Argentina enters ‘Phase 2’ of economic plan All red — MercoPress

Argentina enters “Phase 2” of economic plan, data all in red

Caputo said the peso will become a strong currency, a far cry from the government’s campaign promise to dollarize

On Monday, Argentine Economy Minister Luis ‘Toto’ Caputo and Central Bank (BCRA) CEO Santiago Bausili tried to explain the next steps the Liberal government will take to stabilize the economy of South America’s second-largest country, but neither local nor international markets reacted well.

Stocks of Argentine companies, especially banks, fell on Wall Street, while the unofficial peso (AR$) depreciated against the US dollar (US$). In addition, country risk (an index that measures the additional interest imposed on global business including any specific country, as opposed to other countries that are considered less volatile) also broke the 1,500-point threshold, despite the so-called base law approved by Congress last week, which will give a boost to the local economy.

On Monday, the “financial” dollar – a range of foreign currencies traded in ways that bypass official quotes – rose as much as 3%, while the “blue” dollar – a euphemism for the “black market” – traded above 1,400 Argentine pesos, a new high.

Caputo and Bausiri spoke about the “second phase” of the government’s economic plan, which includes transferring the BCRA’s debt to the Treasury to clean up its balance and pave the way for the removal of all exchange rate restrictions.

“There will be a mechanism of sterilization similar to what is currently in the BCRA Act, but they will be centered on the Monetary Regulation Act, where banks will park their excess liquidity,” Caputo explained, adding that the removal of all currency exchange restrictions would constitute the “third step.”

Earlier on Monday, Caputo and Bausiri met with the heads of local private and public banks to brief them on the current situation. Contrary to the campaign promises of President Javier Millay, Caputo told these executives that “the peso will not disappear” and, on the contrary, “it will be a strong currency”, in line with the announcement by Cabinet Chief Guillermo Francos that there will be no devaluation and that people will therefore be forced to liquidate dollars (at the rate set by the state).

To make matters worse for the Liberal government, tax revenue fell 13.9 per cent last month from a year earlier, according to the Federal Agency for Public Revenue (AFIP), putting the government on track to post a deficit in June despite repeatedly celebrating achieving a zero deficit.

On paper, net income is up 221.2% year-on-year, but considering inflation of around 273% (June figures are not yet available), this would be a significant drop. The situation would be even worse without income tax, which is also reported in Buenos Aires. According to the Basic Law, this item is expected to increase.