Argentine president announces salary hikes, tax cuts, after poll setback

Argentine President Mauricio Macri announced plans for salary hikes and tax cuts Wednesday after voters turned resoundingly against his austerity policies, sparking days of economic turmoil.

Macri, who seeks re-election in October, said he will cut income taxes for workers, increase subsidies and introduce a 90-day freeze on fuel prices to help ease the economic shock.

He also announced an unspecified increase in the monthly minimum wage – currently 208 dollars, or 12,500 pesos – saying it would benefit two million workers.

The president's announcement did little to immediately ease market concerns, however, with the peso slipping more than six percent to close at 62.18 to the dollar. 

The drop means the Argentine currency has lost more than a quarter of its value since Friday.

Macri said the measures would "benefit 17 million workers and their families and all small and medium-sized businesses, formal and informal, state and private."

The president said the package of measures – which will cost the state $665 million – would "relieve the pockets" of Argentines hit by 55 percent inflation.

Electoral Blow

The market-friendly Macri was dealt a huge blow in his bid for re-election when he polled 15 points less than centre-left Peronist candidate Alberto Fernandez in Sunday's primary elections, which served as a bellwether for general elections in October.

Fernandez, now the hot favourite to unseat Macri in the October 27 election, said the measures smacked of desperation. 

"It's like an atheist who takes to prayer before dying, it doesn't work," he told Argentina's El Destape Radio.

"My task is to ensure governance," Macri said in his message released before markets opened. "Dialogue is the only way. Uncertainty has caused a lot of damage and forces us to be responsible. I want to convey peace of mind in this electoral process that has begun."

The embattled president held talks in the afternoon with Fernandez, tweeting that they had "a good and long conversation." 

He said his leftist rival had "pledged to collaborate in all possible areas to ensure that this electoral process, and the uncertainty, affects the economy as little as possible."

Earlier, a contrite Macri, who has slashed subsidies and trimmed the public sector since his election in 2015 in a bid to tame runaway inflation, acknowledged that what he had asked of Argentines "was very difficult, like climbing Aconcagua" – Argentina's highest mountain.

The president said he wanted to relieve a situation affecting a weary electorate. "Getting to the end of the month became an impossible task, many families had to cut their expenses," he said. 

Under the measures announced on Wednesday, workers will receive extra salary payments in September and October, equivalent to around 33 dollars. The unemployed will receive extra child benefits and civil servants and the security forces would get a one-off bonus of 83 dollars.

Small and medium-sized businesses – badly hit by Argentina's recently economic turmoil – will be allowed to pay treasury debts over the course of a 10-year plan in an effort to alleviate their hardship.

The measures "reflects the need to focus on those segments of the population who have been most significantly affected by the country's economic crisis, and who overwhelmingly turned their back on the president during the recent primaries," said Argentine expert Paula Garcia Tufro of the Atlantic Council.

"It reflects the need to win at least some of those voters – namely those representing workers and their families – back by taking tangible steps to address their needs," Tufro said.

Macri's popularity has plunged since a currency crisis last year – in which the peso lost half its value against the dollar – and a much-criticised $56 billion International Monetary Fund bail-out loan that analysts say may now have to be restructured.

"We think it's likely that IMF will request a restructuring as a condition of future loan tranches," according to analysts Capital Economics. The next IMF disbursement is due on September 15.

So far, the Washington-based IMF has refrained from commenting publicly on the primary results.

Argentina is currently in a recession and posted 22 percent inflation for the first half of the year – one of the highest rates in the world.

Poverty affects 32 percent of the population.