Silvina Batakis' baby-steps did not convince the market

ARGENTINA - In Brief 21 Jul 2022 by Esteban Fernández Medrano

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As pointed out in our recent webinar on Argentina, the market remains expectant of whether the new economy minister, Silvina Batakis, is going to be able to implement policy measures to limit the fiscal deficit and reduce the expectations of monetary expansion and eventually FX devaluation. In short, what will be in practical terms, the government´s strategy to fulfill as announced the IMF´s targets of the current EFF.[1] With that background in mind, today´s meeting in the Economy Ministry, where Batakis gathered the so-called “economic team” (Production Minister, Labor Minister, Central Bank president, local IRS -AFIP) generated expectations regarding what sort of meaningful announcements should be made. The actual announcements, while moving in the right direction, were insufficient and disappointed the market, which continued to rush out of the peso, demanding dollars in the non-official FX markets. In brief, Batakis announced that incoming tourists would be legally allowed to sell at authorized financial institutions up to USD 5,000 at an FX rate that will be close to the Blue-Chip swap rate rather than the official one. The objective is to drive those FX flows into the local financial system, rather than to keep tourist inflows as cash holdings in the informal FX market. This announcement is aligned with some prior initiatives from the government. For example to lift, under very specific conditions, up to 12,000 USD a year, service exporters of the obligation to hand over their dollar revenues to the BCRA at the official FX rate. If such a measure were implemented more broadly, it would be a wise tool to capture some reserves, considering that service exports´ pa...