If Guido Sandleris’ hobby of writing children’s books holds any clues as to how he will perform as the new head of Argentina’s central bank, one thing seems clear: he strongly believes in teamwork.
This underlying message of the trilogy of books about football that the economist recently co-authored, titled There is a Team, fits well with President Mauricio Macri’s own convictions. Indeed, Mr Macri has often claimed to lead Argentina’s “best economic team in the past 50 years”.
That team, of course, failed to avert Argentina’s financial crisis, which on Wednesday led to a revamped $57bn International Monetary Fund bailout programme, its largest ever. Now, with the IMF’s increased backing and a new economic striker, Mr Macri hopes to restore confidence in the bruised economy.
Working alongside treasury and finance minister Nicolás Dujovne — Mr Macri’s “super minister” — Mr Sandleris will play a key role in restoring stability to the peso and taming runaway inflation after his predecessor, Luis Caputo, unexpectedly resigned this week, reportedly over policy differences with the IMF.
“Guido will be loyal to Dujovne, and he has been negotiating with the IMF from the very beginning, so probably the IMF is comfortable with him. He will not be disruptive to what the IMF wants,” said an economist friend of Mr Sandleris. “That doesn’t mean that he won’t challenge assumptions here or there, but he is aligned.”
Lack of teamwork and poor communication are often cited as reasons why Mr Macri’s reform programme stumbled. Although used to managing big and volatile egos — having once been president of Boca Juniors, the leading Argentine football club — he has burnt through three finance ministers and three central bank governors since taking office in December 2015.
Amid the reshuffles, Mr Dujovne, under whom Mr Sandleris previously worked as secretary of economic policy, has gradually accumulated power. First, he was appointed treasury minister, alongside Mr Caputo as finance minister, after former finance minister Alfonso Prat-Gay left in December 2016 amid accusations that the former JPMorgan banker was not a team player.
Then Mr Dujovne assumed control of the finance ministry when Mr Caputo, a former Wall Street trader, moved over to the central bank in June. Now with Mr Caputo gone after three months in the job, and Mr Dujovne’s former staffer now in charge, many analysts believe the new double act bodes well for policy co-ordination and communication.
“There is no longer a need for a trader at the central bank,” argued Graham Stock, head of emerging market sovereign research at BlueBay Asset Management, referring to Mr Caputo’s past at JPMorgan and Deutsche Bank where he learnt the skills handy at the height of this year’s currency crisis — even if that meant burning through billions of dollars of reserves to prop up the peso.
“They need a technocrat to follow through on the monetary aggregate targets that they are pursuing instead,” he added, referring to the IMF-mandated move away from inflation targeting towards money supply targets.
Still, “the economic team faces a considerable threefold challenge”, cautioned Eduardo Levy Yeyati, dean of the school of government at Buenos Aires’ Torcuato Di Tella university.
First, the IMF loan only fully funds Argentina until the end of next year. So the team must work to lower risk spreads on sovereign debt and regain access to international capital markets by 2020.
Second, it must stabilise the peso, which has lost half its value this year, and bring down inflation, currently accelerating towards 40 per cent. At the same time, it must stop the exchange rate from becoming overvalued by capital inflows, a frequent flaw in past reforms.
Third, economic growth needs to resume sometime next year, given Mr Macri’s re-election hopes for October 2019.
“The new IMF package helps on the first front, constrains somewhat the second, and poses risks to the third,” concluded Mr Levy Yeyati.
Perhaps the biggest challenge is political. An extended period of stagflation will probably sap Mr Macri’s ebbing popularity in the run-up to the election. Yet the IMF programme’s focus on austerity works against growth returning soon.
“A deeper recession with persistently high inflation represents a major risk for Macri’s re-election,” said Nicholas Watson, senior vice-president at Teneo Intelligence in London. He pointed out that the main reason for Mr Macri’s now abandoned “gradualist” economic reform programme was that his governing coalition did not possess the political clout to push through an orthodox adjustment. “Now it must do precisely that heading into an election.”
Officials insist that a rebound in 2019 is possible. Yet unemployment of about 10 per cent is likely to rise, as will poverty, which already afflicts about a third of the population. Even with Mr Macri’s new team in place, “the risk of a union reaction and possible social unrest will remain high”, Mr Watson said.
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