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Argentine peso opens weaker after Macri announces tax cuts, subsidy boost

Kitco News

BUENOS AIRES (Reuters) - Argentina’s peso weakened at the open on Wednesday after President Mauricio Macri said he would cut income taxes for workers and boost subsidies for social services following two days of economic turmoil triggered by an election upset by opposition candidate Alberto Fernandez.

The peso was down 12.3% to 61 per U.S. dollar in morning trading, marking the third consecutive market open with heavy losses. The peso closed 4.29% lower at 55.9 per U.S. dollar on Tuesday after touching 59 earlier in the day. The currency had hit an all-time low Monday of 65 to the dollar, a drop of 30%.

The landslide victory by Fernandez in Sunday’s primary election dealt a severe blow to Macri’s re-election chances and roiled financial markets on fears that Argentina could revert to interventionist economic policies of the former government.

Macri also announced that gasoline prices in Argentina would be frozen for 90 days as part of his plan to reduce the impact of the economic crisis.

“The measures I take and that I am going to share with you now are because I listened to you. I heard what you wanted to tell me on Sunday,” Macri said.

“These are measures that will bring relief to 17 million workers and their families,” Macri said, adding he was willing to meet with the opposition.

The meltdown in Argentina’s currency, stocks and bonds on Monday - the worst since the South American country’s 2001 debt crisis - sent shock waves through emerging markets.

Macri slashed subsidies for public utilities and other services to reduce the country’s chronic fiscal deficit, pushing electricity and gas rates up significantly since the start of his term in 2015. The painful cuts, as part of the $57 billion standby agreement he negotiated with the International Monetary Fund last year, dented his popularity.

Fernandez, who has former President Cristina Fernandez as his running mate, led in the primary with a wider-than-expected 15-percentage-point margin ahead of Macri, a free-market proponent.

Argentines enjoyed generous subsidies under Cristina Fernandez’s government. Alberto Fernandez has promised access to free medicine for retirees and better wages for workers while hammering Macri for the uptick in poverty and unemployment.

Macri on Monday deflected responsibility for the financial volatility, telling a news briefing the opposition should “self-criticize” its own policies in the wake of the market reaction.

A scion of one of Argentina’s wealthiest families, Macri came to power in 2015 on promises to kick-start Latin America’s third-largest economy via a liberalization wave. But the promised recovery has not materialized and Argentina is in recession with inflation running at 55% on an annual basis.

Fernandez, too, blamed Macri for the turmoil, saying on Monday that markets had realized they were “scammed.”

“The dialogue is open, but I don’t want to lie to Argentines. What can I do? I’m just a candidate. My pen doesn’t sign decrees,” Fernandez said in an interview with Argentine TV channel Net TV broadcast on Monday.

Reporting by Cassandra Garrison and Nicolas Misculin; additional reporting by Hugh Bronstein and Hernan Nessi; Editing by Daniel Flynn, Bernadette Baum and Will Dunham

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