BUENOS AIRES, Aug 14 — Argentine President Mauricio Macri today unveiled a package of welfare subsidies and lower taxes for workers to lessen the impact of an economic crisis just months before a re-election bid, but his announcement did not immediately halt the peso currency’s collapse.
The peso opened 12.3 per cent weaker at 61 per US dollar after Macri announced the measures, but recovered slightly to be down 4.77 per cent later in the morning. It was the third consecutive day of heavy losses in the peso due to market concerns about politicians’ ability to drag Argentina out of another round of recession and high inflation.
Argentina’s Merval stock index was up 1.5 per cent at the open, after plunging more than 31 per cent since the start of the week.
Macri said he would raise the income tax bracket floor by 20 per cent, paving the way for a tax cut for two million workers. The tax break will be about 2,000 extra pesos (RM145) per month per person.
The government will also give subsidy payments of 1,000 pesos per child for unemployed people with children before the end of the year and increase the minimum wage for the second time this year, although the size of the raise has not yet been determined.
Macri, a member of one of Argentina’s wealthiest families, came to power in 2015 on promises to kick-start Latin America’s third-largest economy via a liberalisation wave but inflation is at 55 per cent, the country is in recession and the peso’s value is crumbling.
The currency has gone into a nose dive since Macri was heavily defeated at primary elections on Sunday by opposition candidate Alberto Fernandez. Traders fear a Fernandez government would bring back previous interventionist economic policies that have already been tried and found wanting.
“The measures I take and that I am going to share with you now are because I listened to you. I heard what you wanted to tell me on Sunday,” Macri said in a video statement.
Political worries
The landslide victory by Fernandez in the primary election dealt a severe blow to Macri’s re-election chances in October’s general election.
The meltdown in Argentina’s currency, stocks and bonds on Monday was the worst since the South American country’s 2001 economic crisis and debt default.
The peso hit an all-time low Monday of 65 to the dollar, a drop of 30 per cent before recovering partially.
Macri also announced that gasoline prices would be frozen for 90 days as part of his plan. The new measures will cost the government about US$678 million, the government said.
“These are measures that will bring relief to 17 million workers and their families,” Macri said, adding he was willing to meet with the opposition.
In a sign that the market is more wary of holding Argentine debt, five-year credit default swaps (CDS) were marked at 2,720 basis points, up from yesterday’s close of 2,570 and well over double Friday’s closing level of 1,017, according to data from IHS Markit.
IHS Markit’s latest estimates, based on yesterday’s closing CDS level, prices the probability of a sovereign default within the next five years at 78 per cent.
Macri has slashed subsidies for public utilities and other services to reduce the country’s chronic fiscal deficit, pushing electricity and gas rates up significantly since the start of his term in 2015. The painful cuts, as part of the US$57 billion standby agreement he negotiated with the International Monetary Fund last year, dented his popularity.
Fernandez, who has former President Cristina Fernandez as his running mate, led in the primary with a wider-than-expected 15-percentage-point margin ahead of Macri, a free-market proponent.
Argentines enjoyed generous subsidies under Cristina Fernandez’s government. Alberto Fernandez has promised access to free medicine for retirees and better wages for workers while hammering Macri for the uptick in poverty and unemployment.
Fernandez, too, blamed Macri for the turmoil, saying on Monday that markets had realized they were “scammed.” — Reuters
