Argentina’s President Alberto Fernández unveiled an empowered economy minister with the mission to fix enormous political and economic problems, including inflation estimated at 90% this year, that threaten the future of his administration.
The late Thursday appointment of Lower House Speaker Sergio Massa to the high-profile job, known locally as “super minister” because it includes duties previously carried out by agriculture and production peers, has raised expectations that the government may implement at least some of the painful measures that investors say are needed to correct economic imbalances – higher interest rates, spending cuts, and a currency devaluation.
Massa is, after all, one of the most pro-market politicians within the ruling leftist coalition, which has governed with interventionist and populist policies since December 2019. He has more political clout than the country’s two previous economy ministers: Martín Guzmán, who abruptly resigned on July 2, and his replacement Silvina Batakis, who spent less than a month on the job.
Yet he may shy away from delivering all the measures called for by investors and the International Monetary Fund, with which the country has a US$44 billion program, according to Eduardo Levy-Yeyati, founder of Buenos Aires-based consultancy Elypsis Partners.
“If he does some of it, we can expect a mild rebound and a muddling through until mid-2023, when expectations will start looking at the next administration,” he said. “If not, I am afraid the government has run out of replacements and the deterioration may only accelerate.”
Massa will also lead the country’s relationship with the IMF and all other bilateral and multilateral lenders. Fernández reassigned Batakis to lead the state-run Banco Nacion, amid other cabinet changes.
Argentina’s political crisis stems from a long-simmering divide over economic strategy between Fernández and powerful Vice President Cristina Fernández de Kirchner, who undermined Guzmán so much he chose to resign. Many analysts see the two leaders’ relationship broken beyond repair, impairing decision making.
The country’s global bonds surged on Thursday following initial reports of Massa’s new role and extended gains on Friday. But that’s after they sunk deeper into distressed territory, with some notes touching a low of 17 cents on the dollar earlier this month.
“The gains will likely be temporary,” said Jorge Piedrahita, a managing partner at Gear Capital Partners in New York. “Argentina’s constraints are ideological and political, and that will not change with Massa.”
Beyond the economic volatility of the past few weeks, Massa inherits enormous challenges. The central bank’s reserves are razor thin and the country is behind on the targets agreed with the IMF. Almost 40% of Argentines live in poverty and a recent slew of protests have called for more social welfare.
Markets will wait to see how Massa plans to reel-in spending, revive dwindling foreign investment and narrow the gap between Argentina’s official and parallel exchange rates, which ballooned to as high as 150% earlier in July. The surge in the gap is one of the factors driving inflation higher.
“More than a new minister, Argentina needs urgently a new policy mix and economic management that is not beholden to political pressures,” said Alberto Ramos, head of Latin America research at Goldman Sachs. For Massa “to be successful and effective, he needs to embrace more conventional and disciplined policies that are admittedly costly in the short term.”
A former mayor of a Buenos Aires suburb who built his reputation as being tough on crime, Massa has also shifted his tactics over the years, embodying the Peronist political movement’s chameleon-like changes.
He allied with Kirchner when she was president, acting as her cabinet chief between 2008 and 2009. He later broke away from her bloc and ran for president on his own in 2015, finishing in third place. Then in 2019, Massa, Kirchner and Fernández joined forces again to win the presidential election.
“It’s unlikely Massa will do everything needed, since he is a populist with presidential ambitions,” Levy-Yeyati added.
Fernández is recreating the well-known role in Argentine politics of a “super minister,” a person who concentrates power and makes all major economic decisions. Other past super ministers, such as Domingo Cavallo during the 1990s, were initially successful but their tenures eventually led to further economic crisis.
It’s unclear whether Massa will move forward with unpopular spending cuts that risk dividing the coalition even further. Guzmán resigned due to lack of political support to implement such cuts, and Kirchner hadn’t opined publicly about Batakis’ tenure yet.
Replacing Batakis days after she met with staff from US Treasury, IMF and World Bank has bewildered some members of the ruling coalition. She held an unusually long meeting on Monday with David Lipton, senior counsel to US Treasury Secretary Janet Yellen, to outline her economic road map. The shakeup further erodes credibility, according to a senior government official who asked not to be named discussing internal conversations.
Three weeks into the job, Batakis told reporters Tuesday she had “strong support from all sectors” of her coalition. She received the news on Wednesday that she might be replaced while she was still in the US, the official added.
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