July 29, 2014
Dollar hits a wall
The Central Bank tames the greenback, but for how long?
Some people, bless them, are big players in life. Others are big players on Twitter. And then there are those happy few who are big players both in life and on Twitter. They have, say, over 10,000 followers on Twitter. Some own media groups. Some are journalists. What have you.
Here in Argentina some influential individuals have started to tweet that President Cristina Fernández de Kirchner will not see out her second consecutive mandate, which is scheduled to end late in 2015. They are also implying that Argentina’s elite would like to see snap presidential elections called at some point. Many of those doing the tweeting are saying that they do not agree with the idea of Fernández de Kirchner stepping down ahead of schedule.
Argentina has a history of president’s falling short of the finish line. The late president Raúl Alfonsín, a Radical, took office in 1983 and was forced out before the end of his mandate in 1989 during a fierce bout of hyperinflation. The economic meltdown of 2001 prompted the resignation of then president Fernando de la Rúa, another Radical who had swept to the presidency in 1999 leading the Alliance (a coalition that at the time also included the centre-left Frepaso). But are tweets to be taken seriously? Who knows.
The thing is that Interior Minister Florencio Randazzo on Monday vowed the president will see through her mandate and that those tweeting about snap presidential elections should “stop dreaming.” A bit of an argument started.
Luis Barrionuevo, the rightwing Peronist leader of the restaurant workers union who has fiercely opposed the Kirchnerite administrations from the start in 2003, declared that if government officials “feared” an early exit then this meant that it was a real possibility. Jorge Yoma, a former Peronist lawmaker who once belonged to the Kirchnerite Victory Front coalition, also said that the president should “change” or quit.
Defence Minister Agustín Rossi, once the chief Kirchnerite whip in the Lower House of Congress, has scoffed at this. Rossi has even stated that a Kirchnerite presidential candidate will win in 2015.
The chatter in the corridors of Twitter basically have been prompted by the Victory Front’s defeat in last year’s midterm elections in all the major districts. Issues like the the fudged inflation rate, the currency exchange controls and the arguments with the Supreme Court triggered massive street demonstrations, which started in the upmarket neighbourhoods of Buenos Aires City last year.
The sense of instability is enhanced by a prosecutor’s decision on Thursday to call for the interrogation as a suspect of Vice-President Amado Boudou in the influence-peddling case involving the printing company Ciccone. In a bold move Boudou showed up by surprise in court on Friday and filed two writs before the judge investigating the case claiming that he is innocent.
A new anti-government protest has reportedly been called for March 13. The new demonstration, if it happens, comes at a time the national government is battling to halt the drop in the Central Bank’s foreign currency reserves.
Fernández de Kirchner reshuffled her Cabinet after the electoral defeat in October. Jorge Capitanich, the governor of Chaco, was named Cabinet chief. Axel Kicillof, a 42 year-old Keynesian (some say Marxist) economist, has been named Economy minister. All eyes have been on Capitanich and Kicillof since then. But the president also named a new head of the Central Bank after losing the elections: Juan Carlos Fábrega.
If the critics have called Kicillof an “experimental” economist (Kicillof himself says that he is different from “conventional” economists) then Fábrega is the ultimate bureaucrat, a keeper of the books without a university degree who knows the Central Bank inside out.
The New York Times has eulogized about scholar Kicillof’s “rockabilly sideburns,” but who has time to pen a portrayal of 65-year-old Fábrega, the most powerful grey-haired bank clerk in Argentina?
Yet Fábrega is part of the team that is trying to stop the reserves from dropping further. That team also allowed the peso to lose about 23 percent of its value in January. The Central Bank reserves are now just below the 28 billion dollar mark. But the news is that on Friday the Central Bank stopped losing reserves (it won about 19 million dollars).
Kicillof has eased the currency exchange controls, registered workers can purchase the equivalent of 20 percent of their net income a month in foreign currency. But the Central Bank had continued to lose reserves.
The situation looked scary. The Central Bank was like a giant piggy bank losing dollars through a hole. But something has changed.
What has changed is that the Central Bank has issued a resolution telling all banks that they can only hold 30 percent of their assets in dollars come April. The banks have to sell about four billion dollars to meet Fábrega’s resolution. The official dollar is now worth just under 8 pesos. Has the greenback hit a wall?
Miguel Bein, a respected economist, has declared after taking a look at the price of the dollar in the market that the bank run against the peso is over.
It looks like Capitanich, Fábrega and Kicillof will navigate through February and beyond in the name of Fernández de Kirchner. It’s now less likely that Fernández de Kirchner will be forced out of office before the end of her mandate. Tweet that.
The government has also declared that grain exporters are poised to sell two billion dollars, meaning that the peso could remain steady at eight pesos without the national government having to use the Central Bank reserves. Is this, along with that relaxation of the exchange controls, enough to appease the anti-government camp? It probably is not enough. And yet the national government is once again showing resilience.
Kicillof has also announced a six- percent cap in fuel price increases following the peso’s devaluation. The Anglo-Dutch company Shell unilaterally increased prices 12 percent after the devaluation complaining about “costs” increasing 23 percent. Kicillof has accused Juan José Aranguren, the local head of Shell, of deliberately attacking the peso by at one point offering the purchase dollars at above the official rate when the peso was weakening rapidly in the black market.
The Kirchnerites shook their fists at Aranguren. But Kicillof said on Wednesday that he had met with the head of Shell and the company had agreed to take back its 12 percent price increase. Kicillof’s authority will be tested because some provinces could decide to defy the six percent price increase cap.
The national government is also now at odds with the big major supermarket chains.
Inflation in January was at least 4.5 percent and food and drink prices have gone up. Kicillof has declared that there is no reason for sweeping price increases. Kirchnerite groups have printed posters carrying the faces of owners of supermarket chains and major home appliance stores accusing them of jacking up prices indiscriminately. But if the Shell case is anything to go by this is the method the CFK administration uses to drag the business executives to the negotiating table.
There was also a lot of negotiation surrounding the state-run soccer league’s television coverage known as Fútbol Para Todos (FTP). Critics complain that the national government has used the huge viewing of football matches to air propaganda at half time. Capitanich opened talks with the local television magnate Marcelo Tinelli. But the negotiations broke down at the last minute when Máximo Kirchner, the president’s son and leader of the youth group La Cámpora, objected to the high salaries offered to the new commentators.
Fernández de Kirchner chided trade unions and business leaders during a public appearance in Government House on Wednesday to announce the first of two annual increase for pensioners (11.3 percent). Business leaders, the president said, were responsible for increasing prices. CFK also chided metal worker Antonio Caló, the leader of the pro-government faction of the CGT union grouping, who recently declared that workers’ are having difficulties feeding themselves with the salaries that they get. “I don’t agree with Antonio,” said the president sternly. The quip was understood as a humiliating chiding of Caló. Anti-government trade union leaders, including the teamster Hugo Moyano, rushed to the metal worker’s defence and said that soon the trade union movement would be once again united. But then Caló was quickly called to a meeting with Fernández de Kirchner at the Olivos residency in a bid to mend fences. Yet Caló is supporting demands by school teachers for a wage increase of 61 percent. The wage bargaining season practically opens with school teachers negotiating their pay and the situation could prompt strikes, especially in Buenos Aires province.