Centrist Argentine presidential candidate, Horacio Rodriguez Larreta, has put forward a comprehensive plan aimed at stabilizing the country's currency, the peso, amidst its ongoing economic crisis. According to his top economic adviser, former Economy Minister Hernan Lacunza, Larreta intends to implement spending cuts amounting to 4% of the gross domestic product (GDP). This strategy aims to provide a cushion for the declining currency and gradually weaken it to a level between the current official and parallel rates.
Larreta is currently in contention with Patricia Bullrich for the opposition coalition's nomination in the upcoming primary vote on August 13th. Given the challenging economic situation in Argentina, this election is of utmost importance as inflation rates surge and a record drought pushes the country towards the brink of recession.
While polling data for the primary remains inconclusive, many believe that Larreta and Bullrich are neck and neck in the race. However, no official comments have been made by Larreta or Lacunza regarding the proposed plan. It is worth noting that Lacunza has estimated that the official exchange rate will reach 400 pesos per dollar, adjusted for inflation, by the end of this year. This projection suggests that the official and parallel rates will converge at a middle ground, rather than at a higher level.
Although various local economists share a similar view that the peso's value will hover around 400 per dollar this year, their long-term forecasts indicate a significant devaluation, with the currency potentially soaring above 900 per dollar by the end of 2024 under a new government.
Lacunza, in contrast to his party's earlier stance, advises against an immediate lifting of Argentina's current currency controls. Instead, he proposes a gradual release of trapped dollars, starting with corporate debt contracted by third parties, followed by imports and debts within local companies. Dividends from banks and corporations would be the last to be freed up.
Nevertheless, cutting government spending remains Lacunza's top priority. Specifically, he aims to focus on reducing Argentina's generous utility subsidies and expenditures at state-run companies. The gradual lifting of currency controls, along with swift spending reductions, is expected to help the central bank accumulate $100 million in foreign reserves per day. This is of vital importance, as the central bank is currently facing a shortage of dollars and even resorted to making a payment to the International Monetary Fund in Chinese yuan.
Lacunza did not provide a specific timeline for when Argentine citizens can expect more access to dollars. Currently, individuals can only exchange pesos for $200 per month and must pay three taxes imposed by the ruling Peronist bloc, which will also present a candidate in the upcoming election.