From Paul: the "first key" that Sergio Massa must reveal in the next 72 hours

Economist and university professor Juan Carlos de Pablo emphasized the need to “see the technical profile” of the deputy minister who accompanies Serge Massa in the new management. Also, he ruled out the chances of throwing a “stabilization program” and warned about the short- and medium-term conditions that stem from the “lack of credibility and political weakening.”

“Massa (Sergio) is not a professional economist” so “the first key is to see who is going to do the Vice Minister of Economy“, he pointed out in dialogue with La Nación+, when reviewing the agenda of the new head of the economic portfolio, who has yet to resign from his role as president of the Chamber of Deputies.

With the recent confirmation of Raúl Rigo as Secretary of the Treasury; Jorge Domper in the Undersecretary of Budget and Claudia Balestrini in charge of the Undersecretary of Public Revenues, the name of who will officiate the position in the Secretariat of Economic Policy has yet to be defined, a position that usually also assumes the functions of deputy minister.

The first key that Massa must reveal, according to de Pablo

“He has to be an economist. You have to be attentive to that because as a result of the proposal that Massa has been making, your number two is very importantDePaul explained.

When asked about the directives that Sergio Massa plans to implement in the next 72 hours, the economist called for being “not too pretentious about what should be attempted as an objective in economic matters.”

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Juan Carlos de Pablo emphasized the need to “see the technical profile” of the deputy minister who accompanies Sergio Massa

“Political weakness is still a constant. Credibility is not recovered. It doesn’t matter how many contacts you have, how many trips you make,” he warned and then insisted: “I want to see the suitability of the people who accompany him and it means that he is there all day working”.

Along these lines, he considered that the “political weakness” that the Frente de Todos is leading today “puts a ceiling on what you can do.” In as much, he sentenced: “it is necessary to be modest and to avoid bigger evils”.

What does Wall Street ask of Massa?

“It is expected that Serge Massa concentrate much more power in the economic area for various reasons”, defines one of the main banks of USA which is in talks with the team of the new economy minister. “Has more political influence and explicit support from the ruling coalition (likely to include Cristina Kirchner), as well as a mandate to take measures given the need to resolve a deeper currency crisis,” he adds.

The evaluation, carried out by the Bank of America (BofA) details that “this could alleviate the high political uncertainty“and emphasizes the good relationship with businessmen, unions and the United States of the until now head of the Chamber of Deputies.

In charge of the relationship with international, bilateral and multilateral organizations, the BofA sees “a greater probability of stabilization of the economy under Massa than under Silvina Batakis, given more explicit political support to the ruling coalition, governance and ability to coordinate a comprehensive economic plan under a Ministry of Economy”.

Massa is perceived as “more orthodox than Batakis” by Wall Street and “is expected to take steps to stabilize the economy and meet IMF targets.” Markets gave some time to take corrective action and expect “additional fiscal consolidation measures”.

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Wall Street asks Sergio Massa to adjust, devalue or split the dollar

Fiscal measures, reserves and policy

Limits on subsidies should be on the agenda and the banks suggest a “further segmentation or early increases“. The markets rose with the headlines on the announcement, giving credence that Massa will take the necessary harsh measures for stabilization, they warn.

Analysts point out that the government could make the savings from discretionary spending cuts o tax measures (for example, property taxes) and the possible reduction of the monetary issue towards the IMF goals.

“We would also expect a new plan to promote the accumulation of international reservesin addition to the measures already adopted,” they add from the BofA and maintain that they can be an opportunity to negotiate delayed loan disbursements with multilateral organizations, such as the $800 million that the IDB is delaying.

The government also implemented additional reorganizations in the economic team. “We assume that this leaves room for Massa to have the freedom to appoint collaborators in these areas, which could consolidate the centralization of the economic decision-making process,” they emphasize from Manhattan. “That includes possible changes in central bank officials.” The Casa Rosada, meanwhile, confirmed the continuity of Miguel Ángel Pesce. Bankers are also keeping an eye on the potential merger of other ministries, including public works and transport.

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Sergio Massa assumes as new Minister of Economy

Inflation, rates and crawling peg

For Bank of America analysts, monetary and exchange policy did not react to the magnitude of the crisis and the acceleration of inflation until last week. The policy rate was 52% or 4.3% m/m compared to more than 7% m/m expected inflation in July and the depreciation of the peso lagged behind inflation, they detailed.

“We started to see positive signs on monetary policy this week. The government increased yields on peso debt securities to around 90% from 80% annualized (3 months), and had a good auction this week, getting a net financing of $1.4 billion,” they said. They also highlighted the BCRA rate hike at 800 basis points, an annualized rate of 80%.

However, for Wall Street it is not enough. “We believe that more needs to be done, since these rates, between 5% and 6% per month, may not necessarily be enough to obtain positive real rates with an expected inflation of around 7% in July”, they indicate on the CPI although local projections take it to 8 and 9%.

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Wall Street asks Massa to take measures to correct the exchange rate

Devaluation or exchange split

Analysts are calling for a comprehensive and coordinated plan from the government to resolve the currency crisis, and believe that “Massa now has better chances of implementing it.”

“The BCRA should overreact on interest rate policy, raising rates more than proportionally to inflation expectations,” they list, to provide an anchor for peso assets and inflation with positive real rates. The Government, meanwhile, focuses on the impact of this measure on activity.

“The BCRA should devalue the currency to regain competitiveness and accumulate reserves given the great overvaluation”, details the BofA, although Massa’s advisers deny that a strong exchange rate jump is being considered.

The Bank of America took note of that situation and then votes for a formal splitting of the exchange rate for trade. that “it would be a much better alternative to the current rationing of imports, which is too disruptive for the activity”. The stimulus to exporters should be more permanenthe warns.

Restrictions on imports “could affect activity and fiscal revenues, making it more difficult to achieve the IMF’s fiscal goals,” say analysts who recall that the IMF mission should initiate the second review for the disbursement of the third EFF loan. next month and is necessary for Argentina to meet IMF deadlines.

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