What Sergio Massa Needs to Defeat Argentina’s Economic Crisis

IMF Managing Director Kristalina Georgieva praised Massa’s “strong steps” to stabilize the economy

Economy Minister Sergio Massa, who took the job last month, scored some early wins after a week in Washington, landing more financing from the Inter-American Development Bank and speaking briefly on Monday with US Treasury Secretary Janet Yellen.
By Patrick Gillespie
September 13, 2022 | 11:04 PM

With inflation approaching 100%, Argentina’s government has bet its political future on a seasoned operator with presidential ambitions, but no economic policy experience, to steer the country out of its latest crisis.

Economy Minister Sergio Massa, who took the job last month, scored some early wins after a week in Washington, landing more financing from the Inter-American Development Bank and speaking briefly on Monday with US Treasury Secretary Janet Yellen, a high-level encounter his predecessors struggled to get. IMF Managing Director Kristalina Georgieva praised Massa’s “strong steps” to stabilize the economy after a separate meeting.

The minister will need more victories like this if he is to succeed where most of his predecessors failed: taming the crisis-prone South American economy. Among his challenges, he needs to rein in spending and prevent a peso sell-off from getting out of control while meeting the country’s commitments under its $44 billion International Monetary Fund program. All this amid demands for more welfare spending from a fractured government coalition.

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Massa will also have to navigate a politically combustible situation without alienating his powerful ally, Vice President Cristina Fernandez de Kirchner, who opposes the market-friendly policies favored by the IMF and hasn’t been shy about criticizing her own government in the past.

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If Massa, Argentina’s fifth economy minister in four years, can pull off this difficult balancing act, he’ll be a presidential contender in the 2023 election. But if the nation suffers a full-blown crisis with galloping inflation, his political future will be hard to salvage, and the government will struggle to retain power.

Massa took the job “because he saw an opening -- a path to the presidency, and he’ll do what he thinks is needed to ensure that he can get there,” Daniel Kerner, managing director for Latin America at Eurasia Group, said.

Unpleasant Medicine

Argentina’s international bonds initially gained after Massa was named minister, but remain in distressed territory below 30 cents on the dollar. Investors are speculating on how far he can go with an unpopular fiscal adjustment before his political instincts lead him to change tack.

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“The impression outside Argentina is that the country is hurtling toward a chaotic crisis and it’s hopelessly mired in internal disputes, unable to develop a plan,” says Benjamin Gedan, acting director of the Latin America program at the Wilson Center. “He’s seen as someone who understands what investors need to hear.”

Read More: Argentina’s New Economy Chief Wins IMF Praise on First Trip

Convincing Washington and Wall Street is Massa’s chance to show he’s different from his predecessors and he can tackle a deepening economic crisis since he has political muscle they lacked. The new minister has deep ties to Argentina’s trade unions and social movements, key organizations that could help keep a lid on social tensions.

He also enjoys Kirchner’s tacit support for now, according to one lawmaker familiar with her thinking. Massa considers a photo he took with the vice president when he became minister a signal that she won’t get in his way, according to a person with direct knowledge.

Zigzag Politics

Massa was Kirchner’s cabinet chief for part of her presidency, before abandoning her administration to form a new party and run for president in 2015 against Kirchner’s candidate. He finished in third, but buddied up afterward with Kirchner’s main political rival, former President Mauricio Macri, who tried to implement pro-market reforms.

Massa later ditched Macri as his government fell apart, and reunited with Kirchner and Fernandez in 2019, taking the top job in the lower house of congress.

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Fernandez resisted appointing Massa as minister for months because they compete for the same center-left space in their coalition, according to three other people aware of their conversations.

But Fernandez ultimately caved after his hand-picked minister, Martin Guzman, abruptly resigned in July and his replacement, Silvina Batakis, lasted just three weeks. Massa had insisted with Fernandez on overhauling the economic team for several months, according to four people, leading to the local press dubbing him a “super minister” after consolidating the economy, production and agriculture offices under one roof.

While Massa downplays the idea of a 2023 presidential bid, one of his outside pollsters, Antoni Gutierrez Rubi, advised him to leave congress and take an executive branch position where he’d call the shots, show results to voters and ultimately turnaround his sinking approval ratings, according to two people. Gutierrez didn’t respond to a request for comment.

“That’s the element that Massa brings that nobody else brought -- he has political weight of his own and he’s looking to increase it,” says Jimena Blanco, head of the Americas at consulting firm Verisk Maplecroft.

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So far, Massa has pledged to meet a fiscal target and halt money printing as first steps toward cooling inflation, which is expected to reach 100% by year end. But he hasn’t yet laid out a comprehensive currency strategy, opting instead for a temporary special exchange rate just for the country’s soy producers as an incentive to boost exports, increase reserves and avoid an abrupt devaluation.

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And time is running out. By some private estimates, Argentina’s central bank has less than $3 billion of net cash reserves.

“For Massa, this is a make or break moment,” says Blanco.

Read more at Bloomberg.com

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