September 22, 2014
Life imitates soccer
If the two countries losing out in the most recent World Cup fixtures on Tuesday were the United States and Switzerland, this should add an extra dimension to the late Liverpool manager Bill Shankly’s famous dictum: “Football is not a matter of life and death — it is much more important than that” — it would also seem to be more powerful than money. After all, the United States remains the world’s leading economy (by a long way in dollar terms and even with the most strained interpretation of purchasing-power parities) while Switzerland is the iconic banking nation (even if the “vulture funds” seem to hang out in other tax havens these days) and neither of them could last two hours, even if they resisted the 90 minutes.
In these weeks we are living in two parallel universes — on the one hand, the Manhattan negotiations to keep at bay the vultures threatening to subordinate the real economy to finance in a world of income gaps yawning ever wider and on the other, the absorbing cosmos of “soccernomics” unfolding in Brazil where the growing equality among soccer nations seems an inexorable rule (especially in the second round where every single match was only decided in the final minutes and beyond, apart from Colombia being able to take relatively easy advantage of a “toothless” Uruguay).
Such equality is, of course, a mirage, even within the tournament’s parameters. The so-called World Cup is really a Euro-American club with its own G8 (the eight nations which have won all 19 previous championships between them) — even in Brazil 2014, Asia (the home of four out of every seven people in the world with around a third of economic output) vanished from contention long ago, its four representatives occupying four of the last six positions ahead of only Honduras and Cameroon.
The World Cup might be a mega-distraction but if we try to focus on the real world, no tangible issue emerges. Argentina might be playing Belgium rather than the USA in the World Cup quarter-finals but in the parallel universe the next challenge lies very much in the superpower — everything seems on hold for those aforementioned Manhattan negotiations, a protracted process more or less by definition which will not even start until Monday. Yet the whole default scenario is overrated — to an incredulous world where most countries have debts exceeding their Gross Domestic Products, it seems unreal that Argentina should be on the brink with an indebtedness of eight percent of GDP according to Economy Minister Axel Kicillof (and not much over a quarter of GDP, even with the most critical revision of Kicillof’s estimate). And indeed it is unreal.
On the other side of the negotiating-table, the world of the hedge funds looks even more unreal. Thus annual derivatives operations in the world are said to total some US$700 trillion or 10 times the entire global economy. Unfathomable, although it might become slightly easier to understand when examining the vulture practice of snapping up debt bonds at a tenth of denominated worth and then claiming their full face value. The trillions emerging from “quantitative easing” in the last five years (when is Kicillof going to discover that as the latest excuse for printing money?) are equally staggering. Faced with such departures from reality, who says “soccernomics” is unreal?
Nobody seems be looking beyond the World Cup and the debt negotiations to the long range or if they are, in the most simplistic terms — the sense of crisis (present from the start of the year with summer’s maxi-devaluation and given a new lease of life by the adverse US Supreme Court ruling in mid-June) is assumed to persist through to the next general elections at the end of 2015, while as from 2016 the new administration will turn Argentina into an investor paradise tapping Argentina’s universally acknowledged potential.
Yet while things will undoubtedly grow worse before they grow better, they should not necessarily be assumed to be all that bad in the first place. The widespread doom and gloom probably stems more from the solution to the year’s first crisis (i.e. recessively high interest rates) than that crisis itself — the currency crisis which then loomed is not on any immediate horizon.
In recent days Argentina has indeed officially entered into recession according to the official international definition of two straight quarters of negative growth, as confirmed by the official figures of INDEC statistics bureau (which also registered a five percent slump for May’s industrial activity). But this adds up to a mildly depressed economy rather than to any serious dislocation in its fundamentals and only serves to steel the determination to endure the negotiations with the vultures in order to return to global credit markets and exchange those crippling rates for the unprecedentedly low ones enjoyed elsewhere in the world.
Despite the fixation with the default spectre, people should be looking much harder at the longer term because Argentina will not be moving so effortlessly into prosperity in 2016 as its assumed wealth of natural resources and human capital might lead many to believe. And if exaggerated pessimism now perhaps leads to the outgoing Cristina Fernández de Kirchner administration being excessively criticized for an economy which is not that bad, it is also insufficiently criticized for its huge contribution towards making the future optimism overblown. Because whoever wins next year, they will have to grapple with the CFK heritage of chronic inflation, a massive disarray of relative prices, a persistently distorted exchange rate despite January’s major devaluation and a spiralling fiscal deficit with huge subsidies to dismantle. To which could be added the poor quality of that public spending, an unfair tax system, infrastructural neglect, stunted capital markets and declining educational standards. Whatever the problems now, all the real problems will have to be tackled as from 2016.
Yet throughout Latin America other countries have faced similar problems and taken them into their stride, generally progressing (outside Brazil which is a special case for reasons other than the World Cup although the costs of hosting the tournament also made their contribution).