(Refiles to add dropped word “million” in first paragraph)
By Hugh Bronstein and Jorge Otaola
BUENOS AIRES, Aug 20 (Reuters) – Argentina’s promises to defend its beleaguered peso gained credibility on Tuesday after the central bank poured $112 million of its reserves into dollar auctions, helping to boost the local currency about 0.5% on the day after steep losses.
In three interventions in the foreign exchange market, the bank acted in concert with statements from officials saying the government’s top priority was to stabilize the peso after it lost 18% of its value against the U.S. dollar last week.
“The interventions pushed the peso through the 55-per-dollar barrier,” to 54.50 pesos to the greenback, Gustavo Quintana, foreign exchange trader with Buenos Aires brokerage PR Corredores de Cambio, told Reuters.
The recession- and inflation-racked country was hit by a wave of uncertainty following an Aug. 11 primary election in which business-friendly President Mauricio Macri got thumped by center-left Peronist challenger Alberto Fernandez, who emerged as the clear front-runner ahead of the Oct. 27 general election.
Minutes after being sworn in by Macri on Tuesday, Treasury Minister Hernan Lacunza said the government will stand by the peso and stick to its goal of erasing its primary fiscal deficit, despite a series of spending measures announced last week aimed at spurring growth.
“We want to leave a solid economic platform for whichever candidate wins” the presidential election, said Lacunza, the former economy chief for Buenos Aires province. He told a press conference that Argentina had a primary fiscal surplus in July and that he expected a surplus in August as well.
The peso earlier on Tuesday fell 1.2% to 55.68 per dollar before rallying to close at 54.74 per dollar, traders said. Local over-the-counter bonds and the Merval stock index remained in negative territory for the day as investors reacted to the downgrade late on Friday of Argentina’s sovereign debt by ratings agencies Fitch and Standard & Poor’s.
Monday was a holiday in Argentina, forcing investors to wait until Tuesday to react.
Nicolas Dujovne, the former treasury minister, quit on Saturday, saying he believed the country needed “significant renewal” of its economic team.
Speaking at a conference in Buenos Aires, James McCormack, Fitch’s head of sovereign ratings, said it may be necessary for Argentina to restructure its debt.
“We, like everyone else, were surprised by the outcome of the primary election,” McCormack said. “There is now an expected deterioration with macroeconomic performance.”
“Restructuring or default is possible, but we’re not saying it’s probable,” he added.
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, smarting from his primary election loss, announced a cut in taxes on food and personal income along with increased welfare spending. The measures raised concern his administration will miss fiscal targets agreed with the International Monetary Fund as part of a $57 billion loan deal.
“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.
Central bank chief Guido Sandleris told reporters on Tuesday the bank would continue to sell reserves in an effort to halt the peso’s slide.
Including last week’s interventions, the bank had auctioned off $615 million in dollar reserves as of Tuesday afternoon, traders said.
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 Additional reporting by Cassandra Garrison, Walter Bianchi and Hernan Nessi Editing by Chizu Nomiyama and Paul Simao)