QUOTES-Argentina devalues peso, cuts spending in economic shock therapy

For this reason, it will be critical to know what exchange rate policy the central bank will follow going forward to avoid a renewed overvaluation of the currency. "This was clearly absent in today’s policy announcement.

Argentina on Tuesday announced it will weaken its peso over 50% to 800 per dollar, cut energy subsidies, and cancel tenders of public works, an economic shock therapy aimed at fixing the country's worst crisis in decades. Below are reactions from some analysts and international agencies:

J.P. MORGAN: "We believe an evolution of the policy template by second quarter 2024, would be likely required, once international reserves start to be replenished by soybean exports.

"First of all, the fact that the fiscal adjustment relies in a relevant manner on a higher tax collection may induce some doubts, particularly due to the temporary nature of some taxes as well as the need for Congress approval. "Second, the still hefty correction lower of real expenditure still needs to be assessed through the prism of social tolerance. A new FX correction may be required to finally migrate into a unified exchange rate system, without capital and financial account restrictions other than macro-prudential."

GOLDMAN SACHS: "Our first impression of the announcement is positive. Fiscal profligacy is the root of Argentina’s macroeconomic problems and moving swiftly with the fiscal adjustment is utmost important.

"We acknowledge, however, that some of the announced policies remain vague and many lacked quantitative details. The exchange rate, in turn, was highly overvalued and a significantly more competitive exchange rate should allow the central bank to accumulate international reserves that currently stand at critical levels. "Inflation, however, is likely to accelerate in the coming months as the pass-through of the weaker exchange rate is transmitted to consumer prices. For this reason, it will be critical to know what exchange rate policy the central bank will follow going forward to avoid a renewed overvaluation of the currency.

"This was clearly absent in today’s policy announcement. Another major absent measure was the treatment of the central bank’s remunerated liabilities. In our view, addressing the central bank’s balance sheet should be another pillar of any macroeconomic adjustment plan." INTERNATIONAL MONETARY FUND:

"These bold initial actions aim to significantly improve public finances in a manner that protects the most vulnerable in society and strengthen the foreign exchange regime. Their decisive implementation will help stabilize the economy and set the basis for more sustainable and private-sector led growth. "Following serious policy setbacks over the past few months, this new package provides a good foundation for further discussions to bring the existing Fund-supported program back on track." 

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