BUENOS AIRES (Reuters)
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August 16, 2019 Uncategorized
| Last updated :
August 16, 2019 Uncategorized
Argentina's markets reacted positively on Thursday to signs that the country's political leaders were determined to control an economic crisis triggered by a shocking primary election that the local peso lost nearly a quarter of its value.
The peso began to fall following the unexpectedly strong showing by opposition presidential candidate Alberto Fernandez in Sunday's primary. Fernandez defeated center-right president Mauricio Macri, whose austerity measures backed by the International Monetary Fund have distracted voters from his support.
That has raised fears of a return to protectionist policies and an end to free-market economic reforms if Fernandez wins the October election, which now appears likely.
Argentina, Latin America's third-largest economy, is no stranger to financial crises. But the latest crisis comes amid widespread volatility, fears of a global recession triggered by the China-US trade war and ongoing protests in Hong Kong.
There were few signs of a rapprochement between Macri and Fernandez in the wake of the primaries, but as markets continued to fall on Wednesday, the two men met and agreed to try to calm those volatility.
Fernandez later said his economic plans did not include default.
The peso rose 7 percent earlier on Thursday before closing around 5 percent at 57.4 per dollar, according to traders who said the rush to buy the cheap peso also contributed to the jump.
Argentina's Merval stock index rose more than 3 percent on Thursday afternoon.
Thursday was also the first day of the week when the central bank did not hold auctions to sell dollars of its foreign exchange reserves to support the peso. Since Sunday's election, the central bank has sold a total of $ 503 million.
In a radio interview on Thursday, Fernandes expressed satisfaction with the exchange rate of the local currency at 60 pesos to the dollar.
On Wednesday, Macri announced a series of measures to boost welfare and tax cuts for lower-paid workers, in a shift to a president who took office in 2015 on promises to cut government subsidies and correct what he called years of poor left-wing management of the economy.
Macri pledged to increase the minimum wage, temporarily freeze gasoline prices and raise the income tax exemption limit by 20 percent. The government said the new measures, which would cost $ 678 million, would allow a tax cut for two million workers worth about 2,000 pesos ($ 33) a month.
Education Minister Alejandro Vinocchiaro told a news conference on Thursday the government was considering new measures to help people with inflation-related mortgages.
The government still has a chance to hold other dollar auctions if the peso begins to fall again.
An Argentine government official said the central bank has reserves of up to $ 66 billion, of which $ 20 billion is free resources that can be used to push debt and stabilize the peso.
Debt installments for the remainder of this year are estimated at $ 5 billion to $ 10 billion, depending on Argentina's ability to extend the terms of local treasury bonds.
Government data indicate that the benefits in 2020 are $ 27 billion.
Volumes in the 100-year bond were weak on Thursday, with prices slightly above 50 cents to the dollar, or about four points above Wednesday's close. Market access data showed that the last trading on Wednesday for the January 2028 maturities was about 46 cents to the dollar.