Monday, February 19, 2018

Monday, Feb

By Forbes

A new era is beginning in Argentina, now that the Kirchner dynasty was finally voted out of office in November. President Mauricio Macri has vowed extensive change for the country, in areas ranging from foreign policy to the domestic economy. He is advocating an increased role for the private sector at the expense of a reduced role for the government. Argentine assets have not been part of a favorable or investable universe for over a decade; if successful, Macri’s policies will bring sorely needed foreign investment into Argentina, and spur locals into putting capital to work as well.  As such, I’m monitoring the country as a possibly lucrative investment location for 2016. With interest rates at 38% and a currency weakened by over 30%, the time is coming nearer.

As a first credible sign that Macri is putting action behind his promises, he has brought new (and valuable former) employees into three important institutions: ... (Read More)

By Fortune

No more cheaper pesos for tourists.

If you’ve been to Argentina in the past four years, you’ve found out that the best deal is to take your money in large bills and to change it illegally. Tourists from around the world have gotten more for their home currency thanks to Argentina’s booming black market, where pesos have typically traded for 30% less than the official rate. For Argentine citizens willing to accepting a lower rate in return for the perceived safety of dollars, the black market had become the only way to get around the government’s tight currency controls.

Now, all this is changing. Earlier this month, new Argentine President Mauricio Macri removed limits on... (Read More)

By Los Andes

Desde el 1 de enero, los mendocinos empezarán un nuevo año sufriendo tres fuertes golpes al bolsillo, ya que habrá incrementos en las tarifas de la luz, taxis y colectivos. El ex gobernador, Francisco Pérez, firmó un decreto en el que autoriza un ajuste en el servicio eléctrico del 35%.

En tanto, que la bajada de bandera para aquellos que opten por utilizar un taxi costará $ 14 y la del remís subirá a... (Read More)


Rapid inflation, meager growth and a debt default have plagued Argentina for years.

But its new president, Mauricio Macri, has surprised many with the blinding pace of change he has undertaken in Argentina -- a country unaccustomed to economic reform.

Macri promised to reboot Argentina's economy, if elected. And since he took office on December 10, he's following through.

In the first seven days of his presidency, here's what Macri has done:

1. Lifted currency controls

The biggest change came Thursday when the administration lifted currency controls and let the peso float freely.

"This is how a normal economy functions in any part of the world," the country's new finance minister, Alfonso Prat-Gay, told reporters Wednesday.

The previous president , Cristina Fernandez de Kirchner, had placed controls on the peso for four years to curb inflation. Despite that, inflation has climbed higher and just this year rose about 25%.

A mostly fixed exchanged rate caused the peso to become deeply overvalued. Until Thursday, the peso was worth about 9.8 pesos to the dollar.

Once the controls were lifted Thursday, the peso tanked 26% to 14.5 pesos to the dollar.

The move has risks. It can case the peso to lose too much value and spark even more inflation.

However, the currency manipulation discouraged foreigners from investing in Argentina. And the country badly needs foreign cash. Last month, American Airlines announced it wouldn't accept pesos, partially due to how overvalued the peso was.

2. New central bank president

Macri's party appointed Federico Sturzenegger, a U.S. trained economist, to lead the central bank.

Sturzenegger needs to encourage foreign investors to come back. Quickly.

Argentina's central bank has seen its foreign reserves plummet in recent years due to debt payments and inflation. Reserves peaked over $50 billion in 2011, but have since fallen to $24 billion, according to the central bank.

3. Tax cuts

Macri cut personal income taxes and lifted taxes on exports to help stimulate trade and spending.

Kirchner had implemented the export tax and outraged farmers in Argentina. The country's economy is powered by commodities like oil and soy. Exports are crucial to its economic growth.

Farmers, mostly grain suppliers, have now agreed sell the grain reserves that they've piled while waiting for the currency to devalue.

4. Cash cushion from abroad

Macri and a group of international banks have already agreed on a $5 billion loan which will shore up reserves while the government rebuilds investor confidence.

Prat-Gay, the finance minister, said he expects cash flows into Argentina will be anywhere between $15 billion to $25 billion over the next month, which will help boost the central bank's reserves.

5. New numbers guy

Hardly anyone believed Kirchner's numbers on Argentina's economy. The IMF demanded earlier this year that Kirchner's regime publish more legitimate data.

So Macri brought in a new team of econ nerds to bring credibility back to Argentina's statistics agency, INDEC.

Legitimate data should also lure investors back to Argentina.

6. Two new Supreme Court justices

Macri is expected to bring a lot more reforms. If challenged, he has to make sure the reforms stand a chance in court. Macri issued a decree to appoint two new supreme court justices to vacant seats. Those appointments should help his agenda.

7. Ending fight with Wall Street vultures

Argentina needs cash and the biggest road block is a group of hedge funds in New York who own defaulted Argentine debt. Kirchner refused to pay them and Argentina has been shut out from accessing foreign financing until it pays the bill.

Macri's team says it will negotiate with the creditors, led by billionaire Paul Singer. But any agreement has to be passed through Congress, where his party is the minority.

Major challenges lie ahead for Macri and Argentina, but experts agree he's taking the right steps so far.

"It's still early days, but Mr. Macri has made a good start to his term in office," says Neil Shearing, chief emerging market economist at Capital Economics, a research firm.


By The Buenos Aires Herald

Mauricio Macri’s government secured yesterday a major source of dollars to contain any potential run against the peso by converting yuans, from the currency swap deal signed with China last year, into greenbacks.

An announcement by the Central Bank confirmed yesterday that 20 billion yuans were exchanged for US$3.09 billion dollars, which will now be readily available in case the monetary authority needs to... (Read More)

By Los Andes

El nuevo ciclo económico que llega con un ajuste del tipo de cambio oficial, afectará en forma diferenciada a los distintos sectores productivos de la Argentina. El impacto dependerá tanto de la magnitud de la devaluación, como de otras medidas de política fiscal, comercial y de regulaciones que la acompañen, coinciden los economistas. Sin embargo, hay sectores claramente ganadores, como aquellos orientados a la exportación, y otros que -al menos durante un tiempo- llevarán las de perder, como los asalariados y la industria enfocada en el mercado interno.

“Ajustar el tipo de cambio era una necesidad, más que una elección”, destaca Martín Polo, economista jefe de la consultora Analytica. “La clave está en que... (Read More)

By The Wall Street Journal

Argentina’s new government on Wednesday lifted currency controls, allowing its citizens to buy dollars freely for the first time in four years and setting the stage for a sharp depreciation of the peso.

The move, which officials hope will kick-start the faltering economy, is the strongest President Mauricio Macri has yet made in his bid to roll back the government interference that marked the country’s economy under the previous presidencies of Néstor and Cristina Kirchner.

“Ending the currency controls is the starting point for getting the economy back on its feet,” Finance Minister Alfonso Prat-Gay told a news conference.

The decision carries significant short-term risks but equally big long-term rewards if it triggers greater investment and lifts the country’s sagging export sector, economists said.

In the short term, the move is likely to spark the biggest currency depreciation since Argentina’s messy economic meltdown in 2002. Economists expect the peso to fall from its current official price of 9.8 to the dollar to the black-market rate of between 14 and 15 per dollar, losing a third of its value.

Underscoring the risks, the step came on the same day the U.S. Federal Reserve raised its benchmark short-term interest rate for the first time in eight years, making it relatively harder for other countries, including Argentina, to attract investment.

A weaker peso will make imports more expensive and add to the country’s already high inflation rate of 25%. To keep the lid on price hikes and attract investment, Argentina’s central bank on Tuesday raised its benchmark rate as high as 38%.

Argentina has precious little money with which to defend its currency in an open market: In the past four years, the central bank’s listed foreign currency reserves have plummeted from more than $52 billion to around $24 billion. Economists say the bank’s real net reserves are far lower considering liabilities like money owed to importers and outstanding bond payments.

“In the end, nobody knows how fast the depreciation is going to be, if it will occur in a matter of days, or it may take a little longer. And, of course, that is going to depend on the intervention of the central bank,” Goldman Sachs economist Mauro Roca said from New York.

To address those fears, Mr. Prat-Gay said Argentina is on track to obtain between $15 billion and $25 billion in fresh cash from a combination of agreements with international banks, grain exporters and China’s central bank. He said grain exporters have agreed to turn over $400 million a day in coming weeks from farm sales.

That amount of available dollars is greater than expected and should provide a short-term cushion for the central bank, said Siobhan Morden, the head of Latin America fixed-income strategy for Nomura Securities.

“It is not in itself a solution, but it certainly buys them time to resolve the main problem which is the high fiscal deficit,” she said.

Argentina’s fiscal shortfall is about 7% of annual economic output, a gap that has largely been bridged in the past few years by the central bank printing money, and thus fueling inflation. Mr. Macri has promised to narrow the gap, and has already announced cuts to fuel subsidies.

The cheaper peso will hit multinational companies differently. Some may have to take an accounting write-down, but the vast majority are likely to welcome the policy U-turn.

“We are extremely encouraged by what’s happening in the country,” said Alexander Nickolatos, chief financial officer of Eco-Stim Energy Solutions, Inc., a Houston-based oilfield services company. Mr. Nickolatos said the company’s contracts are dollar-denominated and that it kept a low amount of pesos on hand in anticipation of a depreciation.

Freeing currency controls was the latest in a dizzying series of moves Mr. Macri has made since he took office on Thursday.

His administration has eliminated most farm export taxes, cut personal income taxes, begun re-staffing Argentina’s discredited statistics agency, replaced the central bank president, and appointed two Supreme Court justices.

While many Argentines want to overhaul the sickly economy, they also fear the changes. Retailers and their suppliers have been marking up prices in anticipation of a decrease in the peso’s value.

“We raised our prices by 40% before the exchange-rate changes so we wouldn’t lose money,” said Marcela Ledesma, 48, who runs a retail store selling imported orthopedic equipment such as wheelchairs and walkers.

Prices rose 1.2% in the first week of December alone, the fastest clip since Argentina devalued the peso by 20% in January 2014, according to Elypsis, an economic research firm.

Mr. Roca at Goldman Sachs said inflation will likely rise and economic activity will remain subdued in the short-term. “When you take the medicine, you are going to have some side effects at the beginning,” he said. “But the trade-off is that you will get better economic prospects in the medium and long term.”

Amid rampant inflation and a lack of faith in the peso, Argentines have for years sought refuge in dollars. The demand for greenbacks, combined with rising demand from the government—which itself needed dollars to make debt payments and pay for energy imports—acted like a pressure cooker on Argentina’s financial system, eventually leading to a scarcity of hard cash.

To stanch the bleeding, former President Cristina Kirchner largely banned the sale of dollars in 2011.

To police the strict measures, Argentina’s tax agency trained dogs to patrol the borders and sniff out dollar bills carried by travelers in and out of the country. The agency often arrested people crossing the border with rolls of dollar bills taped to their legs or hidden in automobile compartments.

But the currency controls merely fueled more demand for dollars, leading to the creation of a vast underground currency market where people paid a 50% premium to buy greenbacks. Illegal money changers popped up across the country and individual traders—known as “little trees” for the dollars they figuratively sprouted—became commonplace in certain sectors of Buenos Aires.

Mrs. Kirchner let the peso depreciate very slowly, in the belief that a strong exchange rate boosted people’s purchasing power. But that approach devastated Argentina’s real-estate market, where transactions are done in cash using dollars. It also hurt exporters whose goods became less competitive abroad.

The measures also failed to contain inflation, which was among the world’s highest throughout Mrs. Kirchner’s eight years in office.

Companies, meanwhile, struggled to obtain dollars to buy parts and equipment, stifling growth and sometimes causing critical shortages at places like hospitals, which depend on imported supplies and equipment. In January, Argentina faced a national tampon shortage, prompting women here to take to Twitter to ask friends traveling abroad to bring back supplies.

Now, Argentina is entering uncharted territory.

Exporters would benefit from depreciation, obtaining up to 50% more pesos for the same product from one day to the next. The housing market could also rebound if people can again buy dollars needed for transactions.

But many ordinary Argentines are anxious.

“Last week, my wholesaler raised prices by 50% on headphones,” said Moises Grinberg, 45, who runs a cellphone and audio accessories shop in Almagro, a middle-class neighborhood in Buenos Aires. “If I raise prices that much on my clients before the holidays they won’t buy anything. So I have to absorb the cost. I’m afraid the devaluation will bankrupt my business.”


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