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Now for the hard part: Argentina must fix economy after debt deal – TheChronicleHerald.ca

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By Cassandra Garrison and Eliana Raszewski

BUENOS AIRES (Reuters) – It took months of tough talks for Argentina to reach agreement on restructuring $65 billion in debt. Now, economists and policymakers say, the real work begins: reviving Latin America’s No. 3 economy from its currency and fiscal crises.

Though both government and creditors celebrated Tuesday’s deal that should help Argentina avert a messy default, it still faces a 10%-plus contraction this year, an over-valued peso, spiking poverty and a deep fiscal hole.

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“This was the easy step,” Stephen Liston, senior director at the Council of the Americas, said of the debt deal.

How the once-wealthy grains producer does from now is the acid test for Peronist President Alberto Fernandez and his star Economy Minister Martin Guzman, fresh from taming Wall Street.

“This is an important step,” Guzman said of the agreement. “But this does not solve all the problems of the Argentine economy.”

Argentina’s peso has been propped up by tight capital controls, which has seen the value of the currency in black market trades veer dangerously away from the official rate, with the gap currently around 76%.

The government says it plans to ease controls, but only when the economy has been righted, leaving an artificially strong peso that businesses say hinders trade.

‘PRECARIOUS SITUATION’

“It’s a very precarious situation there where you’ve got an over-valued currency, but weakening it will only worsen the debt situation,” said Nikhil Sanghani of Capital Economics in London.

Inflation, the thorn in the side of Argentine policymakers for years, shows little sign of abating. Consumer prices have slowed during the pandemic, but remain at an annualized level above 40% and will likely revive as the economy recovers.

The central bank, looking to mop up liquidity, is facing a “snowball” of short-term debt, temporarily reining in prices but increasingly straining the institution, said economist Eduardo Levy Yeyati of Buenos Aires’ Universidad Torcuato Di Tella.

Getting out from under this would likely mean the bank has to raise interest rates to encourage savings in pesos, he added, otherwise it would risk unleashing a new wave of inflation.

Under the weight of public spending to combat the impact of the pandemic, the primary fiscal deficit soared to $3.53 billion in June and the government is expected to end the year with a large fiscal hole.

Guzman has pledged to return to fiscal balance and keep the deficit under control, but faces a politically tricky balancing act between that and growth-boosting policies.

“The fiscal deficit has blown out again and we think that the primary deficit will be something like 8% of GDP this year,” said Sanghani, adding it could force the government to adopt politically unpalatable measures even as millions face increased poverty.

“If they have to impose some sort of austerity going forward, it will only keep the economy quite weak and that will hinder its ability to pay off even these restructured debts.”

IMF TALKS

The government plans to turn attention to negotiating a new program with its biggest creditor, the International Monetary Fund (IMF), which floated a $57 billion line in 2018.

Argentina may seek to extend its payment schedule in return for lowering inflation, fixing the exchange rate and reeling in public spending, said Claudio Loser, a former director at the IMF’s Western Hemisphere department.

“That would help Argentina a lot in the next decade, if it can be done,” Loser said.

But despite a softer approach from the IMF, any deal would likely come with some tough fiscal demands.

“It’s feasible that the Fernandez government is hesitant on some of these terms,” Sanghani said. “There are still some hurdles to getting a renewed IMF deal, so it’s not a forgone conclusion by any stretch of the imagination.”

(Reporting by Cassandra Garrison and Eliana Raszewski; Editing by Andrew Cawthorne)

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China Wants Everyone to Trade In Their Old Cars, Fridges to Help Save Its Economy

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China’s world-beating electric vehicle industry, at the heart of growing trade tensions with the US and Europe, is set to receive a big boost from the government’s latest effort to accelerate growth.

That’s one takeaway from what Beijing has revealed about its plan for incentives that will encourage Chinese businesses and households to adopt cleaner technologies. It’s widely expected to be one of this year’s main stimulus programs, though question-marks remain — including how much the government will spend.

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German Business Outlook Hits One-Year High as Economy Heals

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German business sentiment improved to its highest level in a year — reinforcing recent signs that Europe’s largest economy is exiting two years of struggles.

An expectations gauge by the Ifo institute rose to 89.9. in April from a revised 87.7 the previous month. That exceeds the 88.9 median forecast in a Bloomberg survey. A measure of current conditions also advanced.

“Sentiment has improved at companies in Germany,” Ifo President Clemens Fuest said. “Companies were more satisfied with their current business. Their expectations also brightened. The economy is stabilizing, especially thanks to service providers.”

A stronger global economy and the prospect of looser monetary policy in the euro zone are helping drag Germany out of the malaise that set in following Russia’s attack on Ukraine. European Central Bank President Christine Lagarde said last week that the country may have “turned the corner,” while Chancellor Olaf Scholz has also expressed optimism, citing record employment and retreating inflation.

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There’s been a particular shift in the data in recent weeks, with the Bundesbank now estimating that output rose in the first quarter, having only a month ago foreseen a contraction that would have ushered in a first recession since the pandemic.

Even so, the start of the year “didn’t go great,” according to Fuest.

“What we’re seeing at the moment confirms the forecasts, which are saying that growth will be weak in Germany, but at least it won’t be negative,” he told Bloomberg Television. “So this is the stabilization we expected. It’s not a complete recovery. But at least it’s a start.”

Monthly purchasing managers’ surveys for April brought more cheer this week as Germany returned to expansion for the first time since June 2023. Weak spots remain, however — notably in industry, which is still mired in a slump that’s being offset by a surge in services activity.

“We see an improving worldwide economy,” Fuest said. “But this doesn’t seem to reach German manufacturing, which is puzzling in a way.”

Germany, which was the only Group of Seven economy to shrink last year and has been weighing on the wider region, helped private-sector output in the 20-nation euro area strengthen this month, S&P Global said.

–With assistance from Joel Rinneby, Kristian Siedenburg and Francine Lacqua.

(Updates with more comments from Fuest starting in sixth paragraph.)

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Parallel economy: How Russia is defying the West’s boycott

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When Moscow resident Zoya, 62, was planning a trip to Italy to visit her daughter last August, she saw the perfect opportunity to buy the Apple Watch she had long dreamed of owning.

Officially, Apple does not sell its products in Russia.

The California-based tech giant was one of the first companies to announce it would exit the country in response to Russian President Vladimir Putin’s full-scale invasion of Ukraine on February 24, 2022.

But the week before her trip, Zoya made a surprise discovery while browsing Yandex.Market, one of several Russian answers to Amazon, where she regularly shops.

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Not only was the Apple Watch available for sale on the website, it was cheaper than in Italy.

Zoya bought the watch without a moment’s delay.

The serial code on the watch that was delivered to her home confirmed that it was manufactured by Apple in 2022 and intended for sale in the United States.

“In the store, they explained to me that these are genuine Apple products entering Russia through parallel imports,” Zoya, who asked to be only referred to by her first name, told Al Jazeera.

“I thought it was much easier to buy online than searching for a store in an unfamiliar country.”

Nearly 1,400 companies, including many of the most internationally recognisable brands, have since February 2022 announced that they would cease or dial back their operations in Russia in protest of Moscow’s military aggression against Ukraine.

But two years after the invasion, many of these companies’ products are still widely sold in Russia, in many cases in violation of Western-led sanctions, a months-long investigation by Al Jazeera has found.

Aided by the Russian government’s legalisation of parallel imports, Russian businesses have established a network of alternative supply chains to import restricted goods through third countries.

The companies that make the products have been either unwilling or unable to clamp down on these unofficial distribution networks.

 

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