President Mauricio Macri sat down with Jorge Lanata yesterday to publicly address for the first time the issues that have been dominating the public agenda for the past several days. Namely, the sharp depreciation of the peso and its consequences in the economic landscape – i.e job creation, increase in inflation rates, and deceleration of economic growth, among others – and the shake-up in the upper eschelons of the government, which saw the departure of Central Bank (BCRA) governor Federico Sturzenegger, as well as Production and Energy Ministers Francisco Cabrera and Juan José Aranguren.
What follows are Macri’s most relevant statements regarding each one of the subjects, and some context to understand them better.
The Economic Landscape in General
Macri reiterated that a good part of the current economic woes Argentina is going through are a result of external factors: “We were doing well, but all of a sudden things happened, because the world is going through a volatile period. The US changed its President; the dollar strengthened [in comparison with other currencies of the world]; the price of oil increased. We import energy. Even though we are months away from going back to exporting oil and two years away from exporting gas to the region, we still rely on imports. That has an influence,” he said.
Macri, nonetheless, conceded the government also played a role in this by affecting the BCRA’s perception of independence, one of the main reasons why Sturzenegger is no longer holding the post. However, he assured the opposition is to blame as well since, when they passed the bill aimed at capping increases in utility bills he ended up vetoing, “they destroyed the budget bill that had been approved five months before.” “They caused a loss of trust from investors, who became more reluctant to buy Argentine debt,” Macri said.
The President went on to say that these events that eroded external trust was detrimental to his economic plans, as it led foreign investors to consider the possibility that Argentina was not going to use the dollars garnered from the debt issued to finance policies aimed at reducing its fiscal deficit – which would enable the country to pay back its debt in the future – but to squander it. “Meaning, you will have to make do with fewer dollars, meaning you will have to devalue your currency,” Macri said when addressing the matter.
The Depreciation of the Peso and its Effects
Macri began by highlighting that the devaluation – of more than 50 percent since the year began – has a silver lining: “Actors from the different regional economies will be able to increase the volume of their exports. Today more than ever they will be able to export more. And more exports mean more jobs. We need to help them do that by strengthening the country’s infrastructure.”
Macri also highlighted the need to help them by moving forward by having the Mercosur sign free trade agreements with other countries and trading blocs such as “Canada, the European Union, South Korea.” “We need to have our products enter other countries without paying tariffs, like with Chilean products.” There have been no relevant news concerning these potential agreements in the past months.
The Agreement with the IMF
Macri said the International Monetary Fund’s (IMF) decision to grant the country a US $50 billion stand-by agreement illustrates its staunch intention to support Argentina – i.e the government – in the implementation of its economic policies: “They represent the world and the world is supporting us. That’s what’s magical about this moment. The world is saying ‘I like Argentina and the Argentine people. We like all about them.’ They want to be here and buy what we make, but that part is up to us,” said Macri.
Moreover, he said the agreement will show the “volatile market” that the country “does not need them that much anymore,” as it secures financing until at least the end of the Macri administration: “This will make the private investors go back to focusing on financing Public-Private Partnerships, small and medium-sized companies (PyMEs) and the private sector,” Macri said. The agreement with the fund is set to be officially announced on Wednesday, when the country will receive the first disbursement of funds, for US $15 billion.
Inflation Rates and Targets
When consulted about whether establishing inflation targets for all of the administration was a mistake, Macri conceded: “Tt was an excess that was made on January 16 of the first year. It was a hunch the then-Treasury Minister [Alfonso Prat-Gay] had back then. No one asked us to do so. They only asked us to reduce it,” he argued. None of the inflation targets set back then was met by the Macri administration. Back then, Prat-Gay said the rate was going to be of 25 percent – it ended up clocking in at 40 – in 2017 – it ended up around 25 – and 12 in 2018 – this target was changed to 15 in December 2017, but now, following the economic turbulence of the past weeks, it’s set to end up being close to 30 percent.
In fact, Macri agreed with Lanata when he told him the rate will probably settled around that figure. The President argued that the main reasons for this were: the “increases in oil prices,” as well as “the worst drought in 50 years, which deprived the country of US $8 billion.” Moreover, he conceded that the increases in utility bills had a larger impact than expected. “Inflation destroys investment and job creation. Reducing inflation has to be our main goal.” However, the President did not make reference to the depreciation of the currency, which will drive prices up during the next months.
On Saturday afternoon, the government announced two major changes in the Cabinet: Francisco Cabrera would be replaced by Dante Sica as Minister of Production, while Javier Iguacel left his post as head of the highways agency (Vialidad Nacional) in order to replace Juan José Aranguren as head of the Energy Ministry.
When consulted about that, Macri began by praising the work of the now former ministers, saying he implemented the changes because he “feels” they are set to improve the landscape. “Sometimes people finish a cycle. For example, Aranguren did an amazing job, but he [was given] the worst task. He fixed most of the payment scheme regarding energy bills and left the country producing more energy than before.”
Iguacel, on his end, will be first tasked with dealing with representatives of gas stations, who intend to keep increasing prices, as well as deciding whether to continue with the established plan to increase gas and electricity bills, or take a more gradual approach.
In regards to Dante Sica, Macri said “[Sica] is excited about what has been done already and comes to contribute.” Sica is an economist who was Industry Minister during the brief presidential tenure of Eduardo Duhalde – who took over for Fernando De la Rua after his resignation, and that of four other interim Presidents, following the crisis of 2001 – and his appointment was praised by Peronist officials. In his first contact with press, Sica addressed the exchange rate issue, saying that “it being at AR $28 or $29 makes several activities more competitive.” “We need to make all activities competitive. We need to generate dollars and not fall into this external sector crisis,” he said. Cabrera, on his end, will keep being a government official as he will move on to being head of the Banco de Inversión y Comercio Exterior.