Home' Trinidad and Tobago Guardian : December 24th 2015 Contents BG18 REGIONNAL
BUSINESS GUARDIAN www.guardian.co.tt DECEMBER 24 • 2015
Rapid inflation, meager
growth and a debt default
have plagued Argentina
But its new president, Mauricio Macri,
has surprised many with the blinding pace
of change he has undertaken in Argentina;
a country unaccustomed to economic
Macri promised to reboot Argentina s
economy, if elected. And since he took
office on December 10, he s following
In the first seven days of his presidency,
here s what Macri has done:
1. Lifted currency controls
The biggest change came when the
administration lifted currency controls and
let the peso float freely.
"This is how a normal economy func-
tions in any part of the world," the country s
new finance minister, Alfonso Prat-Gay,
told reporters Wednesday.
The previous president, Cristina Fer-
nandez de Kirchner, had placed controls
on the peso for four years to curb inflation.
Despite that, inflation has climbed higher
and just this year rose about 25 per cent.
A mostly fixed exchanged rate caused
the peso to become deeply overvalued.
Until last week, the peso was worth about
9.8 pesos to the dollar.
Once the controls were lifted Thursday,
the peso tanked 26 per cent to 14.5 pesos
to the dollar.
The move has risks. It can cause the
peso to lose too much value and spark even
However, the currency manipulation dis-
couraged foreigners from investing in
Argentina. And the country badly needs
foreign cash. Last month, American Airlines
announced it wouldn t accept pesos, par-
tially due to how overvalued the peso was.
2. New central bank president
Macri s party appointed Federico
Sturzenegger, a US trained economist, to
lead the central bank.
Sturzenegger needs to encourage foreign
investors to come back. Quickly.
Argentina s central bank has seen its for-
eign reserves plummet in recent years due
to debt payments and inflation. Reserves
peaked over US$50 billion in 2011, but have
since fallen to US$24 billion, according to
the central bank.
3. Tax cuts
Macri cut personal income taxes and
lifted taxes on exports to help stimulate
trade and spending.
Kirchner had implemented the export
tax and outraged farmers in Argentina. The
country s economy is powered by com-
modities like oil and soy. Exports are crucial
to its economic growth.
Farmers, mostly grain suppliers, have
now agreed sell the grain reserves that
they ve piled while waiting for the currency
4. Cash cushion from abroad
Macri and a group of international banks
have already agreed on a US$5 billion loan
which will shore up reserves while the gov-
ernment rebuilds investor confidence.
Prat-Gay, the finance minister, said he
expects cash flows into Argentina will be
anywhere between US$15 billion to US$25
billion over the next month, which will
help boost the central bank s reserves.
5. New numbers guy
Hardly anyone believed Kirchner s num-
bers on Argentina s economy. The IMF
demanded earlier this year that Kirchner s
regime publish more legitimate data.
So Macri brought in a new team of econ
nerds to bring credibility back to Argentina s
statistics agency, INDEC.
Legitimate data should also lure investors
back to Argentina.
6. Two new Supreme Court
Macri is expected to bring a lot more
reforms. If challenged, he has to make sure
the reforms stand a chance in court. Macri
issued a decree to appoint two new supreme
court justices to vacant seats. Those
appointments should help his agenda.
7. Ending fight with Wall Street
Argentina needs cash and the biggest
road block is a group of hedge funds in
New York who own defaulted Argentine
debt. Kirchner refused to pay them and
Argentina has been shut out from accessing
foreign financing until it pays the bill.
Macri s team says it will negotiate with
the creditors, led by billionaire Paul Singer.
But any agreement has to be passed through
Congress, where his party is the minori-
ty.Major challenges lie ahead for Macri and
Argentina, but experts agree he s taking
the right steps so far.
"It s still early days, but Macri has made
a good start to his term in office," says Neil
Shearing, chief emerging market economist
at Capital Economics, a research firm.
Argentines expressed shock at soaring
prices on Friday and a major union
called for protests to demand salary
increases in the initial fallout from
a major devaluation of the South
American nation s currency.
The price hikes came after the new administration
of President Mauricio Macri on Thursday lifted restric-
tions on the buying of US dollars. That led to a 30
per cent devaluation of the Argentine peso vis a vis
the dollar, which was immediately felt across the
Supermarket shoppers said Friday they ll have to
buy less of some products like bread and even cut out
some things like beef, practically sacrilegious in a
country known for its choice meats.
Gisela Guana, a 26-year-old maid, said that earlier
this week she could buy bread for 13 Argentine pesos
(US$0.92) per kilogramme (42 cents a pound). Now
it s 17 pesos (US$1.21)(55 cents a pound).
"What s happening is scary," said Guana, who earns
7,500 pesos (US$535) a month. "Workers are the ones
who are going to pay" for the devaluation.
Even before Thursday, Argentines had been com-
plaining for weeks about prices rising even faster than
usual in a country with one of the hemisphere s most
rapid inflation rates.
Macri, who ran on promises to liberalise Latin Amer-
ica s third-largest economy, repeatedly said he would
lift currency restrictions.
So between his election victory on Novemebr 22
and his inauguration on December 10, supermarkets
had been increasing prices to brace themselves for a
devaluation. Several businesses, from textile factories
to construction companies, simply shut down, figuring
it was better to see what happened with the peso rather
than risk decisions that might later be costly.
Despite the long run-up, Thursday s devaluation
was a blow for many. It was also confirmation that
major changes were coming after 12 years of largely
protectionist economic policies.
The ripple effects were immediate.
Pablo Micheli, leader of the large Argentine Central
Workers union, demanded a 5,000-peso (US$357)
bonus for workers as compensation for the devaluation.
He promised a march on Tuesday to reject all of Macri s
economic changes of the past week, including the
lifting of export taxes that will be a boon to the agri-
The Argentine Chamber of Supermarkets acknowl-
edged the price hikes and warned shoppers that even
more increases were inevitable.
Yearly inflation is estimated at around 30 percent,
a figure certain to rise in coming months. Finance
Minister Alfonso Prat-Gay said earlier this week that
Macri s administration was negotiating with many
businesses to keep prices at the level they were at the
end of November.
Many were sceptical.
"Prices always go up," said Adrian Portas, 51-year-
old security guard who said he would curtail the
amount of meat his family eats. "But our salaries do
Currency restrictions were implemented by former
President Cristina Fernandez in 2011 in attempts to
curtail capital flight. They were a major pillar of an
economic policy that included subsidies, price controls
and social works programs for the poor.
But the measures were also deeply unpopular and
led to a booming black market.
Macri frequently argued that the "cepo," or "clamp,"
hurt Argentina s competitiveness, scared away would-
be investors and created distortions in the economy.
"The devaluation here happened a long time ago.
Everything is very expensive, said Alicia Fernandez,
a 58-year-old lawyer who says she frequently visits
her adult children living in Florida. "In the United
States, with US$100 you can fill up your shopping
cart. Here you can only get a few things." AP
An electronic board shows the exchange rate of several currencies, in relation to Argentina's peso, outside an exchange house in
Buenos Aires, Argentina, Thursday, Decemebr 17, 2015. Argentina's currency sharply devalued against the US dollar last Thursday as
the new administration lifted deeply unpopular limits on the buying of foreign currencies. AP
Sticker shock in
Argentina after major
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