MercoPress. South Atlantic News Agency

Macri reshuffles economic team after the promised second half recovery never arrived

Alfonso-Prat Gay was instrumental in the transition year but soaring inflation and a “gradualism” dispute ended his tenure

Argentine President Mauricio Macri on Monday reshuffled his economic team removing finance minister Alfonso Prat-Gay amid a stubborn recession, soaring budget deficit, a discussion on gradualism to address inflation and public opinion deep disappointment with center-right reforms.

 Prat-Gay's ministry will be split in two, said chief of staff Marcos Peña.

Nicolas Dujovne, a respected economist (“and Wall Street boy”), will take over as finance minister. Luis Caputo, who previously served Prat-Gay as budget secretary, will take over the newly created budget ministry.

The president himself requested Prat-Gay's resignation, Peña said. “It's a matter of policy differences,” he told a press conference.

It is Macri's first cabinet reshuffle since he swept to power just over a year ago, putting an emphatic end to 12 years of populist rule.

Prat-Gay had an applauded take off when he reached an agreement with the hedge funds ending a fifteen year dispute which allowed Argentina to return to the international money markets and again borrow at rational rates.

He was also instrumental in a flurry of market-oriented reforms, including the end of foreign exchange controls -- which caused the peso to lose one-third of its value and sent annual inflation soaring above 40%. Other reforms under his watch included the removal of subsidies for public transportation, electricity and gas, which triggered angry protests.

Macri says the reforms are necessary to revive Latin America's third-largest economy. But as he starts his second year in office, the promised second half of the year growth has yet to arrive.

The economy is forecast to shrink by around 3% this year, and seven in ten Argentines are worried about the economy, and an equal number think Macri “governs for the rich,” according to a recent poll.

Prat-Gay had clashed with central bank chief Adolfo Sturzenegger, whom he had lobbied to lower the country's key interest rate in a bid to kick-start growth. Sturzenegger, worried that would send inflation even higher, has refused.

The reshuffle was announced as Macri was on vacation in the southern resort town of Villa La Angostura, in the Andes mountains.

But despite the Christmas holiday, the news came as a political earthquake back in Buenos Aires, where speculation swirled on how it would shape economic policy.

Dujovne, who currently heads an economic consulting firm, was a key player in a think tank called Fundacion Pensar (the Think Foundation) that helped get Macri elected last year. A former chief economist at Argentine bank Galicia, he has also worked as a consultant for the World Bank.

Caputo was the government's envoy for negotiations that ended a long-running legal battle between Argentina and US hedge funds demanding full repayment on defaulted Argentine bonds.

Caputo has played a key role in increasing lending to Argentina since then, and one of his top missions, going forward, will be to “secure financing” for the struggling economy, Peña said.

Macri's government is banking on growth of 3.5% in 2017, with inflation falling to below 20%.