Taxing the dollar

The currency exchange controls get tougher by the minute, but politicians still find time for ideological arguments

Polls show that President Cristina Fernández de Kirchner’s popularity, after her whopping 54 percent re-election victory last year, is now under 40 percent — not good. But those polls also show that the opposition’s approval rating is also less than 40 percent. So what good is looking at those perplexing polls now with the next vote in sight, the midterm elections, about a year away?

Yet you know that politicians, the local ones at least, look at public opinion polls on a daily basis. Argentina, infamous for pulling out of a crisis only to plunge into the next one in no time, is all about electioneering. You try driving into the brain of the nation’s politicos the notion that this is not, repeat, not an election year and that they should all be busy working for the good of voters. Is it happening? No it’s not.

The biggest sign of conflict is the constant bickering between Fernández de Kirchner, a centre-left Peronist, and Buenos Aires Mayor Mauricio Macri, the leader of the centre-right party PRO (and a reader of Ayn Rand). Politicians here waste an enormous amount of time telling the public that ideology is not important. But Fernández de Kirchner and Macri engage in ideological battles often. A latest spat was the one over the school activism of the Kirchnerite youth wing, La Cámpora. Macri’s administration released a toll-free telephone number for citizens to report political activity in schools. The President, in many public appearances, has accused Macri of totalitarianism over the phone line. Macri, the President says, considers himself a “liberal,” but his toll free number (and the decision to suspend teachers involved in a mocking protest of his reforms) reeks of Josef Stalin. But wait. The critics also allege the Kirchnerism has Stalinist ways.

So why don’t they all give old Stalin a rest? Because Argentina’s politicians are hooked on electioneering — that’s why. Possibly this is so because institutions in the past have been so weak that power at times is almost literally up in the air to be grabbed by anybody in Argentina.

Power was very much up in the air when the late Néstor Kirchner, the President’s husband and predecessor, grabbed it in 2003. Kirchner ruled until 2007, the year his wife, Fernández de Kirchner, won the presidential elections. CFK was also re-elected in grand form last year, riding a wave of sympathy over the death of Kirchner in 2010.

Yet that big election win for CFK last October seems not to have done away with the country’s volatility. Power can slip from the hands of big election winners in no time here. Take a look at what happened to Fernando de la Rúa, once the leader of the now defunct Radical-Frepaso Alliance. De la Rúa was ushered into the presidential office with more than 50 percent of the vote in 1999, only to quit under pressure in December 2001 when the country, unable to service its huge foreign debt, imploded. De la Rúa, now reduced to a shadow of a man who can barely manage to make himself audible, on Tuesday appeared in court to face charges that in 2000 he orchestrated the payment of bribes to Senators to clinch the approval of a labour reform bill. De la Rúa, a Radical who has pleaded not guilty, has long alleged that his government was brought down by a conspiracy that included the Peronist party and the International Monetary Fund. Yes, whatever. Ultimately, De la Rúa’s government collapsed over the economy, stupid.

The Alliance administration come 2001 could no longer service debt and sustain the peso-dollar peg. So, if you want to guess what the future holds for Fernández de Kirchner you should take a look at the economy.

Argentina under Fernández de Kirchner has not collapsed — yet. The official making the key economic decisions is Deputy Economy Minister Axel Kicillof, an economist trained at the state-run University of Buenos Aires (UBA) who has been described by one Wall Street Journal columnist as “neo-Marxist.” Even when the President was celebrating her victory back in October there was a run on banks, savers rushed with their pesos to purchase dollars.

Kicillof’s answer to the bank run, which was slowly but surely draining Central Bank reserves, was to slap strict currency exchange controls. Those controls are getting stricter. Officially a dollar is worth about 4.65 pesos. But in the black market it trades for about 6.40 pesos.

Time will tell if the currency exchange controls are a slow form of political suicide. But the controls are not going away and Kicillof is showing that he is not afraid of regulation. Here’s some more: the AFIP tax agency on Thursday announced that it was slapping a 15 percent levy on credit card purchases abroad. Technically, the levy will count as credit to be discounted from income and wealth tax. Yet the decision was made because credit card purchases abroad at the official rate of (about) 4.63 pesos to the dollar were a deal. The 15 percent hike also includes debit cards and purchases made in dollars (or other currencies) over the Internet. Effectively, Argentina now has three dollar rates. The official rate, the credit card rate (the “tourist dollar” as it is called locally) and the black market dollar (known here as the “blue” dollar).

How much fun is it for the average citizen to juggle with three different dollar rates? The late Juan Perón, the founder of the President’s party, addressing concern about the dollar rate, once asked the public, “How many of you have actually seen a dollar?” Well, how many of you have actually seen three different dollar rates in one state? Travellers can still ask AFIP to purchase dollars at the official rate, but only seven days before going abroad and get an average of 70-100 dollars for every day of travel.

Yet it’s also news that the currency exchange controls have been swallowed by much of the public. There’s a whole chunk of Argentina’s population that will consider the whole fuss about dollars abstract because it has no access to that kind of money and that kind of travel. The currency exchange controls were met by a wave of saucepan-bashing demonstrations in the upmarket neighbourhoods of Buenos Aires City earlier this year when they were tightened. But, perhaps predictably, the noisy protests over dollars did not spread to the working-class neighbourhoods.

So is Argentina now divided between those who have dollars in their pockets and those who have not? It will take a major crisis to down the CFK administration. The Kirchnerite government survived a major crisis in 2008 when it famously lost the standoff with the farmers over soybean export duty increases in 2008. Fernández de Kirchner’s popularity in 2008 stood at about 20 percent. She bounced back.

Kicillof’s recipe now seems to be this: banning dollars and printing and injecting pesos into the economy. Inflation, which according to independent economists increases at a rate of at least 25 percent a year, is a problem. But salaries are also updated annually to roughly keep up with inflation.

The President joined a meeting of the Minimum Wage Council on Tuesday night to announce a 25 percent increase come February. The minimum wage will thus increase to 2,875 pesos a month in February. It will increase from 2,300 pesos to 2,670 pesos this month. The Labour Ministry presided over a council meeting on Tuesday that included pro-government union leaders and business executives. The meeting was not attended by truck driver Hugo Moyano, the leader of a faction of the General Labour Confederation (CGT) that no longer supports the national government. Mo-yano said he did not join the meeting because he is locked in a legal dispute with the Labour Ministry over his re-election as CGT head in June. The Labour Ministry has said Mo-yano’s re-election was not legal due to lack of quorum and extended his mandate until October so that a new leadership could be elected. The pro-government unions plan to elect a new CGT boss come October.

The pro-government unions that attended Tuesday’s minimum wage talks included the UOM metal workers (headed by Antonio Caló), the UOCRA construction workers union (Gerardo Martínez) and UPCN civil servants union (Andrés Rodríguez). Also attending was the pro-government faction of the left-leaning CTA union grouping.

Moyano’s CGT, the anti-government faction of the CTA and the FAA federation of small farmers headed by Eduardo Buzzi were not present on Tuesday and have the clout to stage major protests. But Tuesday’s meeting went ahead as planned because quorum was achieved even without the anti-government factions present. The big industrial unions are not backing Moyano. Yet the pro-government CGT is struggling to agree on a new leader, even when originally announcing that Caló would be elected as the new secretary-general.

Even with the President’s current performance in polls, what must be unsettling for the opposition is that Fernández de Kirchner’s popularity has dropped before and she then went on to win re-election in 2011. Fernández de Kirchner has not confirmed any plans to reform the Constitution to seek a third consecutive term in office in 2015. Yet a group of Kirchnerite intellectuals have declared that a drastic reform of the “liberal” Constitution is required. The ruling party is also moving ahead with a bill to lower the voting age from 18 to 16. The bill also allows permanent foreign residents to vote. A Senate committee will consider the voting at 16 bill this week. Is this the start of a bid to reform the Constitution? Ask the Kirchnerite electioneers that question — and see if you get an answer.