Having been told by The IMF that he must stop using their bailout funds to prop up his currency (which has been utterly futile), Argentine President Mauricio Macri addressed the troubled nation this morning to announce his plans to satisfy Christine Lagarde’s demands in order to receive the next tranche of bailout cash sooner.
Things have not worked out so well since The IMF “bailed them out”…
In his address, there was good news, bad news, and ugly news.
“Everyone has to make sacrifices,” Macri implored of his nation’s citizens – who have lost 50% of their wealth year-to-date due to the collapse of the peso, which he also attributes to being “exaggerated by Turkey and Brazil weakness.”
Having blamed “mostly external factors” for the collapse of the economy (not bingeing on too much dollar-denominated debt in order to manufacture a smoke-and-mirrors-based boom), Macri notes that investors “have started doubting” Argentina’s ability to function.
The Good News
Macri has promised to dramatically shrink the size of the government, eliminating several ministries entirely, adding that Argentina must “set a goal not to spend more than we have.”
The Bad News
In an effort to close its budget gap, Macri will raise taxes on its one positive economic attribute – its exporters.
The Ugly News
Amid the hyperinflationary regime shift that is occurring, Macri will resort to price controls of some essential foods. When has that ever ended well.
All of which, as Bloomberg notes, is intended to signal a shift in the government’s strategy as it heads into talks on Tuesday with the International Monetary Fund to speed up the disbursement of cash from a $50 billion credit line.
To roughly translate the plan above – some exporters are going to be killing it because of the plunging peso… so we are going to tax them into ground over their ‘fair share’.
Macri is now caught between the ‘rock’ of pleasing investors by cutting spending, and the ‘hard place’ of ensuring that the belt-tightening of austerity doesn’t cause social upheaval ahead of next year’s election.
These measures, Macri warned “will lead to more poverty.”
Argentina has set a target to balance the budget in 2019, and achieve a primary fiscal surplus of 1% in 2020 (thanks to raising over 350 billion pesos in export taxes). As we noted previously, this is going to be as painful as it is hard to achieve.
Meanwhile, further pressuring the economy will be the “strong fiscal adjustment” that will be enacted per IMF instructions in 2019. “Start with 0” , explained the Government when asked how it will achieve a fiscal balance. That would mean not only higher taxes, but slashing spending, and a wave of popular unrest and political chaos. As Infobae predicts, the 1.3% primary deficit is now a thing of the past, and the government is hoping to reach levels between 0.4% and 0.5%, “a fiscal goal that is as ambitious as it is difficult to meet.”
For now, the peso is stable (modestly weaker)…
But “price controls” and higher taxes on what little growth there is the economy – we are sure that will end well…
“You Are Here” Argentina…
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Author: Tyler Durden