Gustavo Rangel, Chief Economist at ING, suggests that this is going be a busy week for Argentina as President Macri’s crisis management skills will continue to be tested, with investors expecting a broad range of announcements.
Key Quotes
“The focus will be on assessing the impact of the new fiscal policy initiatives and progress on the new International Monetary Fund (IMF) negotiations.”
“Until recently, investors seemed willing to tolerate reasonable levels of rollover risk for maturing sovereign debt, but market reaction this past week suggested that the administration has lost much of its credibility.”
“Monetary policy actions, such as last week’s 15 percentage point increase in the benchmark interest rate, to 60%, no longer seem sufficient to stabilise local financial markets.”
“The renewed fiscal effort is likely to include revenue-enhancing measures, such as the re-introduction of export taxes to a broad range of exports (including corn and wheat), as well as some spending cuts.”
“Frontloading a significant part of the disbursements from the US$50 billion three-year Stand-by Agreement with the IMF also appears to be a necessary step to prevent the crisis from escalating further.”
“Once the new disbursement schedule is agreed, the administration must also update its 2018-19 fiscal financing plan.”
“President Macri is also expected to announce substantial cabinet changes, possibly with the elimination of several ministerial posts and the appointment of new ministers, to boost market credibility in the administration.”
“The dramatic confidence crisis Argentina is facing, and the aggressive monetary and fiscal policy tightening the administration has been forced to adopt, has increased the risk of a deeper economic recession, possibly with GDP contracting by more than 2% in 2018, while experiencing higher inflation than previously expected.”
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