Following the announcement of a series of temporary relief measures to improve people’s livelihood, Argentine President Mauricio Macri set out on the 15th to eliminate the consumption tax on basic foods in order to ease the economic crisis and increase his expectations for re-election.
Macri announced in a television speech on the 15th that the 21% excise tax on some commodities will be cancelled, which involves basic foods such as bread, sugar, milk, flour, eggs, and rice, to reduce the impact of fiscal austerity policies on the lives of low-income groups.
Macri said that he hopes that this measure will reduce the stress of life for “millions of Argentines.” “I will continue to work to reassure everyone so that the presidential election process does not affect the daily lives of all Argentines.”
On the 11th, the presidential primaries were regarded as a weathervane. The primaries showed that Macri had a 32% vote and opposition presidential candidate Alberto Fernandez had a 47% vote. Due to concerns that the change of government in Argentina will lead to an increase in the risk of default of national sovereign debt, the financial market in Argentina will be volatile.
Argentine Minister of Production and Labor Dante Sica said at a press conference on the 15th that the consumption tax on basic food is scheduled to be cancelled on the 16th, which will reduce the government’s tax by 10 billion Argentine pesos (about 174.2 million US dollars). This tax cut is expected to continue until the end of this year.
Touched by the failure of the presidential election and the turmoil in the financial market, Macri signed a decree on the 14th to launch a series of relief measures for low-income groups and working-class workers, including raising minimum wages, lowering wage taxes, and keeping gasoline prices unchanged. The government will invest about $ 680 million in implementing the above measures.
Reuters explained that the economic stimulus measures introduced by the Argentine government in recent days run counter to the tightening fiscal policy implemented by Macri after becoming president in 2015.
[Exchange rate pick up]
Opposition presidential candidate Fernandez previously served as chief cabinet minister of Argentina, advocating policies such as foreign exchange control and trade protectionism. Investors are worried that once he comes to power, it may undermine the Macri government’s efforts to restore outside confidence in Argentina’s economy over the years.
Fernández told reporters on the 14th that his economic plan did not include a default on Argentina’s debt.
The exchange rate of Argentina’s local currency peso against the US dollar began to plummet on the 12th, with a drop of about 25%. The stock price index fell 34.47% in three days.
The financial turmoil will ease on the 15th. The exchange rate rose by 5% to 1 US dollar to 57.4 Argentine pesos. When the stock market closed on the 15th, the Argentine stock index rose by more than 4%.
【As a Bank】
The Central Bank of Argentina did not continue to sell US dollar foreign exchange reserves on the 15th. The accumulated foreign exchange reserves sold this week reached US $ 503 million.
Argentine officials say the central bank has $ 66 billion in foreign exchange reserves, of which about $ 20 billion can be used to stabilize exchange rates and repay debt. The remaining debt due in 2019 is expected to be between US $ 5 billion and the US $ 10 billion, and the government is expected to use the foreign exchange reserve to stabilize the exchange rate in the future. Fernandez pointed out that Macri’s over-commitment to the market may lead to exhaustion of foreign exchange reserves.
On the 15th, the central bank required that private banks’ US dollar holdings not exceed 5% of the total funds from August 20.
Reuters quoted sources to interpret the point of view, which will prompt private banks to sell US dollar inventory, thereby further curbing the exchange rate decline without the Argentinian central bank not selling US dollars. Individual private banks may have started selling dollars.
According to the judgment of Argentine stockbroker Gustavo Quintana, “The measures taken by the central bank have already produced results … and they have slowly begun to curb the momentum of the rising dollar.”