MercoPress. South Atlantic News Agency

Argentina rejects orthodox recipes to fight inflation; promises “competitive” peso

Central bank governor Mercedes Marcó del Pont and Economy minister Amado Boudou

Argentina’s Central bank new authorities rejected orthodox recipes as a way to fight rising consumer prices anticipating they will focus on helping companies boost output as private economic analysts forecast inflation ranging between 20 and 30% this year after having reached 15% in 2009.

Central bank governor Mercedes Marcó del Pont, a close ally of President Cristina Kirchner said during her first news conference, alongside Economy Minister Amado Boudou, that the monetary authority would maintain its managed-float policy to ensure the peso is competitive and anticipated that the bank would “coordinate policies with the government”.

“The phenomenon of price increases is related to what happens on the supply side with bottle-necks and lower productivity,” Marco del Pont told reporters in Buenos Aires. “We want to focus on price stability but from a different, non-orthodox view, from the supply side”. She pointed out that the inflation-target system, (quite extended in Latinamerica) because “it has failed in several countries”.

“There are tensions on the side of production in terms of prices”, she added. The Argentine government rarely comments publicly about inflation, a politically sensitive issue. The Kirchner couples have tried to contain inflation through price controls or blocking exports thus privileging the domestic market.

Prices in Buenos Aires City rose 2.3% in January from December, according to a report by Graciela Bevacqua, the former head of the consumer price department at the national statistics institute. The estimate is more than double the 1 percent rise reported by the institute on February 12. Bevacqua’s report said prices rose 32.1 percent from a year earlier.

Economists and politicians including Vice President Julio Cobos have questioned the government’s inflation reports since January 2007, when then President Nestor Kirchner began replacing Bevacqua and other officials at the statistics agency.

“We don’t think the answer to price tensions will come by a tightening, by cutting wages or public spending,” said Economy Minister Amado Boudou during the news conference.

Argentina is moving forward “enthusiastically” with a plan to renegotiate up to 20 billion USD in defaulted debt and is seeking an interest rate on new debt of less than 10%, Boudou said. Argentina is expecting comments on the debt swap plan from the US Securities and Exchange Commission “any moment” added Boudou.

“We expect to receive the response from the SEC between today and tomorrow. It will be the definitive response” he said.

Argentine officials say completing the SEC paperwork would be the last hurdle to launching an exchange of 20 billion USD in defaulted debt planned to open next month.
Argentina hopes the swap will clear the way for it to return to international capital markets for the first time since it defaulted in 2002 on some 100 billion USD in debt.