Argentina Can Buck World Trend Under Macri, Prat-Gay Says

  • `This is almost an idiosyncratic story,' finance minister says
  • Argentina willing to allow Article IV review by IMF: minister

Argentina is in a position to both return to growth this year and narrow the widest deficit in more than three decades as President Mauricio Macri reinserts the nation back into the global economy, his Finance Minister Alfonso Prat-Gay said.

After lifting currency controls and trade barriers within the first month of taking office Dec. 10, Argentina’s economy may expand as much as 3 percent in the second half of 2016 from a year earlier with an expected growth rate of between 0.5 percent and 1 percent for the full year. The government will cut spending at a pace that will not imperil its ability to govern, Prat-Gay said in an interview in Davos where he is attending the World Economic Forum.

Alfonso Prat-Gay
Alfonso Prat-Gay
Photographer: Eitan Abramovich/AFP via Getty Images

Investors interested in how Argentina will return to growth, need to understand that the government intends to go slowly but surely, he said. “We know the rest of the region, the rest of the world, is not doing well. This is almost an idiosyncratic story that stands out in a difficult world, and it stands out not because we’re going to do great things but rather because we’re going to stop doing horrible things, and that by itself will unleash significant potential in the economy.”

Macri will arrive in Davos on Wednesday and plans to meet with top executives from technology companies from Alphabet Inc. to Microsoft Corp. as well as energy companies like Total SA and Dow Chemical Co. After 12 years of rule by the Kirchner family, Argentina remains in default and locked out of global capital markets. By 2019, the government plans to slow inflation to about 5 percent from an estimated 27 percent last year and will cut the fiscal deficit to 1 percent of gross domestic product from an estimated 7 percent in 2016, according to targets announced last week.

“It’s a pretty aggressive fiscal policy for next year, so taking account the legacy and the measures we already announced, it’s a deeper cut,” Prat-Gay said. “We’re going from 7 percent to 4.8 percent, that’s pretty tough I would argue, in a year where we still need to see growth picking up.”

The global economy will expand 3.4 percent this year, down from a projected 3.6 percent in October, the International Monetary Fund said Tuesday in a quarterly update to its World Economic Outlook. The fund cut its forecast for Latin America and the Caribbean to -0.3 percent in 2016, from a projected 0.8 percent in October.

‘Nothing to Hide’

As part of Argentina’s planned reinsertion to the global economy, it would like to discuss an Article IV revision with the IMF and will present a proposal to holdout creditors to resolve its debt conflict next week, Prat-Gay said. Any deal with holdouts led by billionaire hedge fund manager Paul Singer will have to be public and transparent to get approval through Congress, he said.

“We want an Article IV because we have nothing to hide,” Prat-Gay, a former JPMorgan Chase & Co. banker, said in the interview.

The Finance Minister will probably meet with the IMF’s Managing Director Christine Lagarde in Davos to discuss resuming formal ties including the first Article IV review of the Argentine economy since 2006, according to a person with knowledge of the matter.

IMF press officers didn’t respond to phone calls and e-mails seeking comment after business hours Tuesday.

The government also inherited international reserves at a nine-year low. To rebuild central bank funds, the central bank is expected to announce a bank loan for as much as $6 billion backed by dollar bonds and farmers have agreed to sell about $4 billion of grains that were being held awaiting a better exchange rate. Argentine businesses who plan to invest this year have agreed to front load as much as $3 billion of those funds in the short-term, Prat-Gay said.

“This is not an academic game where we go to the blackboard and pretend. We cannot pretend. These are the constraints, this is the best we can offer,” the 50-year-old finance minister said. “Are we confident that we can perform under these promises, I think yes, we might even overperform, but we have to be extremely careful.”

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