth in the recession- and inflation-racked economy.
He said his top priority will be to stabilize the peso, which tumbled 18 percent last week after the business-friendly Macri was unexpectedly thumped in an Aug. 11 primary election by Alberto Fernandez. The center-left candidate is now expected to defeat Macri in an Oct. 27 general election.
“We want to leave a solid economic platform for whichever candidate wins” the presidential election, said Lacunza, the former economy chief for Buenos Aires province. He told a press conference that Argentina had a primary fiscal surplus in July and that he expected a surplus in August as well.
The peso fell 1.2 percent to 55.68 per dollar on Tuesday while the Merval stock index lost 7.8 percent and over-the-counter bonds shed an average three percent, as investors reacted to the downgrade on Friday of Argentina's sovereign debt by ratings agencies Fitch and Standard & Poor's.
Monday was a holiday in Argentina.
Lacunza's comments fell well short of restoring confidence, Buenos Aires-based Delphos Investment consultancy said in a note. “Good intentions but few concrete measures. We think that financial assets will remain very much under pressure,” it said.
Speaking at a conference in Buenos Aires, James McCormack, Fitch's head of sovereign ratings, said it may be necessary for Argentina to restructure its debt.
“We, like everyone else, were surprised by the outcome of the primary election,” McCormack said. “There is now an expected deterioration with macroeconomic performance.”
“Restructuring or default is possible, but we're not saying it's probable,” he added.
Macri, struggling to revive his campaign for a second term, is betting that the new treasury chief can help stabilize the economy. Last week, Macri announced a cut in taxes on food and personal income along with increased welfare spending, raising concern his administration will miss its fiscal targets.
“We are closely following recent developments in Argentina and are in ongoing dialogue with the authorities as they work on their policy plans to address the difficult situation that the country is facing,” the IMF said in a statement.
“An IMF staff team will travel to Buenos Aires soon,” said the statement, which was signed by IMF spokesman Gerry Rice.
The IMF's next review of Argentina's economy on Sept. 15 should provide a sign of whether the lender of last resort still thinks the country can pay its debt obligations. Government bonds denominated in dollars are harder to pay when the peso weakens.
A crunch point will come in the second quarter of 2020, when Argentina is scheduled to make $20 billion in debt repayments, up sharply from $5.6 billion in the first quarter of next year.
Nicolas Dujovne, the former treasury minister, quit on Saturday, saying he believed the country needed “significant renewal” of its economic team.
Central bank chief Guido Sandleris also told reporters on Tuesday the bank would continue to sell reserves in an effort to halt the peso's slide. The bank later sold $84 million in the foreign exchange market to steady the peso.
The recent currency weakness interrupted what had been a fall in the country's inflation rate, Sandleris said. Consumer prices in Argentina rose 55 percent in the 12 months through July, according to official data, but monthly rates had been falling.
“The devaluation of the peso has had an effect on prices,” Sandleris said. “We are going through a complicated time.”