The abrupt departure of Argentina’s economy minister and the lack of a clear successor could threaten to further destabilize an economy already shaken by very high inflation, rising energy costs and latent fears about possible new debt defaults.
Martin Guzman, the architect of the country’s recent $44 billion deal with the International Monetary Fund, resigned saturday as tensions within the government rose over how to handle the economic crisis at one of the world’s top grain producers.
Relatively moderate, he had clashed with the more militant wing of the ruling Peronist coalition around powerful Vice President Cristina Fernandez de Kirchner, who publicly criticized Guzman and called for more public spending.
The resignation, the highest-profile since President Alberto Fernandez took office in late 2019, has exposed deep cracks in the government, threatening to disrupt the country’s economic management.
“The resignation of Minister Guzman really uncovers the internal rupture in the government,” said Eugenio Marí, chief economist at the Libertad y Progreso Foundation, adding that he had been an “anchor” of economic policy despite its difficulties.
“From the economic side, it amplifies the dynamics of uncertainty in which Argentina was already in,” he said.
On the table now are policies around the Argentine peso, which is protected by strict capital controls that have curbed parallel exchange rates that double the official value. Guzman also oversaw tax regimes around grains and energy policy.
Inflation is above 60% per year and is expected to rise further, while high energy import costs have hampered the country’s ability to increase depleted foreign exchange reserves. Sovereign bonds have plunged to historic lows.
Guzman was scheduled to travel to France for talks on July 6 with the idea of restructuring a debt of about $2 billion to the Paris Club of sovereign lenders, considered key to reopening access to foreign direct investment needed for infrastructure and energy.
Daniel Marx, a former finance secretary and debt negotiator, said the task for Guzman had become untenable amid strong opposition within the government. The key now would be who replaces him.
“I think it’s important to see how the void is filled,” Marx said. “Not only the person but the direction of economic policy to get out of all the skepticism and problems that have been dragging for quite some time,” he added.
On Sunday morning there was no news of a successor and President Fernández had not yet spoken publicly about the exit, suggesting that the resignation took the government by surprise.
Some investors were concerned about how the exit would affect the country’s ability to meet its obligations to the IMF, which include inflation targets, reserve levels and fiscal balance, all already under pressure.
“This is not good and confirms that there is a political problem,” said Maria Castiglioni, an economist at C&T Asesores, adding that it raises questions about whether the government will be able to take the necessary measures to get out of the crisis.
Inside the Treasury Palace, where much of Guzman’s team also resigned, the feeling was that it had become difficult to do things effectively.
“When things were moving at a good pace, decisions had to be made quickly. When you don’t have a decision at the money table, it’s difficult,” a ministry source said.
Horacio Larghi, an economist and director of the consultancy Invenómica, said the most important thing will be to know if the new economy minister will have a license to act.
“As for who replaces him, the name doesn’t matter so much. What matters is whether or not the person will have the power to do something,” he said.
The name of the new minister should be known in the coming hours, although nothing came from the Government. “No news,” a spokeswoman told Reuters amid the official silence.
The power struggle in the ruling coalition over the public confrontation between Fernández and his influential vice president Cristina Fernández de Kirchner – which could aggravate financial difficulties and accelerate high inflation – muddies the scenario, analysts agree.
“We are facing a complex political crisisa, deepened by the fight in power. Whoever takes charge of the ministry will have a complicated task,” said Rosendo Fraga, a political analyst.
Another colleague of his stressed that the president “is on a key day where he must get the name of his Economy Minister right, but that he has political consensus and support to take urgent measures in a complex situation” in Argentina.
The head of the Chamber of Deputies, Sergio Massa, in his role as another member of the government coalition, appears as one of the relatives with more interaction with the president.
Guzman’s departure on Saturday took the center-left government by surprise, which is going through its lowest levels of approval after taking office at the end of 2019.
“The positive assessment of the government’s performance continues to decline (…) and concern about inflation continues to reach all-time highs,” synopsis Consultores reported.
Argentina faces a projected minimum inflation of 70% by 2022, high fiscal deficit, excessive monetary issuance and market collapse, putting Latin America’s third-largest economy among emerging nations.
A government source confided to Reuters that Guzman’s departure was due to the lack of political support he felt to deepen a series of measures, at a time when the country risk marked its historical maximum.
“The new minister has to have the endorsement of Cristina (Fernández de Kirchner), otherwise it will be a failure before taking office,” said political analyst Lucas Romero.
After more than 24 hours without a headline in the key armchair of the Treasury, the rumors of names in dance multiply, which increases the uncertainty prior to the weekly start of financial activity.
Guzman resigned in a long seven-page letter, mostly with a positive self-assessment of his tenure.
This departure “followed the resignation of Production Minister (Matías) Kulfas last month and increased criticism from members of the government coalition aligned with the vice president,” said Alberto Ramos, an analyst at Goldman Sachs.
He added that this exit “could be seen as another political blow to the president and may compromise the relationship with the IMF. A politically weaker and more unpopular presidency would increase the risk of macro policy becoming more heterodox and interventionist.”
The now former official publicized his resignation through a letter on Twitter, just as Vice President Fernández de Kirchner closed a massive public event that stole all public attention.
“Guzman’s stage was exhausted (…) Argentina has many other problems, apart from the debt, and the future successor has very limited room for maneuver. There is a political crisis that led to an economic crisis, so we must solve the first thing,” said economist Victor Becker.
On behalf of the Center for the Study of the New Economy (CENE) of the University of Belgrano, he added that “it is necessary that the name of the new minister be known before the opening of the markets, otherwise we will have a black Monday.”
The resigning economist, 39, was key in the country’s recent agreement with the International Monetary Fund (IMF) that renegotiated $44 billion in short-term unpayable debt.
Economist Joseph Stiglitz, Guzman’s mentor and ally, said the former minister has done a great job of resolving a debt crisis left by the previous government and reviving growth after the pandemic.
“His deep principles made it impossible for him to continue in office without the government’s commitment to a united, integrated and coordinated approach to the enormous challenges facing the economy in the wake of the pandemic and the Russian invasion of Ukraine,” he said.
Faced with the complex panorama, political analysts do not rule out that the Government could take advantage of the moment to deepen the changes in the cabinet, although nothing transcended from the official sphere.
Market specialists predict that sovereign assets and the battered local currency will remain under pressure, unless Guzman is replaced by a minister with strong credentials, significant influence and political capital of his own.
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