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August 27, 2014

This Week

Sunday, April 20, 2014

Running out the clock

CFK on Monday — sitting tight.
By Martín Gambarotta
Herald Staff

Is the president just waiting for 2015?

It’s not difficult to comprehend why the critics see so many things wrong with Argentina right now. For instance Axel Kicillof, the Economy minister, announced that March’s inflation rate clocked in at 2.6 percent, according to the new nationwide consumer price index as measured by the INDEC’s statistics bureau. Argentina, by the look of the official rate in the first quarter, is heading for an annual inflation rate of at least 30 percent. Ouch.

INDEC is a story in itself because it was taken over in 2007 by the Kirchnerite administration and the official inflation rate was no longer considered trustworthy. But the new consumer price index was designed with the approval of the International Monetary Fund (IMF). Some critics however insist that March’s inflation rate is still suspiciously low. Kicillof’s team has launched a “Price Watch” plan that sets reference prices for basic supermarket products. Those special prices, according to some economists, have an effect on the official rate and bring it down.

The “Price Watch” plan is also a story in itself because the low-price products are actually available in supermarkets and Augusto Costa, Kicillof’s young Domestic Trade secretary, is also intent on forcing the big industries to show him their costs. At times “Price Watch” looks anecdotal, but business leaders have started to complain about having to show their books to Costa — a sign that there might be more to the scheme than was first expected.

Many critics are also having a field day because, to deal with a context of inflation and dwindling Central Bank foreign currency reserves, President Cristina Fernández de Kirchner’s administration is suddenly going a bit “orthodox.”

The president on Monday launched a new plan offering tax breaks for businesses that take on workers legally, in a bid to fight against black market labour. Illegal labour currently stands at 33 percent and it is not budging. Fernández de Kirchner hopes that with the new breaks on employer contributions it will drop to 30 percent (meaning that 300,000 new registered jobs have to be created). But offering incentives to companies, at a cost of 4.1 billion pesos in tax revenue, sounds like old school “business-friendly” liberalism to the critics.

It is, say, the kind of policy that Domingo Cavallo, the neoliberal economic minister in the 90s, would have gladly announced.

So what? It’s all too easy to accuse the Kirchnerites of being fastened by senseless ideological straightjackets. But the minute they get pragmatic, especially under Kicillof and the Central Bank Governor Juan Carlos Fábrega, the critics start to get red in the face and shout about “adjustment plans” and sucking up to the IMF.

Who can put up with such noise? Nobody. But Argentines always do have to put up with political noises. It’s like listening to a next door neighbour who is trying to fib you out of something.

Yes, the national government’s policies do have a different tinge. Yes, inflation is heading for a scary annual rate of at least 30 percent. Yes, salaries as agreed in collective wage bargaining will lose out to inflation this year, meaning that the money that workers will have in their pockets will be worth less. Yes, subsidies for natural gas and running water rates have been slashed and will make life more expensive for everyone.

But then again salaries for the past decade have kept up with inflation, as measured by private firms, and have mostly gained on inflation almost every year since 2003. There was no eager reporting about this by the critics.

Polls also show that Fernández de Kirchner’s reputation is relatively intact. So, when you do away with the noise of the complainers, you could be looking at a situation where Fernández de Kirchner actually manages to conduct a smooth transition until the presidential elections of 2015 in which she can’t take part.

It’s not entirely unprecedented. But it comes as a bit of a novelty. Most democratically-elected presidents since 1983 have seen their reputations ruined.

Arguably, only Néstor Kirchner, the president’s husband and predecessor who died suddenly of a heart attack in 2010, did not suffer the fate of humiliation. Most others did.

Raúl Alfonsín, the Radical leader elected president in 1983, was forced to hand over power ahead of time during the hyperinflation crisis of 1989. Fernando de la Rúa, a Radical elected president at the helm of the Alliance coalition in 1999, quit late in 2001 during the financial meltdown that prompted the biggest sovereign debt default in history. Even Carlos Menem, the Peronist caudillo elected president in 1989 who went on to embrace the neoliberal policies executed by Cavallo, saw his political career practically finished when he pulled out of the presidential runoff against Kirchner in 2003 (polls showed that the ageing caudillo would have been thrashed).

What will happen to this government? Kicillof attended the annual spring meetings of the IMF and the World Bank last weekend. There was a lot of grunting about this. Kicillof, a scholar from the University of Buenos Aires, considers himself an “unconventional” leftwing economist who is not at the service of the free market. Yet there was speculation that the 42 year-old economy minister was about to negotiate agreements with the IMF and was even game to allowing the annual review of Argentina’s economy by the fund’s austerity-minded technocrats.

Kicillof returned to declare that there was nothing special about his visit to the IMF. There will be no annual review of Argentina’s economy by the IMF, he said, because the country “owes it nothing.” This is indeed the case because Argentina, under Kirchner, cancelled its debt with the IMF in 2006 (nearly 10 billion dollars). Brazil did the same thing at almost the same time. Yet Argentina is also currently in negotiations with the Paris Club of creditor nations to restructure a debt that is worth approximately nine billion dollars (counting interest).

Kicillof announced the 2.6 percent inflation rate for March on Tuesday after denying that he went on a honeymoon with the IMF. The economy minister also attacked the privately-measured inflation rates, saying that they don’t have the capacity to match that of a state agency.

Yet some private economists (see today’s frontpage story in the Herald) say that INDEC is not showing all its cards and attaching too much importance to the Price Watch products when it calculates inflation.

Kicillof’s assault on the unofficial inflation rate is a bid to kill negative “expectations” about Argentina’s immediate economic future. Things looked scary in January when there was no serious inflation rate to go by and the Central Bank was coming from a year of massive foreign currency reserve losses. But the Central Bank has stopped the bleeding of reserves and the inflation rate still looks high, but under control.

Forget all the jabs about Kicillof’s team selling out to the IMF. All this is being done in the name of protecting Fernández de Kirhcner’s political reputation after she hands over power in 2015.

The national government was hit by a large strike on April 10 called by opposition unions that dominate the transport sector. The president’s Victory Front, possibly anticipating more protests ahead, on Wednesday formally tabled a bill in Congress to regulate street demonstrations (especially roadblocks). But many major unions have already agreed to annual pay hikes of about 27 percent.

This is not looking like a good economic year. The auto industry, with Brazil ailing, looks like it is really hurting. Yet 2015 could be better and all parties will be concentrating in the race for the presidency — for the first time without a Kirchner since 2003.

“Won” or “lost” (or even “robbed,” according to the more feverish critics) the Kirchnerite decade will not necessarily be over in 2015. But the decade with a Kirchner in power definitely will because CFK is not allowed to seek a third consecutive mandate, according to the Constitution.

The year 2014 started with questions about whether Fernández de Kirchner will see out her second mandate. But now it looks like Fernández de Kirchner will not be turned into another Alfonsín.

That, even when there will be many transitions playing out, would be a development in itself considering Argentina’s volatile political history.

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