Argentina: Kirchner revamps cabinet, nominates new Central Bank Governor
December 8, 2013
On 18 November, President Christina Kirchner announced an important cabinet overhaul immediately after returning to office following a six-week medical leave during which time she underwent surgery to remove a blood clot on her brain. Kirchner appointed Jorge Capitanich, former governor of the Chaco Province, as chief of her staff and chose Axel Kicillof, former deputy minister, as the new Minister of the Economy. In addition, Kirchner designated Juan Carlos Fabrega, former president of state-owned Banco de la Nacion Argentina, as new Governor of the Central Bank. The reshuffling of the cabinet follows Kirchner's Front for Victory party's (FPV) poor performance in the mid-term elections that were held on 27 October. While the FPV was able to maintain control of both houses of Congress, it fell short of the two-thirds congressional majority required to pass a constitutional reform that would allow Kirchner to run for a third term.
Analysts expect that the government will deepen its interventionist style of economic management and they foresee that it will adopt stronger measures in order to stem the currency outflows that are depleting the country's foreign exchange reserves. In line with expectations, the government announced on 3 December that it would increase a surcharge that is applied on tourist packages and purchases abroad from 20.0% to 35.0%. Foreign currency reserves dropped below USD 40.0 billion for the first time in six years in April and are expected to end the year at USD 31.6 billion, according to LatinFocus Consensus Forecast panelists. Argentina-which has no access to financial markets since defaulting in 2001-relies on foreign reserves to pay for imports and to honor its debt obligations.
Despite the controls that are imposed on foreign currency trade, demand for U.S. dollars as a way to store value remains high. On 6 December, the black-market peso (ARS) traded at 9.48 per USD. The peso was 3.4% stronger than the level seen on the same day last month, but it was a substantial 47.4% weaker on an annual basis. The official peso is also losing value. On 4 December, the peso traded at 6.20 per USD, which was 4.3% weaker than the level seen on the same day last month and 27.9% weaker in annual terms. Analysts believe that economic authorities are stepping up a controlled depreciation of the official peso in order to restore competitiveness and to favor foreign investment and currency inflows to the country-that said, a weaker peso would exacerbate inflation. LatinFocus Consensus Forecast panelists expect the official peso to end the year at 6.22 ARS per USD, while they expect the currency to end next year at 8.06 ARS per USD.
Author: Armando Ciccarelli, Head of Data Solutions