Argentina chooses former provincial official as next economy minister

Argentina has named a relatively unknown former provincial official as its new economy minister, following the abrupt departure of his predecessor Martin Guzmán who brokered a $44 billion debt restructuring deal with the IMF.

Silvina Batakis, 53, was due to take over on Monday a day after Guzmán, a close ally of President Alberto Fernández, became the oldest of four Argentine cabinet members to step down in recent months amid a split in the ruling coalition government.

Deep divisions within Argentina’s ruling left-wing coalition have pitted the country’s powerful vice president and former leader, Cristina Fernández de Kirchner, against the president, just as problems in Argentina’s economy are mounting. .

Financial analysts said the appointment of Batakis, a former finance minister for the province of Buenos Aires who most recently worked in the interior ministry, would do little to quell negative sentiment in the markets, given of its links with the most radical wing of the Peronist government allied to Fernandez de Kirchner.

Market reaction on Monday was subdued given the July 4 holiday in the United States, where Argentinian bonds are more widely traded. Argentina’s official currency, kept artificially high in an attempt to control inflation, weakened 0.5% to 126 pesos to the dollar. The parallel exchange rate widened by almost 15% at the start of the session to reach 280 pesos for 1 dollar.

“The market was already fragile and now it’s going to be terrified,” said Riccardo Grassi, head of risk management at Switzerland-based hedge fund Mangart Capital Advisors, which was involved in Guzmán’s 2020 debt restructuring. .

Speaking about Batakis’ appointment, economist Fernando Marull said the markets would “take it badly”. He added: “She is not very well known. . . and our more pessimistic scenario for the economy now looks more likely.

Batakis is a career civil servant who, as minister of finance for the province of Buenos Aires from 2011 to 2015, championed price controls, market intervention, and increased wealth and wealth taxes. on successions.

Fernández de Kirchner and his allies have repeatedly criticized the IMF deal, which Guzmán brokered, calling instead for higher spending and more government intervention to fight inflation and poverty.

The deal refinanced $44 billion of outstanding debt from a record amount Argentina borrowed from the IMF in 2018, a loan that quickly slipped. This is the 22nd agreement since Argentina joined the IMF in 1956.

Guzmán was due to travel to France this week to renegotiate more than $2 billion owed to the Paris Club of creditor countries. It is unclear whether Batakis will now go in his place. Argentina had been given more time to repay its debt because it was negotiating the separate IMF program.

Argentina is in the grip of a spiraling economic crisis, with inflation expected to exceed 70% this year. Its sovereign bonds traded at deeply troubled levels, hovering just above 20 cents on the dollar. Pressure on the local currency is mounting despite exchange controls, and a costly energy import bill is preventing Buenos Aires from building up dollar reserves.

The departure of Guzmán after more than two years of work is a new blow for the president, whose polls have fallen.

William Jackson, chief emerging markets economist at Capital Economics, pointed out how Fernández de Kirchner’s growing influence could push Argentina “further off the path to macro stability”, and that “a sovereign default is beginning to seem more and more probable”.

It remains unclear whether any further cabinet changes are planned. Miguel Ángel Pesce, head of the central bank, confirmed on Sunday that he intended to stay in his role.

Pesce and the new finance minister pledged on Monday to follow a “sustainable fiscal program”, seeking to address investor concerns following Guzmán’s departure.

“Batakis and Pesce shared the importance of continuing to work on a sustainable fiscal program and the accumulation of reserves,” the central bank said in a statement, adding that the two also agreed on the need to strengthen the local capital markets.