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September 16, 2014
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Argentina: Wall Street vs. Main Street?

Media say that when President Cristina Fernández de Kirchner steps down in 2015, there will be more market-friendly policies.
By Nicolás Tereschuk
Guest columnist

World media spread different interpretations of the country’s situation

“You may have seen the bottom with Argentina.” Greylock Capital Management CEO, Hans Humes, looks confident, satisfied. Last week he explained in an interview with Bloomberg TV why his company decided to start buying Argentine debt bonds a few months ago, when markets were “panicking across the board” waiting for a technical default of the country.

The thing is that this company, worth about 475 million dollars, according to the New York Post daily, is not just looking at the ups and downs of the battle of Argentina against vulture funds in the US courts. It has a complete theory on what things are going to look like for the country’s economy from now on.

Humes thinks that there is “a lot of room for compression and improvement once the country starts to stabilize.” As he puts it, President Cristina Fernández de Kirchner, who continued an “antagonistic relationship with the international financial community” started by Néstor Kirchner is now “running out of steem.” The CEO told Bloomberg that the President is on a “30-day leave” and that the party in office may not get a lot of support in next week’s elections.

So the markets are “looking for a transition” which may not “be all in her control.” “She may be told by ‘the powers’ that be that she needs to step aside,” Humes said. This is the point when Humes says that Argentina “may have seen the bottom” and that things are going to get better because the country may “stabilize.”

A part of Wall Street and also some big players among Argentina’s business leaders look at things this way. The moves towards a “normalization” with the international financial community led in the last few weeks by the Kirchner administration — talks with the World Bank, the settling with companies that won rulings over investment disputes, support by the IMF for a new price index and the word about talks with the Paris Club — are, according to that view, just the beginning. A transition is starting right now and a non-Kirchnerite government will push for a more “market-friendly” approach.

That view is no secret. A few days after Fernández de Kirchner underwent surgery to remove a blood clot close to her brain, Bloomberg news agency wrote that after the August primaries “Argentine bonds and stocks have rallied on speculation a change of government when Fernandez steps down in 2015 will result in more market-friendly policies.” “Argentina’s restructured dollar bonds have risen 5.8 percent since the primaries, according to JPMorgan Chase & Co.’s EMBI Global index. In the same period, the benchmark Merval stock exchange has surged 36 percent, touching a record” when the president was still in the Fundación Favaloro.

But, what sort of “bottom” — in Hume’s words — is this for a country? What kind of “instabilization”? If you hear other voices, maybe far away from Wall Street and closer to Main Street, you may see another reality. According to the Centro de Investigación y Formación de la República Argentina (CIFRA), a union think tank with a well established reputation, economic activity gained pace, unemployment fell and the weight of salaries in the economy recovered. Key sectors like construction and automobile production (4.000 units per day are sold, according to independent sources) has recovered since 2012. Gustavo Weiss, president of the Construction Chamber said some days ago that concrete sales will break the record high reached in 2011. Interamerican Development Bank information was released a few days ago, stating that Argentina has the widest coverage of social security for senior citizens in Latin America. Is all that information just “el relato,” as opposition media and leaders say? Isn’t this a funny “bottom” for a country that has known more monetary and banking crises than almost any state throughout the last 30 years?

Wall Street and the global financial sector in general have a very particular way of looking at things. In the same interview mentioned before, Greylock’s CEO said he has recently been to Greece where he and another 11 investment fund top managers, including JP Morgan, talked to the prime minister, Antonis Samarás. According to Humes, in Greece “economic data looks good” and that there he could see a “sense of change”. “You saw a political regime in control of politics and economics,” Humes said in praise, some weeks after the Financial Times described Greece to becurrently a “a land of opportunity for financial speculators.” The CEO didn’t look quite that worried about the record high unemployment rate of 27.6 percent, which reaches up to 50 percent for young workers. He neither considered mentioning the five general strikes called by the unions this year nor said Greece is hitting any “bottom”.

In a similar fashion, Emilio Botín, the owner of Santander bank told reporters last week in New York that “it’s a fantastic time for Spain because it is getting money for everything, for the stock market, the public debt and direct investments.”

“There has been a drastic change in the perception of our country abroad in recent months. There is a confidence in Spain as you can imagine,” Botín said. He acknowledged that “it is true that there is a 26 percent unemployment rate, but things are going to get better.”

An alternative vision on Main Street is not that difficult to find. “It is true that Spain enjoys a moment of glory: the reforms that have been carried out before the government of Zapatero and Rajoy now have been exclusively designed to recover insolvent private banks for their irresponsible lending policy and give more bargaining power and decision to large companies. The results are clear: massive drop in wages, which directly results in increased business profits, business banking and more impressive concentration for the banks and corporations that have made Spain the most unequal nation in our environment. At the cost, albeit huge job losses, of thousands of businesses ruined and millions of people who have lost everything, property, housing and social rights,” describes the economist Juan Torres López, from the University of Sevilla in a column in Publico.es.

To put it straight, a country like Argentina, which is actually experimenting economic problems like a high inflation rate and declining international reserves, but can show comparatively low unemployment rates as well as other sound social indicators is at the “bottom”. On the contrary countries like Greece and Spain, with economies that have been expelling workforce, are going through a “good moment”.

This odd criteria was also embraced a few days ago by the news agency Reuters, which said that “Argentina is inching closer to a currency crisis that could unleash economic havoc unless the government takes the tough decisions needed to increase confidence in Latin America’s No. 3 economy and stem the outflow of foreign reserves.” Talking about numbers, Reuters stated that “reserves are down by 20 percent this year to US$34.4 billion, their lowest level since early 2007.”

When you look at “good looking” Europe you will notice that in the last four years Greece, Portugal Cyprus and Ireland received more than 530 billion dollars in bailout packages. The European Union had to lend Spain’s banking system, Botín and others, US$ 51.6 billion dollars.

In the next two years there surely will be more room for this sort of clash of interpretations of the political and economic situation in Argentina and some distressed parts of the world.

* Nicolás Tereschuk is a political scientist and author of the blog artepolitica.com.

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