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Europe, Forex

Argentina’s new economy chief says peso stability is top priority

(Adds IMF statement, Sandleris quote, economic context)

By Hugh Bronstein and Jorge Otaola

BUENOS AIRES, Aug 20 (Reuters) – Argentina will stand by the 2019 fiscal targets it has agreed with the International Monetary Fund and work to stabilize its currency, which lost 18% of its value last week, new Treasury Minister Hernan Lacunza said on Tuesday.

Minutes after being sworn in by President Mauricio Macri, Lacunza told reporters the government will stick with the goal of erasing its primary fiscal deficit this year, despite a series of spending measures announced last week aimed at spurring growth in the recession- and inflation-racked economy.

He said his top priority will be to stabilize the peso, which tumbled after Macri, who has run a business-friendly government, was drubbed in an Aug. 11 primary election by Alberto Fernandez. The center-left Peronist candidate is now expected to defeat Macri in an Oct. 27 general election.

The peso opened 1% weaker on Tuesday at 55.55 per U.S. dollar. Argentina’s economy is expected to shrink 1.5% this year, according to the latest central bank poll of analysts. The analysts expect growth for 2020 to be 2.0%.

“This is a complicated time for Argentina,” said Lacunza, formerly the chief of economy for Buenos Aires province.

“We want to leave a solid economic platform for whichever candidate wins” the presidential election, he said, adding that Argentina had a primary fiscal surplus in July and that he expected a surplus in August as well.

Macri, struggling to revive his campaign for a second term, is betting that the new treasury chief can help stabilize the economy. Last week, Macri announced a cut in taxes on food and personal income along with increased welfare spending, raising concern his administration will miss its fiscal targets.

“We are closely following recent developments in Argentina and are in ongoing dialogue with the authorities as they work on their policy plans to address the difficult situation that the country is facing,” the IMF said in a statement.

“An IMF staff team will travel to Buenos Aires soon,” said the statement, which was signed by IMF spokesman Gerry Rice.

The IMF’s next review of Argentina’s economy on Sept. 15 should provide a sign of whether the lender of last resort still thinks the country can pay its debt obligations. Government bonds denominated in dollars are harder to pay when the peso weakens.

A crunch point will come in the second quarter of 2020, when Argentina is scheduled to make $20 billion in debt repayments, up sharply from $5.6 billion in the first quarter of next year.

Nicolas Dujovne, the former treasury minister, quit on Saturday, saying he believed the country needed “significant renewal” of its economic team.

Central bank chief Guido Sandleris also told reporters on Tuesday that the bank would continue to sell reserves in an effort to halt the peso’s slide.

The recent currency weakness interrupted what had been a fall in the country’s inflation rate, Sandleris said. Consumer prices in Argentina rose 55% in the 12 months through July, according to official data, but monthly rates had been falling.

“The devaluation of the peso has had an effect on prices,” Sandleris said. “We are going through a complicated time.” (Reporting by Hugh Bronstein Editing by Chizu Nomiyama and Paul Simao)

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