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Sunday, January 26, 2014

Out of the blue

Duo. Dynamic? Cabinet Chief Jorge Capitanich speaks with Economy Minister Axel Kicillof next to him during that all-important press conference on Friday morning.
By Martín Gambarotta
Herald Staff
Capitanich and Kicillof show reflexes, but is it too late?

Newspaper hacks can now thank Cabinet Chief Jorge Capitanich for at least one thing: his early morning press conferences. Most of these press conferences in Government House, since Capitanich was named in November, have been considered hollow chatter, critics say. The Cabinet chief was dishing out to reporters waffling, not waffles, for breakfast. But on Friday Capitanich, flanked by Economy Minister Axel Kicillof, made the biggest announcement since the two new ministers were appointed in November. The strict currency exchange controls, Capitanich said, will be eased starting on Monday. Individuals will be allowed to purchase dollars at the official rate once more, he added.

Kicillof, a 42-year-old doctor in economics trained at the state-run University of Buenos Aires who has been appointed at a time there is growing concern about the Central Bank’s dwindling foreign currency reserves, said not a word as Capitanich announced the extraordinary news. Capitanich usually takes questions at the morning press conferences. But not this time. When he finished speaking both Capitanich and Kicillof shuffled out. But before they had entirely left the podium Kicillof turned on his heels and glared at the reporters firing off questions. Kicillof, who could hardly hold back his ire, blared out one quick statement: “Look, the same ones that 10 years ago told us that a dollar was worth a peso are the ones who are now trying to convince us that it’s worth 13.” Then Kicillof walked off. In a country used to late evening political announcements, the day’s momentous business was done with well before noon.

The press had a full day to assess the new situation. There’s a novelty in itself.

Capitanich and Kicillof faced the press after two full days packed with financial uncertainty. The peso lost 3.4 percent of its value against the dollar on Wednesday. It was the biggest devaluation since Argentina’s economic meltdown in 2002. The black market dollar, which is locally called the “blue” dollar, rose 29 cents and traded at 12.15 pesos. What was going on? Suddenly the Central Bank had crossed its arms and stopped throwing its dollars to regulate the official market.

Thursday was even headier. That day the peso again say the biggest devaluation since 2002. Officially a dollar was worth eight pesos (up from 7.14 pesos on Wednesday) by the end of the day. Rumours swirled about meetings at the Central Bank attended by Kicillof. But there was no official word as the devaluation continued.

The peso was dropping so fast that when President Cristina Fernández de Kirchner made her first public appearance of the year in Government House on Wednesday afternoon she had boasted that Argentina’s minimum wage (3,600 pesos a month) was the highest in Latin America. But by Friday morning the worth of that salary in dollars had dropped substantially.

Fernández de Kirchner, who underwent head surgery to drain a clot in October, had made only two public appearances in December. She had made statements during the celebrations to mark 30 years of democracy on December 10. But she had since kept mum with the opposition complaining that she was “absent” and that there was nobody running Argentina at a crucial time.

Fernández de Kirchner looked fully recovered on Wednesday when her speech was carried live by all television channels in a national broadcast. The president in reality delivered three speeches that day. She spoke to announce a plan to grant subsidies of 600 pesos a month to 1.5 million destitute 18-24 year-old youths. Then the president spoke twice to Kirchnerite youth activists who had gathered in two Government House patios, confirming that she would attend the Community of Latin American and Caribbean States summit scheduled to open this week in Cuba.

The president touched down in Havana yesterday, well ahead of the formal opening of the summit prompting speculation that she will meet with Fidel Castro.

On Wednesday, Fernández de Kirchner mentioned the worth of the minimum salary in dollars. But the opposition underlined she said not a word on the plunge of the peso, inflation and the currency reserves (now below the 30-billion-dollar mark).

Market forces or something to that effect continued to do their work on Thursday. The “blue” dollar was worth 13 pesos by then and police and AFIP tax bureau agents raided the illegal “caves” that peddle the foreign currency.

AFIP had also been busy on another front. The tax bureau announced that purchases from international websites would be heavily taxed and effectively limited to two a year.

Critics will be critics. And currently they have a lot to criticize, starting with the currency exchange controls that were tightened in 2012 to the point that “saving” in greenbacks was not allowed by the tax bureau.

Argentina went to bed on Thursday night feeling financially anguished.

Then Capitanich and Kicillof called that press conference on Friday morning. Capitanich said that the currency exchange control, the “clamp,” will be eased because the national government now thinks that the official dollar rate has hit a “reasonable” level.

Here then were Capitanich and Kicillof, especially Kicillof, extending an olive branch to the middle-classes who have historically saved and purchased properties in dollars.

The ministers, who looked a bit like a Dynamic Duo standing in the Government House press room on Friday, tried to look in control of the situation. Yet at the same time they openly accused the Anglo-Dutch oil company Shell of deliberately trying to weaken the peso by offering to buy dollars above the official rate of eight-pesos on Thursday.

Kicillof looked a stifle bit chaplinesque when he uttered those few angry words at reporters. But later on Friday he also said in interviews with radio and television stations that there was a massive conspiracy on to force the price of a dollar up to 13 pesos (be it the “blue” dollar or, he joked, the “pink” dollar.)

Kicillof also emphatically denied that a dollar worth eight pesos will prompt price increases at a time independent economists are forecasting an annual inflation rate of 25-30 percent. The national government earlier this year increased public transport fares by 66 percent and Kicillof’s team of young Keynesians has also hammered out a “price watch” agreement with the country’s major supermarket chains. But at least one supermarket chain owner, Alfredo Coto, has voiced concern that a weaker official peso will make it difficult to heed the price agreements.

Tomorrow will be an interesting day. The full details of the new conditions for the average citizen to purchase dollars are not entirely clear and it will be up to the AFIP tax bureau to monitor the situation and decide who qualifies.

The dollar is blue if you ask the swindlers in the “caves.” It’s pink for all Kicillof could care. But will Monday be black when the gates of the banks and exchange houses are flung open and the masses flock to demand their dollars at eight pesos to once again stash them under the mattress?

Kicillof is showing political reflexes and could still talk his way out of the situation. But his last seven days in office have been hellish. The Economy minister’s week included a snap trip to France officially to open talks on Monday with the Paris Club of creditor nations, which are still owed by Argentina at least 6.5 billion dollars in defaulted debt (more like 9.5 billion counting interest). Kicillof said on Tuesday directly back from Paris that a formal offer had been tabled by Argentina, but that he could not offer details not to hamper negotiations.

The Paris Club formally said on Wednesday that the “creditors will study the proposal.” It added: “it is, however, too early to provide any feedback or reaction to Argentina.” Critics said that the Paris Club statement showed that no formal negotiation has opened.

The criticism will continue. But Capitanich and Kicillof pulled off one audacious move on Friday. It’s not all over yet.

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