September 1, 2014
What will 2014 bring?
We should be wary of comparisons with the past.
After doing a 2013 round-up with the first newspaper of this infant year, today’s task will be to preview 2014 — or at least the 98 percent of it still to go.
Forecasts include the most extreme scenarios. At a superficial glance there are points of overlap between the current situation and the two biggest disasters of the three democratic decades, the 1989 hyperinflation and the 2001-2 economic meltdown — all three phenomena come at the end of either a calendar decade or a 10-year economic cycle and all three follow a government electoral defeat by just a couple of months.
Yet since even calling the current problems a crisis could be overkill, there is no real comparison with the previous catastrophes. Perhaps the most worrying aspect of the vicious circle between inflation, depreciation, a surging “blue” dollar (closing in on 11 pesos this week) and slumping reserves is the lack of any exit in sight. But how can an inflation approaching an annual 30 percent according to the direst estimates be compared to the mid-1989 monthly rate of 191 percent? And if alarm bells go ringing because Central Bank reserves have fallen 40 percent from their peak to just over US$30 billion, there was not very much more money than that in the entire Argentine banking system in 2002.
Indeed when President Cristina Fernández de Kirchner made her widely mocked boast of Argentine superiority over Australia and Canada last August, her claim was based largely on Central Bank reserves as a percentage of Gross Domestic Product. The comparison was also statistically correct — the key point here is that Australia and Canada simply do not need all that many reserves because their economies enjoy a confidence which Argentina has lacked for ages.
In fact the reserves could prove to be the least of this year’s problems precisely because they are on the top of so many minds and the big priority for the government. The Central Bank itself is in more experienced hands than it was throughout most of 2013 with its new governor Juan Carlos Fábrega, who has vowed to slow down the expansion of money supply this year to just under or just over 25 percent. The new economic team has already shown a knack at tweaking dollars out of grain exporters, who have been offered a substantially higher official exchange rate in recent weeks. And if that exchange rate has its work cut out keeping up with both inflation and the “blue” dollar, its impact against imports is far more linear with that many more pesos needed per dollar. Meanwhile the latest credit card surcharge is doing something to trim tourist spending abroad. Last but not least, servicing the debt in 2014 will be relatively undemanding — under US$5 billion (which could have been even less had INDEC statistics not insisted on exaggerating 2013 growth).
Government targets for this new year could hardly be more precise — Cabinet chief Jorge Capitanich has specified 204 objectives and 272 targets while the prices of 198 products were defined for this first quarter last Friday. But the best-laid plans of mice and men...
Starting with that price freeze because on its credibility hinges the collective wage bargaining about to start. Even if the latest guidelines seem distinctly less arbitrary than the dictates of the previous price czar Guillermo Moreno (not very hard to achieve), the sheer limits of the product range covered compel considerable scepticism as to the chances of its success. Any sane person would stop a preview of 2014 right here.
If push comes to shove in collective bargaining and a wage-price race begins in earnest, political factors could come into play. Argentina’s dinosaur trade unions are always vulnerable to a counter-offensive and the CFK administration might well oblige, whether out of sheer self-defence against wager-push inflation or other motives. The rise of the shop stewards (with their political homologue in the three Trotskyist deputies elected last October) gives CFK ample room for “divide and rule” tactics against traditional Peronist labour bosses — CTA versus CGT etc. Last year there were signs from the very first week that judicial reform was planned as the great government crusade of 2013 (talk of taxing judges and lifting the court recess) before it became officially enshrined with the state-of-the-nation speech of March 1 — watch out for a similar sequence this year with the trade unions as the target.
Capitanich offers us 204 objectives and 272 targets for this new year but just one or two would probably give us a clearer idea — what are the government’s aims? Tuesday’s U-turn over the wealth tax (with market values first affirmed and then denied as the basis for real estate assessment) does not aid confidence that the government knows its own mind. The editorial on this page explores this issue more fully but it might just be added here that an often overlooked difference between CFK and her late husband was the latter’s Swiss ancestry — this made him a tight hand with the Treasury accounts while she always seems to subordinate solvency to courting popularity. Whither Fábrega’s vows for more monetary discipline this year?
As Seneca said, no wind is favourable for those who do not know to which port they are sailing. Not that the 2014 winds around the world look especially favourable, even for clearer-headed helmsmen, where Argentina is concerned. Even if emerging market growth is forecast to average somewhat more than five percent growth this year as against slightly under in 2013, international analysts place Argentina in the bottom half along with that electoral quintet of Brazil, India, Indonesia, South Africa and Turkey (all going to the polls this year), as well as the turbulent Ukraine and Venezuela. Of all these fellow-strugglers, Brazil is by far the most important for here — a continuing downturn there (even in World Cup year) would surely doom Argentina’s stellar auto industry, thus making this country even more soy-dependent than ever.
As yet another measure of that soy dependence, tiny Uruguay has just overtaken erstwhile global breadbasket Argentina as a wheat exporter — wheat and meat stopped being the name of the game in this country a long time ago. But who would want to forecast the soy or any harvest after December’s heat wave and Tuesday’s storms? Time to stop a 2014 preview right there again.