MercoPress. South Atlantic News Agency

All red numbers as Argentina enters “Phase 2” of its economic plan

Caputo said the peso would become a strong currency, distancing the government from campaign promises announcing a dollarization

Local and international markets alike did not react well Monday after Argentine Economy Minister Luis 'Toto' Caputo and Central Bank (BCRA) CEO Santiago Bausili tried to explain the Libertarian administration's next steps to stabilize the economy of South America's second-largest country.

Shares of Argentine companies on Wall Street -particularly those of banks- fell while the unofficial peso (AR$) depreciated against the US dollar (US$). In addition, the country risk (an index measuring extra interests applied to global operations including any given nation as opposed to others deemed less volatile) also crossed the 1,500-point threshold upwards despite the boost to the local economy that last week's Congressional approval of the so-called Bases Law would bring on.

On Monday, the “financial” dollars (a series of transactions in foreign currency that circumvent the official quotation) registered increases of up to 3%, while the “blue” (a euphemism for “black market”) dollar traded above AR$ 1,400 apiece, a new record high.

Caputo and Bausili spoke of a “second stage” of the government's economic program, which would entail handing the BCRA's debt over to the Treasury to clean up its balance and allegedly pave the way towards lifting all exchange rate restrictions.

“There will be a sterilization mechanism, similar to the one that exists today with the BCRA's passes, but they will be centered on a Monetary Regulation Bill, which is where the banks will place their excess liquidity,” Caputo explained. Removing all restrictions on currency exchange would constitute “the third step,” he added.

Earlier Monday, Caputo and Bausili met with heads of local private and public banks to brief them on the current situation. Contrary to President Javier Milei's electoral promises, Caputo told these executives that “the peso will not disappear” and -quite the opposite- “it will be a strong currency,” which would be in line with Cabinet Chief Guillermo Francos' announcement that there would be no devaluation so people would be forced to liquidate their dollars (at State-set rates).

To make matters worse for the Libertarian administration, tax collection fell 13.9% yoy last month, according to the Public Revenues Federal Agency (AFIP), thus heralding a fiscal deficit for June despite the government's repeated celebrations that a zero deficit had been achieved.

At face value, the net collection went up 221.2% interannually but given an inflation of around 273% (June's figures are yet to be released), it would represent a significant drop. Things could have been worse had it not been for the Earnings Tax, it was also reported in Buenos Aires. That item is expected to increase as per the Bases Law.