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Wednesday, December 28, 2016

Macri Turns To Fiscal Hawk In Argentina Reshuffle

 

Macri turns to fiscal hawk in Argentina reshuffle

Sacked finance minister Prat-Gay had drawn fire over slow economic recovery
President Mauricio Macri has appointed a fiscal hawk as treasury minister as part of his first major cabinet reshuffle in an effort to reinvigorate Argentina’s tepid economic growth.
Mr Macri sacked Alfonso Prat-Gay, his finance minister, on Monday due to internal conflicts within the economic team. Mr Prat-Gay’s treasury and finance ministry has been divided in two with economist Nicolás Dujovne, who is regarded as a fiscal hardliner, taking over as treasury minister. The appointment puts greater focus on the fiscal consolidation seen as essential for Argentina’s economy.
“Having an unapologetic fiscal hawk in one of the two new economy ministry divisions sends a positive signal to the markets,” says Walter Stoeppelwerth, head of research at Balanz Capital, an investment bank in Buenos Aires. Argentina’s fiscal deficit has long been seen as the cause of a string of economic crises over the past half century.
But it remains to be seen if Mr Dujovne can effectively implement his plans next year, with legislative elections due that Mr Macri needs to win to ensure his market-orientated economic reform programme continues.
Analysts at Banco Mariva, a local bank, see a “change in style but not in substance” in the reshuffle, in which Luis Caputo, Mr Prat-Gay’s finance secretary, takes over as finance minister in recognition of his role in Argentina’s return to the international capital markets earlier this year.
“The promotion of Caputo shows Macri’s administration does not want to hurt its relationship with Wall Street, knowing that Argentina will need to raise about $30bn in the market in 2017 to finance next year’s fiscal needs,” wrote analysts at Banco Mariva.
Having an unapologetic fiscal hawk in one of the two new economy ministry divisions sends a positive signal to the markets
Walter Stoeppelwerth, Balanz Capital
Under Mr Prat-Gay, a well connected former central bank governor and currency strategist at JPMorgan, Argentina managed to rebuild its broken financial relations with the rest of the world. That included removing distortionary currency controls, putting an end to a debt default that had dragged on since Argentina’s 2001 economic crisis, and a tax amnesty under way aimed at luring back some of the $400bn that Argentines hold in foreign bank accounts.
“Prat-Gay made significant contributions to some historic triumphs for Macri,” says Mr Stoeppelwerth.
However, he has faced growing criticism as the economy has taken longer to recover than he predicted.
Most observers attribute Mr Prat-Gay’s departure to personal differences within the government’s economic team after Mr Macri watered down the role of Argentina’s traditionally powerful economy “super minister”. Instead, he distributed responsibility for economic policy around several ministries.
“The country is not going to be saved by one enlightened person, but a team,” said Mario Quintana, the secretary for interministerial co-ordination at the cabinet office.
“There is not going to be a change in policy, because economic policy is decided by president Macri. Yes there will be nuances, and the incorporation of Nicolás [Dujovne] will help greatly in the ordering of public spending and the elaboration of a tax reform,” added Mr Quintana.
Mr Quintana described Mr Dujovne as an “expert in fiscal strategy”, pointing out that he has worked as an adviser at Mr Macri’s Think Foundation. Many observers consider him already to be an insider.
Mr Dujovne, who writes a weekly column in La Nación, an influential newspaper, and frequently appears on television chat shows, has repeatedly warned that Argentina is ill-prepared for a tightening in global financial conditions after the victory of Donald Trump in the US presidential elections.
Arguing that the fiscal deficit is unsustainable and markets will not continue funding Argentina indefinitely, Mr Dujovne has raised the possibility of requesting an “easily obtained” $25bn loan from the International Monetary Fund.
That is a controversial proposal for many Argentines given the IMF’s role in the 2001 crisis, with the previous populist government severing relations with the multilateral lender in 2006.
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