- Argentina reveals new austerity measures aimed at reducing the country’s huge budget deficit.
- New measures will include an increase in export tariffs for grains such as soybeans, and a halving of the number of government agencies.
- The new measures were not well received by investors, with the peso falling after their announcement.
Argentina late on Monday revealed a series of new austerity measures aimed at stopping, or at least slowing, the emerging crisis around its downtrodden economy.
In recent weeks, Argentina’s peso has plunged to record lows against the US dollar as investors look to move their money out of the country. Argentina which has an interest rate of 60%, one of the highest in the world, and a sky-high budget deficit.
As part of efforts to reduce that budget deficit – a condition of a large bailout from the International Monetary Fund (IMF) – President Mauricio Macri launched the new austerity measures in Argentina’s capital, Buenos Aires, on Monday.
The austerity measures include an increased export tax on grains, one of the country’s biggest crops, and a cut to the number of government ministries. Macri said that “about half” of all ministries will be closed, but did not specify which ones.
Argentina is one of the biggest producers of corn, wheat and raw soybeans in the world, and is the single biggest exporter of soy meal and soy oil, two crucial commodities in the rearing of livestock.
Monday’s measures come as the IMF, which has extended Argentina the largest credit line in its history, considers speeding up bailout payments to the country. Argentine President Mauricio Macri said last week that he had requested IMF do so in order to “eliminate any uncertainty that was created before the worsening of the international outlook.”
As part of the three-year standby agreement, the government has received $US15 billion and is due to get an additional $US3 billion next month. Nicolas Dujovne, Argentina’s finance minister, is flying to Washington, D.C., on Tuesday for talks with IMF chief Christine Lagarde about the possible acceleration of the rescue package, which is worth a maximum of $US50 billion.
Unfortunately for the Argentinian government, the new austerity plans were not received as hoped in international markets, and the peso slid on the news.
It has since recovered a little, but still remains almost 25% lower over the last week, as the chart below shows (the most common pairing of the currency is against the US dollar, which rises as the peso falls):
Paul Donovan, chief economist at UBS Wealth Management summed up the lukewarm response to the new measures in a morning email. “Argentina’s government revealed an austerity plan, with the aim of restoring investor confidence,” he wrote to clients.
“The Argentine peso weakened on the news, suggesting that there may be some way to go before confidence is restored.”
The rating agency Moody’s last week cut its growth forecast for Argentina, citing the ballooning debt burden and a weakening peso. It estimates that GDP will contract by 1% next year, compared with previous expectations for a 3% expansion.
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