(Updates with Bolsonaro comments, cenbank sales, retail sector info, adds graphic on peso/country risk)
By Cassandra Garrison and NicolÃ¡s Misculin
BUENOS AIRES, Aug 14 (Reuters) – Argentine President Mauricio Macri on Wednesday unveiled a package of welfare subsidies and lower taxes for workers to lessen the impact of an economic crisis just months before a re-election bid, but his announcement did not immediately halt the peso currency’s collapse.
The peso opened 12.3% weaker at 61 per U.S. dollar after Macri announced the measures, but recovered slightly to be down 4.77% later in the morning. It was the third consecutive day of heavy losses in the peso due to market concerns about politicians’ ability to drag Argentina out of another round of recession and high inflation.
Sales of goods from cars to food and beauty products have already slowed due to the peso collapse, as suppliers hold back shipments while trying to calculate how the weaker currency will affect consumer prices.
Macri said he would raise the income tax bracket floor by 20%, paving the way for a tax cut for two million workers. The tax break will be about 2,000 extra pesos ($34) per month per person.
The government will also give subsidy payments of 1,000 pesos per child for unemployed people with children before the end of the year and increase the minimum wage for the second time this year, although the size of the raise has not yet been determined.
Macri, a member of one of Argentina’s wealthiest families, came to power in 2015 on promises to kick-start Latin America’s third-largest economy via a liberalization wave but inflation is at 55%, the country is in recession and the peso’s value is crumbling.
The currency has gone into a nose dive since Macri was heavily defeated at primary elections on Sunday by opposition candidate Alberto Fernandez. Traders fear a Fernandez government would bring back previous interventionist economic policies that have already been tried and found wanting.
“The measures I take and that I am going to share with you now are because I listened to you. I heard what you wanted to tell me on Sunday,” Macri said in a video statement.
The landslide victory by Fernandez in the primary election dealt a severe blow to Macri’s re-election chances in October’s general election.
The meltdown in Argentina’s currency, stocks and bonds on Monday was the worst since the South American country’s 2001 economic crisis and debt default.
The peso hit an all-time low Monday of 65 to the dollar, a drop of 30% before recovering partially.
Macri also announced that gasoline prices would be frozen for 90 days as part of his plan. The new measures will cost the government about $678 million, the government said.
“These are measures that will bring relief to 17 million workers and their families,” Macri said, adding he was willing to meet with the opposition.
Brazilian President Jair Bolsonaro said on Wednesday that Argentina was heading for chaos as “leftist bandits” who performed well in the primary election will follow the path of Venezuela, which is mired in a deep economic crisis.
Alberto Fernandez said Bolsonaro was “racist, misogynist and violent” in an interview with an Argentine TV channel on Monday.
Argentina’s Merval stock index was up 1.5% at the open on Wednesday, after plunging more than 31% since the start of the week.
But in a sign that the market is more wary of holding Argentine debt, 5-year credit default swaps (CDS) were marked at 2,720 basis points, up from Tuesday’s close of 2,570 and well over double Friday’s closing level of 1,017, according to data from IHS Markit.
IHS Markit’s latest estimates, based on Tuesday’s closing CDS level, prices the probability of a sovereign default within the next five years at 78%.
Argentina’s central bank sold another $50 million from its own reserves in an attempt to steady the peso on Wednesday, bringing its total sales in reserve dollars to $305 million this week.
The bank has about $66 billion in reserves, of which about $20 billion are free resources that it can used to pay debt and stabilize the peso, according to an Argentine government official.
Debt payments for the remainder of 2019 are estimated between $5 billion to $10 billion, depending on Argentina’s ability to roll over domestic Treasury bills, leaving the rest potentially to be used to intervene in the foreign exchange market.
There is about $27 billion in maturities in 2020, according to government data.
Macri has slashed subsidies for public utilities and other services to reduce the country’s chronic fiscal deficit, pushing electricity and gas rates up significantly since the start of his term in 2015. The painful cuts, as part of the $57 billion standby agreement he negotiated with the International Monetary Fund last year, dented his popularity.
Fernandez, who has former President Cristina Fernandez as his running mate, led in the primary with a wider-than-expected 15-percentage-point margin ahead of Macri, a free-market proponent.
Argentines enjoyed generous subsidies under Cristina Fernandez’s government. Alberto Fernandez has promised access to free medicine for retirees and better wages for workers while hammering Macri for the uptick in poverty and unemployment.
(Reporting by Cassandra Garrison and Nicolas Misculin; additional reporting by Gabriel Burin, Hugh Bronstein and Hernan Nessi; Tom Arnold in London; Editing by Daniel Flynn and Alistair Bell)