May 23, 2013
Who gives a buck
Will ‘pesification’ prevail despite the saucepan bashing?
It’s not too difficult to get the economic jitters in Argentina. In fact, it’s a piece of cake, especially if you have gone through a storm or two in this volatile nation. Also difficult is to keep a cool political and financial head when the alarm bells start ringing — like now.
It’s also not easy to assess what each little political development means and what it will all lead to. Right now Argentina is all about the currency exchange restrictions executed by the AFIP tax bureau. What these draconian restrictions effectively mean is that it’s very difficult, if not impossible, to purchase dollars at the official rate (4.50 pesos to a dollar, roughly).
Argentina’s affair with the dollar goes back a long time. But you don’t have to go that far back in time to search for examples of economic experiments gone wrong.
Domingo Cavallo, the US-trained economist, famously pegged the peso to the dollar in 1991. His un-peso-un-dólar magic formula infamously imploded late in 2001. Shops were looted in Greater Buenos Aires. The middle-class in Buenos Aires City took to the streets banging pots and pans.
Now the administration of President Cristina Fernández de Kirchner, a centre-left Peronist, is running short of dollars. Because it wants to service foreign debt, to the tune of five billion dollars this year, without touching its Central Bank foreign currency reserves, the CFK government is getting drastic in its control of the dollar market.
Many Argentines, especially in the upmarket neighbourhoods in Buenos Aires, are not amused. On Thursday night, for the third time this year, demonstrators banged pots and pans in Buenos Aires. About 6,000 people marched on Plaza de Mayo on that chilly Thursday. Big deal? Thursday’s was not an especially large demonstration. And there was certainly no looting in Greater Buenos Aires, now transformed into a Kirchnerite bastion that was crucial when Fernández de Kirchner was re-elected with 54 percent of the vote last October.
Yet it doesn’t take much to get the jitters and the demonstration in Plaza de Mayo was real enough. In the words of José Manuel de la Sota, the Peronist governor of Córdoba not always on good terms with CFK, people start to think “that something is going wrong” when the dollar market is regulated.
The backdrop to the bashing of the saucepans is the withdrawal of dollar deposits from Argentine banks at a rate of roughly 120 million dollars a day. Gulp. Come June, dollar deposits had dropped from 12.1 billion dollars to 10.49 billion dollars, according to the Central Bank. Dollar deposits have dropped roughly a third since November. On Thursday, the Central Bank eased dollar reserve requirements for two months to give banks more clout to meet the demand for withdrawals. Technically, the Central Bank has enough reserves to deal with this run on dollar deposits. But a run is a run. This specific run is hurting the Central Bank’s purse because those deposits count as part of its foreign currency reserves.
The run comes at a time Fernández de Kirchner seems to be trying to turn a crucial financial corner without sacrificing Central Bank reserves. The President is also refusing to accept a drastic devaluation of the peso, claiming that such a move is promoted by powerful “corporations” eager to make a quick buck at the expense of workers’ income.
The dollar drought is also hurting the real estate market. Argentines (at least those who can afford it) are used to buying houses with wads of dollars in cash. Now Kirchnerite lawmakers and officials are urging the public to “think in pesos.”
Edgardo Depetri, a ruling party lawmaker, has tabled a bill in the Lower House of Congress calling for the pesification of all commercial transactions in Argentina. Depetri’s bill comes soon after both Cabinet Chief Juan Manuel Abal Medina and Deputy Economy Minister Axel Kicillof denied any drastic moves to further pesify the economy.
Deputy Agustín Rossi, the head of the Kirchnerite caucus in the Lower House, expressed support for Depetri’s bill yesterday. But Rossi said that the debate had “only just started” and that CFK administration officials must be consulted. So, the pesification debate has “only just started.”
Fernández de Kirchner has thus launched a crusade to change the dollarized brains of many Argentines. “Think in pesos,” Rossi insisted yesterday. The problem is that many people don’t like to be told what they should think. Yet the row is not only about what currency you think in. It is also more crucially about getting the economic recipes right to avoid another one of those Argentine economic explosions.
The President, speaking at a ceremony in Government House to announce further trade barriers to import capital goods on Wednesday, announced that she was setting the example by converting her fixed-term deposit of about three million dollars into pesos.
These are testing times for the President. The government’s reputation could be ruined if anything goes wrong with the regulation policies, purportedly dictated by Kicillof, and the dollar deposits held in banks are somehow harmed.
Yet, unlike in 2001, if things do go wrong Argentina will likely pay the price of slow decadence rather than suffering another crippling crisis in a flash.
Fernández de Kirchner’s Victory Front (unlike then president Fernando de la Rúa’s Alliance in 2001) controls Congress. The Victory Front (unlike De la Rúa’s Alliance) also rules Buenos Aires province and has the backing of most Peronist governors.
A cold war is developing between Kirchnerite loyalists and Buenos Aires Governor Daniel Scioli, a moderate Peronist who has already announced that he plans to run for president in 2015 if the Constitution is not reformed to allow Fernández de Kirchner to seek re-election. But Scioli’s cold war with the Kirchnerites gains nothing with an immediate crisis in Greater Buenos Aires, which doesn’t mean to say that things are not getting tense.
The teamsters union, headed by CGT union umbrella group secretary-general Hugo Moyano, has announced strikes if demands for a 30 percent wage hike (and a bonus of 3,000-4,000 pesos) are not met. On Friday, the anti-government faction of the CTA union umbrella group staged street demonstrations. Moyano, until last year a key strategic ally of the CFK administration, issued a statement backing the CTA protests.
On Tuesday, the Liaison Board that groups the nation’s four farm lobbies, announced that the strike in Buenos Aires province to protest a land property tax hike would continue for another seven days nationwide.
The economy has not crashed just yet. The President must still be given the benefit of the doubt. But who can tell if Argentina will not eventually hit a brick wall?
Thursday is usually a busy political day. Last Thursday was packed with action. That day the Central Bank scrambled to deal with the persistent drain of dollar deposits, the saucepan-bangers marched on Plaza de Mayo and then, just before 11pm, the Media Secretary Alfredo Scoccimarro called a snap press conference at Government House to announce that Daniel Reposo had resigned his bid to be named prosecutor-general because he lacked sufficient support in the Senate, where the opposition questioned his credentials.
The President had nominated Reposo to replace Esteban Righi, the previous prosecutor-general who quit in disgust after his law firm was accused by Vice-President Amado Boudou of trying to sell him favours.
Boudou himself is facing allegations of influence-peddling to help the printing company Ciccone clinch a contract to print 100-peso bills. Reposo, currently the SIGEN comptroller, was recommended to Fernández de Kirchner by Boudou.
The President has now nominated prosecutor Alejandra Gils Carbó for prosecutor-general (she is more qualified according to the opposition). Reposo’s resignation could mean that Boudou’s situation in the CFK administration has been further weakened.
By sacrificing Reposo, the national government grabbed a headline on that difficult Thursday night when the din of the saucepan bashing was still ringing in everyone’s ears.
Yet what is the real dimension of this near-crisis? And how much of it is posturing? The President on Wednesday also announced that she was placing the transport portfolio, currently managed by Federal Planning Minister Julio De Vido, under the wing of Interior Minister Florencio Randazzo. Randazzo, the President said, will manage a new Metropolitan Transport Agency. It all sounds terribly boring, but effectively Randazzo on Friday met in Government House with Scioli and Buenos Aires Mayor Maurico Macri, the leader of the centre-right party PRO. Hardly spectacular stuff? Think again.
Macri had been refused meetings by the President after he decided not to accept the transfer of the Buenos Aires City subway from the national government. The drastic changes in transport policies, and the argument between CFK and Macri about the subway, are the consequence of the Once train station crash that killed 51 people on February 22. Effectively that drab meeting on Friday hosted by Randazzo signals that the national government and the opposition are on speaking terms once again. Randazzo is also talking to Scioli, who is likely to emerge as the President’s main rival for the control of the Peronist party once a new fight for the presidency nears.