Argentina's abrupt exit from economy minister could damage economy

Argentina's abrupt exit from economy minister could damage economy

BUENOS AIRES Reuters - The abrupt departure of Argentina's economy minister and lack of a clear successor could threaten to damage the economy already damaged by sky-high inflation, rising energy costs and growing fears over possible new defaults on debt.

Martin Guzman, architect of the South American country's $44 billion deal with the International Monetary Fund IMF, resigned on Saturday after tensions within the government boiled over how to deal with the economic crisis in one of the world's top grain producers.

A moderate, he had clashed with the more militant wing of the ruling Peronist coalition around the powerful Vice President Cristina Fernandez de Kirchner, who had publicly criticized Guzman and called for more public spending.

The resignation of President Alberto Fernandez, the highest profile since taking office in late 2019, has revealed deep cracks in the government that threaten to cause disarray in the country's economic management.

Eugenio Mari, chief economist at Fundacion Libertad y Progreso, said he had been an anchor for economic policy despite his struggles after the resignation of Minister Guzman.

It amplifies the uncertainty that Argentina was already in, according to the economic side. The country's peso currency has been protected by strict capital controls that have stemmed parallel exchange rates double the official one. Guzman was responsible for tax regimes around grains and energy policy.

Inflation is above 60% and is expected to increase further, while high energy import costs have slowed the country's ability to increase depleted foreign currency reserves. The price of sovereign bonds has fallen to 20 cents on the dollar.

Daniel Marx, the former finance secretary and debt negotiator, said it had become untenable for Guzman, despite strong opposition within the government. It is important to see how the void is filled, said Marx. The economic policy direction, not only the person, but the problem that has been dragging on for a long time, is to get out of all the skepticism and the problems that have been dragging on for a long time. On Sunday morning, there was no news on a successor, and President Fernandez was yet to publicly address the departure, suggesting that the government had been caught off guard by the exit.

Some investors were worried about how the departure would affect the country's ability to meet its obligations with the International Monetary Fund, which includes targets for inflation, reserve levels and fiscal balance, all already under pressure, as well as to meet its obligations with the International Monetary Fund.

Maria Castiglioni, an economist at C&T Asesores, said this is not good and confirms that there is a political problem and that the government will be able to take the necessary measures to get out of the crisis.

Inside the Economy Ministry, where a large part of Guzman's team resigned, the feeling was that it had become hard to get things done.

Decisions had to be made quickly when things were moving at a speed. It is tough when you have no decision at the money table, a ministry source said.

Horacio Larghi, economist and director of consultancy Invenomica, said the new economy minister was a lame duck or had a license to act.

The name doesn't matter as much as who replaces him. He said that it's important whether or not the person will have the power to do anything.