March 9, 2014
This WeekSunday, February 23, 2014
Trying to land softly
There’s nothing like upheaval in other parts of the world to put things into perspective here at home. Look at those blood-curdling photographs dispatched from Ukraine and Venezuela and suddenly the situation in Argentina feels under control. That could change. But the same goes for almost every region in the world. It’s quiet one day. Then the turmoil can hit.
Argentina has a history of unrest. So it can’t really feel entirely comfortable at any given time. Ukraine is too far removed for politicians to have anything to say about it. But oil-rich Venezuela is a big regional player. President Cristina Fernández de Kirchner, speaking at a rally in Greater Buenos Aires on Friday, called for Venezuela’s electoral results (including the vote that ushered President Nicolás Maduro to power) to be respected. She also called for “peace.” The CFK administration did not embrace the comments by the pro-government activist, Luis D’Elía, who wrote on Twitter that Venezuela’s jailed opposition leader, Leopoldo López, should be “shot.” Many commentators, especially in the US, are wondering why the leaders of Latin American nations, like Brazil’s Dilma Rousseff and Fernández de Kirchner, have not sided with the student protests in Venezuela. But is that really a legitimate question? Venezuela is an important regional ally to both Brazil and Argentina. Rousseff has a leftwing background, so it should come as no surprise that Argentina and Brazil are steadfastly on the side of the Bolivarians. Argentina’s Foreign Minister has officially supported Maduro. Most of the opposition has condemned Maduro. But Latin America has an ugly history of coups and uprisings, so it is really oversimplifying things to expect Rousseff to wake up one day and throw the weight of Brazil behind the anti-Bolivarian protests.
In Argentina one of the opposition leaders who has condemned Maduro is the rebel Peronist Sergio Massa, the former mayor of Tigre who won the midterm elections last year in Buenos Aires province when he defeated the president’s Victory Front coalition. Massa is a potential presidential candidate in 2015. He performs well in polls. So it’s not impossible to imagine that Argentina, after 2015, could think differently about its regional allies, including Venezuela.
Venezuela is clearly dominating the continent’s news. Yet it is not the dominant issue in Argentina’s domestic politics.
There’s too much to worry about. A crisis is always latent in Argentina. January was not an easy month for the Fernández de Kirchner administration, and the year ahead can still turn out to be a very turbulent one, dominated by the salary demands voiced by trade unions (some of them anti-government) who fear that their workers will lose out to inflation.
These are supposed to be the slow months of summer. But there was nothing slow about January when the peso lost 18 percent of its value. The national government’s new nationwide inflation rate, known as IPCNu, increased 3.7 percent in January.
It is in this context that the national government is negotiating salaries with the teachers’ unions. The talks are complex because what the teachers are negotiating with the national government is the basic starting salary for a teacher. That salary currently stands at 3,416 pesos a month, which is not much with inflation now a rampant problem.
Some teachers’ unions are demanding a 41- percent increase. Others have demanded a 61-percent hike for the starting salary. Talks on Friday between the national government and the teachers adjourned with no agreement. The national government could decide to pass an increase by decree. But the teachers will then have to negotiate with provincial administrations. The conflict is heading for a strike that will be called by the teachers. If schools don’t open, the political year will not start in a orderly manner, and there are many collective wage bargaining deals ahead.
Arguably this will be a year when salaries will lose out to inflation. The challenge for Economy Minister Axel Kicillof is to convince the trade unions that they must accept the increases that are being offered. But February’s inflation rate will be announced soon and it will not be significantly lower than that of the previous month.
The government has launched a “Price Watch” plan, but it is struggling in getting business leaders to comply. Supermarket chains have been fined 3.4 million pesos. But government officials have complained that they lack the clout for the fines to have any real effect. Kirchnerite lawmakers have tabled bills calling for stiffer sentences for those who breach the price accords. The AFIP tax bureau has also announced that it plans to monitor the grain trade.
Fernández de Kirchner, like so many other leaders before her, has declared war on “speculation” in times of inflation, dwindling Central Bank foreign currency reserves, and a shortage of dollars.
The president has rarely offered press conferences. But Cabinet Chief Jorge Capitanich can’t be accused of shying away from the press. Capitanich, the talkative governor of Chaco province (on leave now), offers a daily morning press conference. Capitanich has said that the national government is looking at ways to regulate business profits. Yet Capitanich later denied that this implied any formal control of profits.
The national government is trying to keep its confrontational rhetoric in check. But the bills it has sent to parliament, the AFIP monitoring of the grain market and also an announcement that the CNV national securities commission will also launch a crusade against “price speculators” show that the CFK administration is convinced that there is battle to be fought and that it can be won.
Opposition economists say that there is not a chance of winning that fight and that Argentina is now heading for “stagflation” and recession. The government said on Friday that the economy grew 4.9 percent in 2013. But this is 2014. The trade surplus fell 88 percent in January and industrial output went down three percent in the same month.
Fernández de Kirchner has begged business and trade union leaders to be “intelligent,” meaning that they should not kick up a fuss about this year’s economic problems after so many years of sustained growth. The president is scheduled to deliver her state of the nation speech to Congress on Saturday. The situation is relatively stable because the government, after the devaluation of the peso, has managed to keep the price of a dollar at just under eight pesos. The currency exchange controls have also been relaxed and the Central Bank is losing reserves more slowly.
The national government is also close to clinching an agreement with Spain’s Repsol for the nationalization of the energy company YPF (the deal will be worth about five billion dollars). Kicillof has also made a move to open talks with the Paris Club of creditor nations to renegotiate a debt of approximately nine billion dollars. The contest in the US Supreme Court with the holdouts of Argentina’s two debt swaps this decade is also continuing.
Evidently Capitanich and Kicillof, the two ministers appointed by Fernández de Kirchner after last year’s defeat, are trying to land softly. The national government is also reportedly poised to deal with the issue of state subsidies. Subsidies in 2013 increased 34 percent, according to the ASAP public finance association. The government spent 134.1 billion dollars in subsidies, according to the ASAP report. A total of 84.4 billion pesos was injected into the energy sector.
Power utility tariffs have remained practically frozen in Buenos Aires City and Greater Buenos Aires since Néstor Kirchner (the president’s late husband and predecessor) first won the presidency in 2003. But now the national government is aiming to do away with the subsidies that make paying your bills in the metropolitan area much cheaper than, say, in Córdoba and Santa Fe provinces.
The national government will pay a political price for altering the subsidies. But it has already paid a hefty price in having lost the midterm elections last year.
No price is too big now that the national government is trying to hit the runway softly. Argentina at the moment is not Ukraine. Argentina is not Venezuela. And at stake is Fernández de Kirchner’s political reputation. The president will be humiliated if Argentina plunges into economic hell once again and she is forced to cut short her mandate. Then Argentina could be Ukraine. Then Argentina could be another Venezuela. But Fernández de Kirchner’s aim is to serve out her mandate until 2015 in a bid to protect Kirchnerism’s political capital. She has an exit strategy.