January 31, 2023

Buenos Aires, Argentina (AFP) – The Argentine peso plunged and stock prices tumbled Monday after left-leaning Silvina Patakis was appointed economy minister following the sudden resignation of her more moderate predecessor at the weekend as the country grapples with economic woes.

Patakis was appointed late Sunday to take over from Martin Guzman, who was widely seen as a moderate voice within President Alberto Fernandez’s government. Guzmán has been the target of heavy criticism from left-leaning elements in the ruling coalition, including Vice President Cristina Fernandez, who has nothing to do with the president.

The peso depreciated by 18% at some point in the unofficial market on Monday, as low as 280 to the dollar, before recovering late in the day. Government bond prices fell as much as 10%, indicating fears of worsening inflation, while stocks also saw declines.

The historical volatility of the peso means that Argentines save largely in US dollars and the exchange rate is closely followed as a general measure of the economy.

Some analysts have warned that it is too early to say whether the peso has fallen to a new low because trading activity was very light on Monday, suggesting that many people may be taking a wait-and-see attitude.

“These are prices that should be taken into account today,” said Gustavo Beer, an economist who heads up local consultancy Estudio Ber.

But others said it was a sign that after the service economic collapses of recent decades, Argentines worry that inflation, already running at an annual rate of 60%, will get worse under Patakis, who was sworn in late on Monday afternoon.

“That’s what we expected, a very strong reaction from the markets,” said Marcos Buscaglia, partner economist at local consultancy Alberdi Partners.

Argentines crowded into stores over the weekend to buy expensive items such as refrigerators and ovens.

Buscaglia predicted that “more inflation is on the way,” saying that Patakis’ appointment indicates that the left-leaning vice president’s policy preferences prevail in the government.

Fernandez, who herself was Argentina’s president in 2007-2015 and still enjoys a strong support base, has publicly criticized austerity efforts aimed at trying to rein in inflation.

Guzmán, who was seen as a close ally of the president, resigned on Saturday with a seven-page letter posted on Twitter at a time of tension in the ruling coalition over how to deal with the country’s economic problems.

In addition to inflation, Patakis will have to deal with an economy in which about four in 10 Argentines live in poverty, and the central bank is seriously declining in its hard currency reserves.

Patakis has a long history of public service and was Minister of Economy in Buenos Aires Province, the country’s most populous region, in 2011-2015 under Governor Daniel Chioli, who was recently appointed Federal Minister of Production.

There is a big question mark regarding the future of the country’s latest deal with the International Monetary Fund to restructure $44 billion in debt.

Several left-leaning members of the ruling coalition publicly opposed the IMF agreement, saying it involved too many concessions to the multilateral institution that would stifle growth.

As the country waits for Patakis to lay out its plan for the future, some analysts warn that its path forward is difficult.

“One would expect the new minister to try to calm the financial market first, and then order the macroeconomy,” said Matthias Carugati, an economist at Consultura Seydoux. But today it’s really hard to know if that will happen, considering we don’t have a lot of information about the government’s plan. They assure continuity in terms of what Guzmán was doing, but it was precisely that plan that led to his resignation.”

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