Positive Market Reception to Key Changes
The eagerly anticipated changes, revealed by Economy Minister Luis Caputo on Tuesday, did not disappoint investors. The measures included a remarkable 50% reduction in the official peso rate, significant cuts to energy subsidies, and the cancellation of public works tenders. While trading of Argentine debt and equities experienced muted activity in London, there were observed improvements. Sovereign dollar bonds gained close to a 1 cent increase, and U.S.-listed shares of Argentinian state oil company YPF rose by 1.3% during early premarket trading. Furthermore, six-month and one-year forwards indicated positive pricing levels of 1,022 and 1,687 Argentine pesos, respectively.
The announcement also impacted crypto exchanges, where the peso faced devaluation. At 1019 GMT, one tether, a cryptocurrency pegged to the dollar, was valued at around 1,167.30 Argentine pesos on the Binance exchange – the highest since late October.
Government’s Efforts to Avert Economic Collapse
Jimena Blanco, Verisk Maplecroft’s chief analyst, acknowledged the government’s attempts to navigate Argentina away from an imminent economic crash. “He promised a very tough pill to swallow, and he’s delivering that pill,” Blanco commented. Since 2019, Argentina has artificially maintained the peso at a controlled exchange rate, initially at 366 per dollar. However, Caputo’s announcement revealed plans to adjust this rate to 800, with a monthly devaluation of 2%. The parallel rates had surpassed 1,000 per dollar earlier in the week.
Caputo also unveiled a 2.9% reduction in government spending as a percentage of GDP. Nearly one percentage point of this cut would come from energy and transport subsidy reductions, while additional taxes were also discussed.