Argentina Takes Steps to Ease Currency Crisis

The government announces new taxes and steep spending cuts as the sliding peso makes it harder to service the country's debt.
Matthew HellerSeptember 4, 2018
Argentina Takes Steps to Ease Currency Crisis

Argentina has announced new austerity measures to close its budget gap amid a currency crisis that has seen the value of the peso decline by almost 50% against the dollar this year.

The announcement of new taxes on exports and steep cuts to spending came as Finance Minister Nicolas Dujovne prepared to meet with the International Monetary Fund on Tuesday as part of an effort to speed up the release of cash from a $50 billion bailout plan.

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“Investors have sought determined action from [President Mauricio] Macri’s government to close its budget gap amid concerns that a recession this year and the sliding currency would leave the government struggling to service its debt, most of which is in dollars,” Reuters said.

The decline of the Argentinian peso — which lost another 16% against the dollar last week — has made it increasingly hard for the government to pay back what it owes. The currency closed 3.14% weaker after the new measures were announced on Monday.

Argentina is now seeking to balance the budget by 2019, in part by levying an export tax of 4 pesos per dollar on exports of primary products, including agricultural goods, and 3 pesos per dollar on other exports.

The government also is planning to cut spending by halving the number of ministries.

According to Reuters, the measures are a reversal for Macri, a free-market advocate who slashed agricultural taxes upon taking office in 2015 to “normalize” the economy after years of heavy state intervention under his predecessor, Cristina Fernandez.

In a televised national address Monday, he said the export tax was “a bad, terrible tax” but stressed that Argentina was facing “an emergency,” promising to eliminate the tax once the economy stabilizes.

“This is not just another crisis. It has to be the last,” Macri said.

But some analysts warned that the Argentinian government’s latest measures still fell short of expectations.

“The government has still not made clear how it plans to meet many critical IMF austerity conditions,” Edward Glossop, Latin America economist at research firm Capital Economics, said in a note to clients.

Photo: Getty Images