Argentina’s bonds sink as president swears in new Cabinet

Argentina’s dollar bonds and US-traded equities slid on Monday, as President Alberto Fernández prepares to swear in new ministers and move past a week-long political crisis. 

The nation’s US$10.5 billion in bonds due 2041 slipped as much as 1.4 cents to 36.8 cents on the dollar, while the unofficial peso exchange rate, known as the blue-chip swap, weakened 1.5 percent to 184 pesos per dollar. US-traded shares also fell as much as 13 percent, with the local benchmark index posting the worst returns among indexes in the Americas amid a global selloff. 

“We’re going to take steps that aim to respond to voters that have been affected by the pandemic,” Fernández said at Monday’s swearing-in ceremony from the presidential palace in Buenos Aires. “We’re already working on it. I’m calling on our supporters to stand together and turn around last Sunday’s results.”

The Cabinet reshuffling, announced late Friday, is part of a move to try to put an end to a political crisis that has consumed the ruling coalition following a larger-than-expected defeat in primary elections on September 12. With the government weakened, the results of the vote cast uncertainty over the policy direction Fernández will take in the last two years of his mandate, and increase the chance he will lean on populist economic measures to win votes ahead of November’s midterms, according to Bloomberg Economics.

“With no access to international capital markets, the odds that Argentina will deepen its reliance on money issuance to fund a large public deficit, and on unorthodox measures such as price and export controls as a tool to curb inflation have increased,” said Adriana Dupita for Bloomberg Economics.

On Friday, Fernández announced the replacement of five ministers and his chief press adviser, after Vice-President Cristina Fernández de Kirchner publicly blamed him for not reacting fast enough to the election results. The new officials include Tucumán Province Governor Juan Manzur, who will replace Santiago Cafiero as Cabinet chief, and Aníbal Fernández, a former Cabinet chief under Fernández de Kirchner, as security minister.

In a presidential decree published Saturday, the government also said that US$4.3 billion in Special Drawing Rights granted by the IMF last month can be used by the Central Bank to expand the issuance of pesos and finance Treasury expenses.