GM General Motors Company

By Taos Turner 

BUENOS AIRES--President-elect Mauricio Macri has vowed to transform Argentina's economy by curbing currency controls and restoring investor confidence. But while business leaders here welcome his plans, they say some policies, including a widely expected devaluation, could be painful in the short term.

Topping the list of challenges facing Mr. Macri when he takes office on Dec. 10 is a two-headed monster: 25% inflation and an artificially strong currency that has made Argentine goods uncompetitive abroad. Besides grappling with that, he will be called upon to move quickly to stanch the bleeding of foreign-currency reserves at Argentina's central bank, which importers say owes them more than $9 billion for goods they have brought into the country.

"We don't know how many dollars we're going to get," said Isela Costantini, president of General Motors Co. in Argentina, Paraguay and Uruguay. "It's not that I'm telling you that we don't know what's going to happen in three months or in one year. We don't know what's going to happen next week."

Earlier this week, American Airlines Group Inc. stopped accepting Argentine pesos for tickets because currency controls were affecting its ability to repatriate earnings.

The dearth of greenbacks affects companies big and small, and has caused problems for imports of everything from automotive parts and surgical gloves to screws and bolts needed to maintain manufacturing equipment. It also hurts farmers.

"I import chemicals from China. I have to pay the Chinese and I can't pay them because I can't get the dollars to do it. So this creates a problem for me because if I can't import, I have to close my factory," said Gustavo Grobocopatel, chief executive of Grupo Los Grobo, one of Argentina's biggest agribusiness firms.

Departing President Cristina Kirchner imposed the foreign-exchange controls in 2011, seeking to contain rising demand for dollars. But the move had the opposite effect. Since then the central bank's official reserves have plummeted to below $26 billion from $52 billion--and many local economists say the bank's net balance is negative.

"We don't know how many reserves there are," Mr. Macri said Monday, adding that Argentina's economic statistics are so unreliable that his economic team will have to take office and evaluate the situation before announcing policy initiatives.

Mr. Macri has called for the resignation of Central Bank President Alejandro Vanoli, who is under investigation for allegations that he directed the bank to illegally sell dollar derivatives at a low exchange rate, potentially costing the central bank billions of dollars. Mr. Vanoli, who has accused Mr. Macri of planning a devaluation, denies wrongdoing and says the bank was acting to defend the value of the peso.

Former government officials and economists warn that currency controls are difficult to dismantle, and that doing so abruptly could lead Argentines to ditch their pesos en masse, making it even harder for the central bank to oversee a smooth transition to a new exchange-rate system.

Many Argentines have already been buying dollars to protect their savings ahead of a possible devaluation. Others have stocked up on cars, televisions and other goods before prices rise.

"I came to the shopping center today to buy a cellphone because I was told prices would rise," said Juliana Levy, 38, a ballet dancer. "I don't think Macri will devalue abruptly. In any case, in Argentina we're used to devaluations."

Argentina has a largely fixed official exchange rate, which is now 9.68 pesos to the dollar. But since the government doesn't have enough dollars to meet demand, people have turned to a thriving black market, where dollars currently sell for around 15 pesos.

Mr. Macri has said those diverging rates could eventually converge if the government let the fixed rate slide, but he has provided few details about when this might happen. And he has said he would be a Nobel Prize winner in economics if he knew exactly what that rate would be.

"There is a significant amount of money outside of Argentina from Argentines who are waiting for a more benign economic environment. So I suspect the pain will be short-lived," said Jorge Mariscal, chief investment officer for emerging markets at UBS Wealth Management, which manages $1 trillion in assets.

Observers say Mr. Macri will also have to reduce costly gas and electricity subsidies to narrow a rapidly rising budget gap. But that could hit poor people hard if they are not targeted exclusively to middle and upper-income households.

"One of the things Argentina has learned in recent years is that it has to change things in ways that don't leave people behind. Otherwise, the changes will be unsustainable," said Mr. Grobocopatel.

Mr. Grobocopatel, known here as the "soybean king" because of his agricultural production, estimates that exporters are hoarding between $6 billion and $10 billion worth of soybeans and other food products. Dollar inflows could rise significantly if Mr. Macri cuts a 35% export tax on soybean exports and fixes the exchange-rate system.

Mr. Macri is also hoping to obtain fresh funding from international banks which are already negotiating a multibillion package of loans to the country, according to a person familiar with the matter.

Alberto Messer contributed to this article.

(END) Dow Jones Newswires

November 25, 2015 17:07 ET (22:07 GMT)

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