Home' Trinidad and Tobago Guardian : January 28th 2016 Contents BG18 REGIONAL
BUSINESS GUARDIAN www.guardian.co.tt JANUARY 28 • 2016
When it comes to
fixing Argentina s
himself as a man
in a hurry. In the month since he became
president, he has dismantled currency con-
trols and export tariffs, started an overhaul
of the discredited statistics bureau and
announced plans to resolve the country s
decade-old debt dispute within weeks.
Yet his timeline for fixing a gaping budget
deficit, another key obstacle to a more stable
and robust economy, is a lot slower, with
aides targeting only a minor reduction this
year. This go-slow approach is stirring con-
cern among many of the same analysts and
investors who lauded his earlier moves.
"I would fast-forward the whole damned
lot and do it all in six to nine months; go
for shock therapy," said Tim Love, invest-
ment director for emerging-market equities
at Gam UK Ltd which manages US$130 bil-
lion in assets. "They re missing an oppor-
tunity and running a bigger risk."
He and others argue that the government
can rely on public goodwill for a limited
time and must distinguish Argentina from
its neighbors in this commodities bust.
Emerging-market investors, they say, need
to be lured now. The 2017 mid-term elec-
tions will likely constrain efforts to cut
energy subsidies that are a main component
of the deficit.
Some of these jitters have crept into the
bond market. After soaring to a price of 115
cents per dollar of face value in early January,
Argentina s benchmark bonds due 2033 have
since slid below 110 cents. While those losses
reflect in large part the global tumble in
high-risk assets, they also underscore the
sense that investors are anxious to see more
from the Macri administration.
Trains and planes
In a Bloomberg interview at Davos, Macri
laid out his ambitions, saying, "We need
important companies of the world to finance
and construct roads, ports, waterways, ener-
Macri inherited a budget shortfall of 5.8
per cent to 7.1 per cent when tax rebates
payable in March are included, Finance Min-
ister Alfonso Prat-Gay said. Inflation was
27 per cent last year, according to the Buenos
Aires city index.
The government says it wants to cut the
shortfall to 0.3 per cent and annual inflation
to 5.0 per cent by the time Macri s term
ends in 2019. But, for 2016, the target is a
mere one percentage point reduction of the
fiscal gap and slowing inflation to 20-25
"We were convinced that the only way
to lift currency controls without drama was
with a shock therapy strategy," Prat-Gay
said. "In other fields such as lowering infla-
tion and putting the fiscal accounts in order,
the strategy we believe is viable is more
Central Bank President Federico
Sturzenegger was quoted by La Nacion as
saying that the bank will, to some extent,
continue the previous government s policy
of transferring funds to the Treasury. The
bank moved 78 billion pesos (US$5.8 billion)
to the Treasury last year to help fund the
deficit, according to Prat-Gay.
$3 electricity bills
To close the deficit, Macri will need to
hike Argentines electricity bills which have
been heavily subsidised since 2001. Some
households, many of them middle class,
pay as little as US$3 per month for elec-
According to a report by the Argentine
Budget Association and the country s Energy
Institute, nearly 3.0 per cent of GDP has
been devoted to subsidising domestic energy
Some analysts said they understood the
more cautious approach in a country where
protests and strikes are prevalent.
"There are two benefits from a more grad-
ual fiscal adjustment: on the one hand you
don t affect growth so much and on the
other by not cutting subsidies so much
prices won t rise as much and therefore
your inflation targets are more achievable,"
Andres Borenstein, an analyst for BTG
Pactual in Buenos Aires, said.
The government hasn t outlined its plan
to accelerate the reduction of the deficit to
1.5 percentage points per year from 2017.
It s likely that it s betting on an increase in
revenue from a pick-up in economic growth,
said Mauro Roca, a senior economist at
Goldman Sachs & Co in New York.
"The risk from starting slowly is that due
to political resistance---which isn t going to
diminish and may well increase---the pro-
jection of an acceleration in the deficit reduc-
tion doesn t materialise from 2017," Roca
said by phone. "That will obviously affect
credibility on other policies."
The government will begin closing the
gap by cutting subsidies by 1.5 per cent of
GDP and reducing spending by 0.8 per cent
this year, Prat-Gay said. The new govern-
ment has moved to improve efficiency by
removing what it calls "gnocchis" govern-
ment supporters who were paid by a state
institution without ever turning up for work.
But so far, most of Macri s moves have
been in the opposite direction. He has
pledged to double the threshold at which
Argentines begin to pay tax to 30,000 pesos
(US$2,230) a month and said he will raise
income tax brackets that haven t been
adjusted in a dozen years, despite rampant
Removing export tariffs on most agricultural
products and reducing the levy on soybean
exports to 30 per cent have already boosted
the country s diminished foreign reserves.
But it s also another fiscal gap to be filled.
The government will need to find an addi-
tional 100 billion pesos (US$7.4 billion) in
lost revenue due to the tax cuts and some
additional benefits it has granted to vulnerable
families, Prat-Gay said.
It is banking on access to cheaper credit
from capital markets to fund part of the deficit,
said Goldman s Roca. He calculates if the
government reduces the primary deficit to
virtually zero, the overall deficit will still be
about 2.5 per cent.
"The interest and appetite for Argentina
will depend on the advances on the reforms,
and credibility will be crucial," Roca said.
"That appetite is not unlimited." AP
Venezuela s opposition-controlled parliament, the
first in nearly 16 years, has been sitting for less than
a month. It has been an eventful period. The oppo-
sition gained and lost its two-thirds majority, while
the country s Supreme Court declared that all its
acts would be null and void, then relented. President
Nicolás Maduro overhauled his government and
sought new powers to tackle an "economic emer-
gency." The Central Bank published vital economic
indicators for the first time in more than a year.
What is not clear is whether all this is leading the
country away from an economic and political crash
or more rapidly toward one.
Some signs are encouraging. The confrontation
between the National Assembly and the Supreme
Court ended after three opposition deputies, who
had taken their seats in defiance of a ruling by the
court, agreed to step aside while an investigation
takes place into charges of electoral fraud in their
state. This denied the opposition a two-thirds majority,
but allowed the regime to recognise parliament s
On January 15, Maduro, a former bus driver, deliv-
ered his state-of-the-union speech before a hostile
legislature for the first time. The mocking rebuttal
by Henry Ramos Allup, parliament s new president,
was broadcast live---another first.
Some of Maduro s recent decisions suggest open-
ness to dialogue. One is the appointment of former
Mayor Aristóbulo Istúriz of Caracas to be the country s
vice president. He replaces Jorge Arreaza, son-in-
law of the late President Hugo Chávez, the founder
of Venezuela s failing "Bolivarian revolution." Unlike
Arreaza, the new vice president is respected both by
the opposition and within Chavismo. Ramos has
spoken to Istúriz at least twice. Their conversations
helped end the standoff between parliament and the
Supreme Court, and Ramos has said that he expects
Istúriz to be a "facilitator" of communication.
Whether talking will lead to useful action is uncer-
On January 15 the Central Bank partly owned up
to the dire state of the economy. It said that, in the
12 months to September, inflation was 141.5 per cent,
while GDP shrank by 7.1 per cent during the same
period. Even those numbers probably understate the
awfulness. The International Monetary Fund reckons
that the economy shrank by 10 per cent last year
and that inflation is now over 200 per cent.
There is little sign that president and parliament
agree on why things are so bad---apart from the col-
lapse in the price of oil, virtually the only export---
or what to do about it.
In his three-hour speech Maduro once again blamed
shortages, inflation and a weak currency on an "eco-
nomic war" waged by speculators and foreigners.
Ramos retorted, with more accuracy, that "the eco-
nomic model is wrong."
Maduro s economic-emergency decree would give
him sweeping powers over the economy for 60 days.
That could be dangerous. In shaking up his cabinet,
Maduro gave the job of economic tsar to Luis Salas,
a sociologist who comes from the far-left fringes of
Chavismo. He regards inflation as a capitalist con-
spiracy against consumers and denies that the Central
Bank helps cause it by printing money to finance the
Other members of the new economic team, includ-
ing Finance Minister Rodolfo Medina and Miguel
Pérez Abad, who brings a business background to
the industry ministry, are more moderate. It is not
clear, however, how much influence they will have.
Maduro admitted that "the time has come" to raise
the price of gasoline, which is virtually given away.
That is a big reason for the government deficit, which
was 24 per cent of GDP last year. Beyond that, it is
not clear how he would use the new powers he is
asking parliament to grant him.
man is slowing
heads for a crash
Links Archive January 27th 2016 January 29th 2016 Navigation Previous Page Next Page