Batakis takes reins of Argentina’s economy as markets tumble

Argentina’s Economy Minister Silvina Batakis was sworn in Monday evening, taking the reins of an economy in crisis after the abrupt resignation of her predecessor Martin Guzmán.

Batakis, an economist affiliated with Vice-President Cristina Fernández de Kirchner’s leftist wing of the ruling coalition, said the government would continue an economic programme that it agreed to with the International Monetary Fund, including moving to balance the government’s books and accumulating dollar reserves in the Central Bank.

“I believe in fiscal balance and I think we have to go down that path,” Batakis told reporters after she was sworn in by President Alberto Fernández.

Batakis, in a brief address lasting fewer than three minutes, also spoke about increasing exports to help protect the peso and keep Argentina solvent.

Argentina’s black-market exchange rate, known locally as the “dolár blue,” tumbled as much as 15 percent on Monday to 280 pesos a dollar, before closing at around 260 pesos, according to website Dolarhoy.com. While US bond markets were shut for a holiday, locally-traded assets indicated that investors are wary of the new minister. Currency futures contracts for the official exchange rate due in January 2023 weakened 7.5 percent to 200 pesos a dollar, while the S&P Merval benchmark stock index fell 1.5% after paring deeper losses.

President Fernández tapped Batakis after Guzman’s resignation at the weekend deepened a political crisis that’s been hurting Argentina’s finances and markets alike. Batakis, a low-profile policymaker close to the more heterodox wing of the government, inherits a long list of economic challenges, including annual inflation over 60 percent, and the government’s US$44-billion programme with the International Monetary Fund, which just passed its first review.

“Batakis is a highly educated bean counter with more hands-on experience with managing fiscal affairs than her predecessor,” analysts led by Joaquín Bagues at broker Portfolio Personal Inversiones wrote in a note. “However, she does not appear to have Guzmán’s arrogance and ego, and her history reflects a professional survival instinct that includes absolute obedience” to deputy leader Fernández de Kirchner.

Central Bank chief Miguel Pesce met with Batakis earlier on Monday. They agreed on “deepening the development of capital markets” in pesos, according to a Central Bank statement. 

Argentina’s global bonds remain deep in distressed territory, just above 20 cents on the dollar, while the local debt market has been mired in a crisis, with investors reluctant to roll over maturing debt into longer dated government bonds. Euro-denominated notes due 2030 slipped as much as 0.7 cent to about 20.9 cents on the euro.

The blue-chip swap exchange rate – derived from buying securities locally and selling them abroad – will resume trading on Tuesday when US markets open, after slumping to a record low of 252 pesos a dollar last week. As the gap between the official and parallel rates widens, analysts from research firms including BTG Pactual and Alberdi Partners have begun to warn to expect a devaluation of the official rate in the second half of the year.

"Batakis needs to address rising market concerns regarding the government’s ability to pay even its peso-denominated debt, must tackle rising inflation ... and find solutions for these problems that are politically viable in the context of a fractured coalition with just fifteen months until the next presidential election," said Adriana Dupita, Bloomberg's economist for Latin America.

Batakis’ appointment is seen as a win for the far left-leaning faction of Argentina’s ruling coalition aligned with Fernández de Kirchner, which could endanger the success of the nation’s US$44-billion lending programme with the International Monetary Fund, JPMorgan Chase & Co economists Diego Pereira and Lucila Barbeito wrote in a note.

“The appointment seems to signal that the balance of power has tilted to the Kirchnerite side,” Pereira and Barbeito wrote before her comments on Monday evening. “We would expect a more expansive fiscal stance, and potentially a renegotiation of the IMF programme amid brewing imbalances and wider FX gap.”