(Bloomberg) -- Argentine President Mauricio Macri said he will reduce the nation’s fiscal deficit at a faster pace as part of an agreement with the IMF, while acknowledging that inflation targeting had been too ambitious.
An eventual deal with the International Monetary Fund will restore confidence and ensure long-term economic growth, Macri told reporters on Wednesday, following a 23 percent slump in the peso this year. The government will call governors, senators and labor unions to discuss the next steps, he said.
“We have overcome the currency volatility,” Macri said. “Our main objective is reducing the fiscal deficit, which is a fundamental problem. This is something that makes us vulnerable because we depend so much on lending.”
The slump in the peso this year has dragged down credit and equity markets as economists questioned the government’s ability to tame inflation and its commitment to reducing the fiscal deficit. The central bank has raised interest rates to the highest in the world with three surprise hikes that did little to stem the selloff. Last week, Macri sent his Treasury Minister Nicolas Dujovne to start talks with the IMF for a standby arrangement of about $30 billion.
Macri said he has full confidence in his economic team, but that past inflation targets were too ambitious and that he will avoid setting such lofty goals. His cabinet and the central bank hadn’t properly coordinated since a Dec. 28 event where the government eased its inflation target, he said. Inflation then surged to 25 percent in April, above the target of 15 percent. The government lowered the primary fiscal deficit target to 2.7 percent of gross domestic product about two weeks ago.
“It’s a painful statement about inflation, but honest,” German Fermo, head of the MBA program at Universidad de CEMA in Buenos Aires. “Hopefully, monetary policy will be paired with fiscal policy for the first time in his administration in a way that views the inflation path in a more honest fashion.”
A few hours before Macri’s conference, central bank President Federico Sturzenegger undertook a public self-criticism, saying that the markets do not believe in Argentina´s monetary policy.
The IMF has said it backs Macri’s economic plan and that it wants talks to conclude as quickly as possible. The board of the IMF will discuss Argentina’s case on Friday at an informal meeting.
Argentina seemed to temporarily quell the selloff on Tuesday when its central bank rolled over nearly $30 billion of expiring notes and the finance ministry sold about $3 billion of local bonds. Despite the sales and triumphant statements from the nation’s finance minister, the peso resumed its slide today, extending the decline this year 23 percent.
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