Banks see Argentina’s economic reforms as insufficient

argentina As Argentina's new Economy Minister, Sergio Massa promised business-friendly reforms. His first moves haven't impressed markets so far. Photo: Shu2260/Shutterstock
As Argentina’s new Economy Minister, Sergio Massa promised business-friendly reforms. His first moves haven’t impressed markets so far. Photo: Shu2260/Shutterstock

International banking giants JPMorgan and Goldman Sachs voiced their skepticism about Argentina’s new Economy Minister Sergio Massa’s first announcements, arguing that reforms “fall short of a full stabilization plan.”

“We continue to describe the current political response as a temporary patch, lacking the breadth and consistency needed to stabilize the economy,” said a report from JPMorgan.

In Goldman’s view, “Argentina needs a credible path to structural fiscal consolidation and an exchange rate that reflects macroeconomic fundamentals, which will require a bold reduction in financial repression.”

Brazil’s BTG also chipped in, saying that “[Mr.] Massa seemed to recognize the fragility of the situation, but his announcements lacked substance,” calling for more details on how his 2022 deficit goal of 2.5 percent of GDP would be achieved, and emphasizing the need for more realistic Central Bank policies.

Mr. Massa promised the most drastic cut in energy subsidies seen during the Kirchnerite era after his swearing in ceremony on Wednesday, but a devaluation of the official peso-dollar exchange rate has so far been avoided, despite the Central Bank’s continued loss of assets in an effort to stave it off.

Today, the Central Bank of Argentina lost another USD 150 million to subsidize importers, totaling almost USD 600 so far this week.

The official value of the peso currently stands at ARS 133 : USD 1, while the free-floating parallel exchange rates only showed a mild recovery today, dropping from ARS 298 : USD 1 to ARS 291 : USD 1.

Argentina’s benchmark Merval index was down by 1 percent in dollar-adjusted terms, contrary to the positive sentiment seen for assets of neighboring Brazil, where the EWZ index jumped by 3 percent.