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ARGENTINA-ECONOMY WRAP
Argentina’s president announces new austerity measures
BUENOS AIRES, Sept 4, 2018 (BSS/AFP) – Argentina’s president Mauricio Macri
on Monday announced he was slashing his government’s bureaucracy in half and
restoring taxes on grain exporters as part of sweeping new austerity measures
to stabilize the economy.
The center-right president admitted in a speech to the nation that
Argentina was facing “an emergency,” after its currency, the peso, lost more
than half its dollar value this year.
“We must confront a fundamental problem: to not spend more than we have, to
make efforts to balance the state’s accounts,” he said in the televised
address.
He pledged a pared-down government following cuts that would see the number
of ministries slashed from 22 to 10 in an effort to save money, demoting more
than half his ministers.
The move had little immediate effect on the markets, slipping back near the
record lows of last week, closing 2.7 percent lower at 39.04 to the dollar.
Thousands of laid-off government workers took to the streets of Buenos
Aires to protest the government’s austerity program.
– New export taxes –
Argentina is one of the world’s biggest exporters of corn and soy oil.
Macri’s market-friendly approach had previously seen him cut taxes on major
grain exporters.
Addressing rich agricultural exporters who will now face increased export
taxes, he said: “We know it’s a bad tax, but I ask you to understand that
it’s an emergency.”
“We ask those who have more capacity to contribute, those who export, that
they make a greater contribution,” he said.
In a bid to reassure worried Argentines, he said he would allocate more aid
to the country’s poor as 25 percent inflation has left many struggling.
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“We will overcome the crisis by taking care of the most needy,” he said,
promising “increased allocations, food programs and price caps on some
commodities.”
Economy Minister Nicolas Dujovne said many of Argentina’s problems stemmed
from a difficult international climate, but he recognized in a press
conference later that “mistakes had been made.”
– Deficit pledge –
Argentina has already pledged to cut the budget deficit to 1.3 percent of
GDP in 2019, but Dujovne said it would now go further next year, to eliminate
its primary deficit — its borrowing needs before debt servicing.
“In 2019 we want to reach primary fiscal equilibrium, and by lowering the
deficit we will lower our need to issue debt,” the minister said.
The current deficit target for 2018 is 2.7 percent of GDP.
On the restored grain taxes, Dujovne said the tax would be temporary and
would mean an extra $1.7 billion in state coffers in 2018, and more than $7.0
billion next year.
– ‘Short of expectations’ –
Dujovne was speaking before flying to Washington for a meeting with the
International Monetary Fund on Tuesday to finalize a deal to speed up
disbursement of a $50 billion loan agreed in June.
ING Economics said that if the moves fail to stabilize the currency, Macri
“will need to contemplate more drastic options, such as currency controls.”
The fiscal package “will speed up the pace of austerity, but the measures
ultimately fell short of expectations,” said Capital Economics’ Edward
Glossop.
“But the measure is a hark back to more interventionist poilcymaking. It
unwinds President Macri’s decision to cut agricultural taxes on his first day
in office back in December 2015, and liberalizes export and import markets.
Raising export taxes is against what President Macri stands for,” said
Glossop.
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Macri last week unexpectedly announced Argentina would seek faster
disbursement of its line of credit from the IMF.
That set off alarm bells among investors, concerned Argentina might default
on government borrowing, and triggered a run on the peso, which plunged 20
percent in two days.
The currency has lost half its value against the dollar since January.
A first $15 billion tranche of the loan has largely gone to prop up the
peso in recent months.
Argentina’s Central Bank hiked its baseline interest rate to 60 percent
last week in a further bid to stabilize the currency.
BSS/AFP/SR/1840 HRS