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Argentina Bonds, Peso Plunge on Economy Minister’s First Day

Patrick Gillespie and Scott Squires
·5 min read

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Argentina’s global bonds fell the most since they were issued nearly two years ago after the country named left-leaning policy maker Silvina Batakis as its new economy minister.

Sovereign dollar bonds dropped more than 3 cents on the dollar, with some notes dipping below 20 cents on the dollar. The country’s parallel exchange rate, known as the blue-chip swap, weakened as much as 15% before paring losses to 272 pesos per dollar. Argentina’s US-traded stocks also fell.

Batakis, who was named Sunday night following Martin Guzman’s shock exit on Saturday, told a radio station Tuesday morning that Argentina must comply with its $44 billion agreement with the International Monetary Fund, but that changes to the key targets in the program will certainly change over time.

“Tensions are going to exist, but we have to work together” with the IMF, Batakis said, according to comments sent from a government press office. “At each review of the targets there will certainly be some modifications because the world is continuously changing.”

Before international markets reopened Tuesday, Argentines rushed to protect their money and businesses on Monday.

Savers yanked money out of bank accounts with online platforms posting five-minute wait times just to log on. Local businesses reported people rushing to stock up on imported goods, like coffee, fearing the price would jump soon after the depreciation of the currency. Suppliers sent companies notices that previously announced price increases had been annulled for bigger ones.

What Bloomberg Economics Says

“The new economy minister is seen as close to Vice President Cristina Fernandez de Kirchner, who banked on super tight capital controls, intervention in the private sector, fiscal expansion and even tweaked the metrics of inflation, to the loss of those who held inflation-linked bonds, during her 2007-2015 tenure as President. Ultimately, Batakis will have an opportunity to show whether she intends to write a new page or turn the book back a few chapters.”

-- Adriana Dupita, Latin America economist

-- Click here for the full report

Read More: Argentines Seek Hedging in Crypto After Economy Minister Resigns

Sudden Exit

Batakis took the reins of economic policy after Guzman, who has been one of the closest advisers of President Alberto Fernandez since the start of his administration two and a half years ago, stunned the government by announcing his exit with a 7-page letter on Saturday.

His resignation further exposed a piercing divide between Fernandez and his powerful Vice President Cristina Fernandez de Kirchner, with frantic negotiations for over a day to come up with a new economy chief.

Batakis, a low-profile, left-leaning economist seen as closer to Kirchner’s group, served as economy minister in the province of Buenos Aires from 2011 to 2015. Back then, Kirchner was president and Daniel Scioli, currently production minister, was Batakis’ boss as governor of the country’s most populous district.

She didn’t respond to multiple requests for comment from Bloomberg News. In her first comments to the press Monday evening, Batakis tried to reassure nervous investors on the government’s policy path.

“I believe in a balanced budget,” Batakis said at the presidential palace without taking questions. “We’re going to continue with the economic program.”

The new minister more recently served at the national level as province secretary, a second-tier post at the Interior Ministry that’s run by a top ally of Kirchner. Former officials say the role helped Batakis build relationships with Argentina’s powerful provincial governors, which could allow her to generate consensus as she navigates a divided coalition.

“She’s entering with pretty ample support because the governors know her,” Mercedes D’Alessandro, a former Economy Ministry official who directed policy on gender and equality issues until March, said. Batakis “is also keenly aware of the problems ordinary Argentines face.”

No Honeymoon

Still, Batakis won’t have any honeymoon.

Beyond inflation seen at nearly 73% by December and poverty levels reaching almost 40% of Argentines, economists forecast a recession for this year and the central bank has razor thin cash reserves to defend the peso against the brewing currency rout. The government has no access to international capital markets after defaulting on Wall Street investors in 2020. The country’s local peso debt market is shriveling up too, rolling over less debt.

Analysts warned that the growing strength of Kirchner’s far-left faction of the ruling coalition further jeopardizes Argentina’s IMF program. Kirchner is a longtime critic of the IMF and last year floated the idea of not paying back the money before a deal was reached.

Argentina’s IMF Deal at Risk With New Economy Minister: Analysts

Even before Batakis took over, investors doubted the government could comply with the program’s targets. Now, investors will be watching whether she can continue with its guidelines, particularly the cuts to government subsidies that the program set out.

“What the market is looking for is -- does she have degrees of freedom to make some of the tough decisions that Guzman didn’t enjoy?” said Arturo Porzecanski, a research fellow at American University. “That’s question that investors are looking for an answer to, and for now they’re saying no.”

(Updates prices in second paragraph with market close)

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