(Bloomberg) – At the end of March, Argentine President Alberto Fernández sent his point man to Washington to fix things. With the negotiations stalled, the Minister of the Economy, Martín Guzmán, held meetings with US officials and with the International Monetary Fund about his loan of US $ 45,000 million.
That same day, Fernández’s populist vice president took the microphone to make one thing clear. “We can’t pay because we don’t have the money to do it,” said Cristina Fernández de Kirchner, who led the country between 2007 and 2015. The IMF’s terms are “unacceptable.”
It was a revealing moment. When Fernández, 62, took office in late 2019, he presented himself as a pragmatist. It is true that he was briefly Kirchner’s chief of staff within the Peronist left, but he had given room for capitalism and would not allow Kirchner and his loyalists to set the agenda.
Few will say that it has succeeded.
In recent days, Kirchner further asserted his influence by curbing the removal of an ally, an undersecretary of energy in charge of key electricity prices.
“It’s clear that the president is backing the toughest wing of his coalition,” says Jimena Blanco, director of research for Latin America at consulting firm Verisk Maplecroft in Buenos Aires. “That will generate more tension and uncertainty.”
In fact, six months before the midterm elections, pragmatism is a distant memory. A strategy that puts political decisions above all else has crushed any plans to boost exports, reduce inflation and jumpstart growth. Exacerbated by the pandemic and vaccine shortages, an aimless economy is taking revenge.
The scene is marked by social unrest, closed schools, crowded hospitals, cabinet disputes and a deterioration of the business climate. About 70% of intensive care beds are occupied. Around 42% of Argentines live in poverty, far exceeding 26% in 2017.
Financial difficulties are so common that they are a topic of conversation even in playgrounds. Children in Buenos Aires know the dollar exchange rate, the level of inflation and what a default means.
This is because Argentina has defaulted on its debt nine times and most of them have been led by those who are hostile to the Washington consensus. That changed briefly in 2015 when Mauricio Macri won. He tried to open up the economy, but the recession crumbled his presidency and brought back the populists. People expected Fernández to find a middle ground. But hope has already been lost.
Companies have been unable to lay off workers for more than a year and face some price freezes. Savers can only change up to US $ 200 a month in pesos. If Argentines use their credit card abroad, they pay a “solidarity tax” of 30%. The wealthiest people are fighting a new wealth tax. Inflation will hit 50% again this year, while consumer confidence sinks.
Fatigue from the pandemic and limited resources are compounding poor internal coordination.
Without a doubt, Fernández inherited Herculean challenges. In 2018, Macri accepted an agreement with the IMF on unrealistic assumptions and failed to stabilize the economy. High inflation also passed to his successor, just as Kirchner had done with him.
Fernández, who spent years criticizing Kirchner’s leadership and then put those differences aside, won the presidency without ever running for governor, mayor or legislator.
An official close to him says he hopes to get wages above inflation, but acknowledges that some of his policies, such as price controls, are not ideal.
Together for Change is his biggest opponent in the vote, in which half of the seats in the Chamber of Deputies and a third of the Senate are elected. The mayor of Buenos Aires, Horacio Rodríguez Larreta, the main opposition leader, pushed to reopen the schools and saw their popularity rise sharply.
Fernández could benefit from rising commodity prices and some IMF stimulus. But after restructuring $ 65 billion with private creditors last year, talks with the IMF have stalled and no plans have emerged.
Following the VIP vaccine scandal, Fernández’s approval fell to 36.7% at the end of April from a high of 57% nearly a year ago, according to the Buenos Aires Management & Fit pollster.
Much of the decline is due to the economy. Argentines are coming off a three-year recession, where the peso lost 80% of its value and people withdrew half of their dollar deposits, prompting the government to impose capital controls.
The economy contracted in February, and a low-quality recovery is underway: in Argentina, 1.3 million informal jobs were created in the second half of last year, but 189,000 formal jobs were eliminated.
Companies, especially multinationals, are increasingly at odds with the government, which seeks to implement a basket of 100 essential products that would have prices frozen for half a year, according to people with direct knowledge of the matter.
“Uncertainty turns into grief, grief into frustration, and frustration into little desire to invest,” says Alejandro Díaz, CEO of AmCham Argentina, the group that represents US companies in the country. When the costs of companies rise more than double the price of their products, “the conjunctural policy becomes structural.”
Amid the new wave of covid, Argentina has to make debt payments with limited foreign exchange reserves. It owes $ 2.4 billion to the group of rich countries known as the Paris Club, due this month. In September, you must make payments to the IMF.
No agreement with the Fund receives the green light without the support of the United States. For now, Argentina received a respite from the Joe Biden Administration. A U.S. effort to increase IMF reserves, known as special drawing rights (SDRs), may offer you room for maneuver – some extra cash in your IMF stake that you could use to cover two principal payments this year. anus.
“The agreement with the IMF can close not only the differences between the opposition and the ruling party, but also the differences between the ruling party itself,” says Emmanuel Álvarez Agis, Kirchner’s former undersecretary of economy. “Investors see that Argentina took on a debt with the IMF that is not compatible with the size of the economy. The question is, how do you get out of this problem?
Original Note: Argentina’s Economy Gets Revenge After Leader Put Politics First
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