Argentina: markets rejoice over the new minister, but for how long?

BUENOS AIRES – Markets rejoice over Sergio Massa’s arrival as Argentina’s third economy minister in less than a month, but analysts warn that more details are needed on his plans to get the South American country out of its dire economic straits.

The local currency, the peso, strengthened strongly in the financial market on Friday, as government bonds recorded gains the day after the government of President Alberto Fernández unveiled Massa’s appointment as the economic “super minister” that unites the current ones. ministries of Economy, Productive Development and Agriculture.

The increases on Friday continued a trend that began earlier this week amid rumors that Massa, the head of the lower house of Congress, the Chamber of Deputies, was joining the administration.

“The market reaction reflects the relief that someone with political skills and a strong electorate in the party has taken on this key role,” said Benjamin Gedan, interim program director for Latin America at the Wilson Center in Washington. “He is someone who cannot be dismissed easily and the idea is that there will be some coherence in the policy.”

Massa’s appointment came just over three weeks after left-wing Silvina Batakis was appointed to replace the more moderate Martín Guzmán, who abruptly resigned amid complaints that he did not have the full support of the ruling coalition that is was divided between factions loyal to the president on the one hand and vice president Cristina Fernández de Kirchner, a former president who continues to maintain a solid base of support.

The Batakis naming was followed by a steep depreciation of the peso amid tight capital controls, reflecting uncertainty that it had the authority to enforce the kinds of reforms needed to turn an economy suffering from one of the the world’s highest inflation rates running at over 60% per annum.

“Argentina is in urgent need of restoring confidence in the economy and the carousel of finance ministers has the opposite effect,” Gedan said.

Fernández tacitly acknowledged Friday that a strong figure was needed to lead the government’s economic program.

“What we have experienced as a country and as a company in recent months, and particularly in recent weeks, forces us to better coordinate,” Fernández wrote on Twitter.

Massa, a former mayor who has long harbored presidential ambitions and enjoys good relations with the country’s business elite, has his own political support base, so he’s seen as someone who should presumably be able to impose his own agenda.

“It’s not pro-market, it’s pro-capitalism,” said Fausto Spotorno, Orlando J. Ferreres chief economist. & Associates, a consulting firm in Buenos Aires. “It’s not left wing.”

Massa told reporters on Friday he would call his team on Monday and unveil new economic measures on Wednesday. He has yet to formally resign from his seat in Congress before he can officially assume the ministerial role.

Despite the lack of concrete steps, market analysts are confident they know which path Massa will take, considering his team has been talking to key players throughout the week.

“The measures they discussed are quite reasonable,” Spotorno said.

For now, however, “the optimism seems slightly exaggerated,” Gedan warned. “It is true that Martín Guzmán lived outside the country and did not necessarily have the ability to navigate the snake pit of this coalition, but the fundamental problems are both difficult to solve and politically insidious.”

One of the main questions for the country concerns the future of the country’s recent agreement with the International Monetary Fund to restructure approximately $ 44 billion in debt.

Cristina Fernández and her left-wing allies in the coalition have publicly opposed the deal, arguing that it requires a level of austerity that will harm working people and the poor while at the same time hampering growth.

Batakis was replaced the same day she returned from a whirlwind tour of Washington, where she met with investors and officials from the IMF, the World Bank and the US Treasury.

Even if the market seems to welcome Massa with open arms, it is not clear that the Argentines as a whole think the same way.

“What the market needs and what public opinion needs are two very different things,” said Jorge Giacobbe, political analyst who heads the local pollster Giacobbe. & Associates. “They are both angry, yes, but Massa arrives in this new role having only 9% positive image and 70% negative”.

When asked to describe Massa in one word, most choose the word “pancake,” said Jacob, a word that is used colloquially to describe someone who frequently changes their mind.

The low approval rating means that Massa “is a man who has nothing to lose,” added Giacobbe.

Massa served as head of cabinet for nearly a year during Cristina Fernández’s first term of the 2007-2015 presidency. He then went on to become very critical of his former boss himself as he pursued his own presidential ambitions only to then join the coalition which ended up electing Alberto Fernández, another former ally of Cristina Fernández who later became a critic.

Some argue that handing over so much power to someone who has shown a willingness to change alliances quickly reflects the administration’s desperation.

“This is the latest bullet for the government,” Spotorno said. “If Massa leaves, who is left? There is nobody”.

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