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Argentina leaves markets guessing with new cabinet

Argentina leaves markets guessing with new cabinet

Alberto Fernández has appointed a moderate team but offered few clues on economic policy

Alberto Fernández’s appointment of Martín Guzmán — a critic of the IMF and austerity policies with no experience in government — as economy minister has left markets guessing how Argentina’s president-elect will deal with his country’s big economic challenges, as more than $60bn of debt payments come due next year.

“The government has to come up with specific proposals,” said one bondholder. Buenos Aires had to figure out what relationship Argentina had with the IMF, the bondholder added. The fund extended a record $57bn bailout programme to Argentina last year.

“What is the macroeconomic strategy? The fiscal strategy? What primary surplus and how are they trying to achieve it?” Without such details, the bondholder said there would be little confidence in the government’s ability to meet its obligations.

Argentina’s creditors were generally reassured by the moderate cabinet named on Friday by Mr Fernández, who is sworn into office on Tuesday. But they were surprised by his claims that he was “satisfied” with the IMF negotiations. Argentina’s programme with the fund went off track earlier this year, requiring a new agreement to be made.

Sources close to the talks say no progress has been made, admitting that their “jaws dropped” after Mr Fernández’s comments. The incoming administration will attempt to avoid the country’s ninth sovereign debt default on about $100bn of debt. Concerns remain about whether it would succeed in rebalancing an economy that is suffering from one of the highest inflation rates in the world.

“The government wants fiscal stimulus, a weak currency, low interest rates, and the only anchor against inflation is a social pact. All that looks hyperinflationary. How in that context will they attract capital?” asked Siobhan Morden, an analyst at Amherst Pierpont.

“I don’t think external bondholders are the immediate and pressing priority, especially because it is premature to sit down with them without an economic plan,” she said. Instead, Mr Guzmán would probably focus on seeking cash flow relief from the local market first through policies such as taxing exports, she argued.

“We sense that [Mr Guzmán] wants to offer private bondholders a benevolent restructuring offer,” said Alberto Bernal, chief emerging markets strategist at XP Investments, describing his attitude towards the IMF as “quite aggressive”.

Despite the show of moderation in most of Mr Fernández’s cabinet picks on Friday evening, many analysts were concerned by the naming of some officials in key positions who are close to his running mate, the powerful former populist president Cristina Fernández de Kirchner.

In particular, the naming of Carlos Zannini, a close ally and former official in the government of Ms Fernández, as attorney-general fuelled concerns about how a barrage of corruption charges against the incoming vice-president would be resolved. Mr Zannini himself spent three months in prison over a controversial pact with Iran made during Ms Fernández’s presidency.

“He was imposed by nobody,” said Mr Fernández during a press conference on Friday, denying claims that Ms Fernández, who chose her former cabinet chief to run for the presidency earlier this year, might have cut a deal with him to name her allies to influential positions. The appointment of Eduardo “Wado” de Pedro as interior minister, a founding member of the militant “kirchnerista” youth group La Cámpora, also raised questions about how much sway Ms Fernández’s leftist faction might exert in the incoming administration.

Even so, Mr Fernández appointed several people to his cabinet who have been openly critical of his former boss, with whom he broke off relations in 2008 shortly after she first came to power, having also served as cabinet chief for her husband and predecessor, Néstor Kirchner.

They include Mr Fernández’s former partner Vilma Ibarra, who will be his legal adviser and has published a book that is critical of Ms Fernández. He also appointed as secretary of strategic affairs Gustavo Béliz, a former justice minister for Mr Kirchner who was forced out of his government after clashing with a notorious spy chief and subsequently held senior positions at the Inter-American Development Bank.

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