Who says you can’t fight City Hall?

The new K strategy is to co-opt mayors, undercutting governors

We always knew 2013 was going to be an election year but it has now well and truly started as such with the decree permitting the national government to send funds directly to municipalities, thus bypassing governors to make mayors directly dependent on the presidency.

A gigantic slush fund for electoral patronage was thus born (with over a billion pesos already remitted ahead of the decree’s midweek appearance in the Official Gazette), imposing at municipal level the discipline already inflicted on the provinces via a highly discriminatory distribution of federal revenue-sharing funds.

Yet both the timing of the decree (just after a Christmas preceded by a wave of supermarket lootings originating in Bariloche) and of its Official Gazette appearance suggest a Patagonian tail wagging the dog of this grand national plan. Only the day before the decree became public, the mayors of the ailing coal-mining town Río Turbio and the port of Caleta Olivia had applied for direct national funding of money allegedly denied by Santa Cruz Governor Daniel Peralta (Río Gallegos and Calafate had applied previously) — could it be that this new strategy of using mayors to undercut governors has the same Santa Cruz origins as the Kirchnerite model as a whole?

Whatever the origins, doling out alleged arrears to friendly mayors is not going to help fiscal responsibility in Argentina — politicians are long overdue for being made to spend within their means. Diverting public funds mostly intended for social purposes to electoral manipulation is also a dangerous game in a country with so many unresolved socio-economic problems (not to mention the graft potential illustrated by last year’s embezzlement scandal in the Mothers of Plaza de Mayo “Shared Dreams” low-income housing scheme).

Bypassing the provinces for municipal financing was not the only blow suffered by governors last week. On Friday Amado Boudou (back to vice-president from acting president and overacting as usual) rapped the “cowardice” of Buenos Aires Governor Daniel Scioli for sending a letter to Lower House Speaker Julián Domínguez seeking to raise the federal revenue-sharing issue in Congress (Jujuy Kirchnerite Governor Eduardo Fellner made a similar request the next day). Somewhat cheeky of an administration sidestepping the provinces with mayors to question the institutional correctness of governors going to Congress after being stonewalled by the central government. If the 1988 federal revenue-sharing law still in force stipulated four pesos going to the provinces for every three to the national government, the governors are lucky to pick up a quarter of funds now. While this municipal funding decree could have Patagonian origins, it seems safe to assume that Scioli (no stranger to being undercut by Greater Buenos Aires mayors) is the main target as a potential presidential frontrunner for 2015.

Meanwhile President Cristina Fernández de Kirchner (recently back from Asia — see below) also chimed in on Friday with a speech calling for a consumer boycott against steep prices and wage restraint. If she used the “i-word” just before departure and acknowledges the problem of high prices on her return, could the inflation denial of so many years be receding?

Not too much else to a political week largely limited to the body-blow to federalism and Friday rhetoric. The “re-re-election” drive for a third CFK term was refloated by Victory Front deputy Héctor Recalde (Rerecalde?) but played down by Lower House Majority Leader Agustín Rossi. The January court recess was not enough to interrupt the flow of appeals etc. in such politically charged cases as the Broadcasting Law litigation or the nationalization of the Rural Society’s Palermo fairgrounds but it kept the potential clash between executive and judicial branches in abeyance. If CFK’s aim is still to “democratize justice,” she should be careful what she wishes for — legal populism might not necessarily bring to the fore judges of the ilk of her administration’s favourite Supreme Court justice, Raúl Zaffaroni (although anti-crime populism can also be another government weapon against a “permissive judiciary.”

Undoubtedly the week’s strangest story was the sinking of the mothballed destroyer Santísima Trinidad (a veteran of the 1982 war and a 1975 Montonero bomb attack target) at its moorings in the Puerto Belgrano naval base. This caused sufficient uproar for two senior naval officers to be bounced amid charges of sabotage although it seems that the destroyer was extensively cannibalized to maintain other vessels. The episode also highlighted the neglect of defensive capacity with Argentina now effectively less of a naval power than Belgium (16 out of 70 vessels operational as against a 23-ship Belgian navy). Why should London feel any pressure to negotiate Malvinas sovereignty in this context?

POINTS FROM THE EAST. The first half of the presidential week was absorbed by the tail end of the CFK’s 10-day Asian swing, which we will try to summarize here as briefly as possible, as promised last week. If more attention was drawn to two of the three countries (the United Arab Emirates and Indonesia) being oil majors in the context of Argentina’s recent energy shortfalls, two of the three (Indonesia and Vietnam) are members of CIVET (Colombia, Egypt and Turkey being the other three countries in that acronym) — a quintet of emerging market middleweights widely tipped to be the next generation of pacesetters as BRICS (Brazil, Russia, India, China and South Africa) slow down. Moreover, Southeast Asia has advanced so fast in replacing China as the world centre of low-cost manufacturing that its share of global foreign direct investment (FDI) has almost caught up — 7.6 percent to China’s 8.1 percent. The 325 million mouths of Indonesia and Vietnam offer Argentina an interesting food market (the trade with Vietnam alone — a fast-growing one-party state evidently to her taste — has already hit 10 digits) even if Indonesia (the world’s most populous Muslim nation and the 4th most populous overall) still punches below its weight.

Yet this big picture was never really communicated by CFK’s rhetoric nor Domestic Trade Secretary Guillermo Moreno’s trade mission. Vietnam for her seemed to be a foxhole fashion statement allowing her to wallow in her favourite decade of the past, the seventies (including a bizarre comparison between Ho Chi Minh and José de San Martín as independence heroes). In Indonesia she seemed to retreat even further into the past — instead of confidently looking ahead to the future with other emerging markets like CIVET which embrace globalization and come out on top, she seemed to breathe the spirit of the non-aligned movement’s Indonesian birthplace at the landmark Bandung Conference of 1955 (of which she seems unaware) with resentful invective against the World Trade Organization, European Union farm subsidies and the Washington Consensus.

Spending too much time reading (and retorting to) trivial domestic press stories about her Abu Dhabi hotel or the presidential aircraft, she seems to lurch between the two extremes of the parochial and the global rhetoric she deploys annually at the United Nations General Assembly with neither approach advancing bilateral relations with more specific partners — travels abroad are not enough to reverse isolationism.

Summarizing the actual visit in telegraphic fashion, it consisted of an Energy Summit speech, a brief meeting with French President François Hollande and petro-dollar investment agreements in the United Arab Emirates; meetings with Indonesian President Susilo Bambang Yudhoyono in a flooded Jakarta and Vietnamese President Truong Tan Sang in Hanoi. Foreign Minister Héctor Timerman was politically correct but factually incorrect in dating 40 years of Argentine-Vietnam relations to the Héctor Cámpora presidency (instead of Juan Domingo Perón). Malvinas sovereignty was a constant theme in a trip aboard a Chapman Freeborn jet including a meeting with the Hong Kong Noble Group.

LABOUR ETC. Not only are all four umbrella labour groupings unanimous in favour of raising the income tax floor as almost a condition to start this year’s collective bargaining but they were joined by the Argentine Industrial Union (since nobody wins except an insolvent state with the tax trap of rising wages which add to labour costs without improving pay, especially punishing overtime). There also seems broad consensus on a 25-percent wage increase floor and universal family benefits but labour is more divided over multiple rounds of collective wage bargaining (Antonio Caló’s pro-government CGT has yet to subscribe). In other labour news, the “pre-agreement” for three months reached in the banking sector the previous week remains on ice in the Labour Ministry while nationwide teachers want 30 percent. A collision course between a Peronist government and its traditional organized labour “spine” continues to look inevitable.

Among 2012 economic data, the trade surplus and industrial production figures were announced separately (for better or for worse) when they flow into each other with the latter the price of the former. A 2012 trade surplus of 12.69 billion dollars (as against just over 10 billion in 2011) was partly at the expense of an industrial production decline of 1.2 percent although cause and effect are complex here — did trade barriers or general slowdown reduce imports or was slowdown the result of the import curbs? Import curbs blocking inputs were part of the industrial decline but also currency curbs crimping investment and rising real wage costs — the auto industry was a major casualty but also construction as a result of real estate paralysis (due to currency restrictions). Manufacturing has fallen from 18 to 16 percent of Gross Domestic Product in the last 15 years despite pro-industrial and protectionist policies in the last decade because Asian industrial growth and the commodity boom have transformed the terms of trade.