By Jorge Otaola and Nicolas Delame
BUENOS AIRES (Reuters) -Argentina's new economy minister Silvina Batakis was sworn in on Monday and quickly moved to calm markets that slid after the shock resignation of her predecessor on fears his exit would spark a shift towards more populist policies and state spending.
The closely watched black market peso plunged around 8% as people flocked to popular parallel foreign exchange markets to buy dollars after the abrupt exit on Saturday of moderate and long-standing economy minister Martin Guzman.
Batakis, a career civil servant widely viewed as close to the hard left-wing of the ruling Peronist coalition that wants to increase spending, immediately pledged fiscal restraint.
"I believe in fiscal balance and I think we have to move in that direction," she said in her first comments.
On Monday the black-market peso slid to 260 per dollar, over double the official exchange rate of 126 pesos per dollar which is shielded by capital controls. Argentina's S&P Merval stock index fell 1% and bonds lost 0.8% in thin trading due to the July Fourth holiday in the United States.
Guzman's exit highlighted splits in the government, dealt a blow to President Alberto Fernandez ahead of 2023 elections and stoked investor fears that the government would spend more heavily to ease high poverty levels.
Guzman was the architect of a $44 billion deal sealed this year with the International Monetary Fund (IMF), which came with economic targets including on fiscal balance and inflation. Markets viewed him as a moderating influence on the government.
Citi had issued a note saying Batakis' first comments would be key to gauge how sharp a swerve to expect on policy, adding that any shift toward price controls and further FX restrictions could move the country towards economic "populism".
Then, "the deterioration in sentiment and market conditions that has been taking place in the last few weeks could accelerate," the bank added.
Investors fear that a much looser economic policy could be set as Vice President Cristina Fernandez de Kirchner's populist wing of the government gains ground.
"The conflict has tipped the field in favor of Cristina, who is concentrating power again," political analyst Ricardo Rouvier told Reuters, referring to the former two-term president.
Local consultancy Portfolio Personal Inversiones said Batakis would likely be largely led by the "Kirchnerists" and Citi said Batakis would not create the same "balancing force" as Guzman had.
"This is undoubtedly a shift to more unorthodox policies," wrote Morgan Stanley (NYSE:MS) economist Fernando Sedano.
Presidential spokeswoman Gabriela Cerruti told local radio that there would be "no modifications" under Batakis.
"The economic direction is guaranteed. The goals (with the IMF) for the first quarter were fully met. Now Silvina has to sit down and take charge of the Ministry and come up with her own operating scheme," Cerruti said.
The South American country has widely divergent exchange rates due to tough currency controls that limit dollar purchases to just $200 per month, pushing people into parallel and informal markets where greenbacks command far higher premiums.
Currency controls in place since 2019 have kept the official peso exchange rate on a slowly weakening path, but the gap to popular parallel markets has become increasingly wide given a swirling economic crises, high inflation and debt fears.
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Argentina: currency split https://tmsnrt.rs/3zXEJ2y
Argentina: currency split (Interactive graphic) https://tmsnrt.rs/3HFqAsJ
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