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November 29, 2014
Thursday, August 28, 2014

Lame duck facing vultures?

W.B. Yeats, whose famous line: “The best lack all conviction, while the worst are full of passionate intensity” could be paraphrased in Argentina’s case to read that the worst here are full of passionate intensity and also lack all conviction.
By Michael Soltys / Senior Editor / Economic Outlook
A long and winding road of U-turns

The current debate over the government’s consumer reform legislation (including an update of the 1974 Anti-Hoarding Law) has conjured up the image of a Leviathan state descending on all areas of business life — a very comfortable vision for both sides because it provides opponents with an easy argument while pandering to the current economic team’s fantasies of omnipresent state planning. But looking at some of last week’s decision-making, the Cristina Fernández de Kirchner administration in general and its shooting star Economy Minister Axel Kicillof in particular look much more like Hamlet than Macbeth (not that Macbeth was not also a great doubter amid all his hubris).

Some examples of recent U-turns now follow in temporal sequence.

Exhibit A: the meat export ban. Last Wednesday there was the snap announcement of a ban on beef exports for the next 10-15 days in order to counter rising prices at home (and just when there was a trade mission in Russia seeking to fill the gaps left by the sanctions slapped by much of the outside world against Vladimir Putin’s neo-imperialism). More than one newspaper pointed out the next day that (largely as a result of similar antics over the last eight years) exports had shrunk to six percent of meat production so that the price impact would be minimal. Evidently the penny dropped with somebody in the economic team because right at the end of the week there was an announcement that the government would be authorizing beef exports after all.

Exhibit B: foreign debt bond jurisdiction. On August 19 CFK tabled a bill to repatriate bond payments from the current deadlock in New York. Apart from City Mayor Mauricio Macri, the opposition took a couple of days to react but when they did, Sergio Massa’s team of economic heavyweights came up with the suggestion of alternative venues like France or Switzerland. Again there was this reaction of “Whoops, why didn’t we think of that?” and the next day the Economy Ministry was talking about paying bondholders in other countries as if this had been its idea.

Exhibit C: interest rates. These were Argentina’s salvation last summer when they were doubled to head off an inflationary surge and a run on the currency following a major devaluation but as the economy ground to a halt in the course of his year, Kicillof suspected this tight money of being the prime cause — and with every reason. About a month ago Kicillof finally seems to have prevailed over Central Bank Governor Juan Carlos Fábrega and interest rates inched down in the August 5-10 period. But Kicillof had mistimed his move for just after technical default and Central Bank reserves plunged in a bid to control a “blue” dollar shooting beyond the 14-peso mark. So this week started with yet another U-turn as interest rates recovered a point, serving to soak up at least some of the excess pesos being printed.

Not to mention last week’s lead issue — Donnelley’s multinational printers. Are they economic terrorists? A resounding yes was the initial answer to that question, followed by a mumbled no as the charges were scaled down to fraudulent bankruptcy (not that this does much to improve legal security with its CEO facing arrest).

Instead of the ideological extremism which many critics fear, all this corresponds to a pattern of stop-go economic decision-making. This places in a new light the business constraints sought by the new legislation, which in any case was being amended in yet another U-turn while this column was being written (not that the amendments seem to weed out all discretionary or constitutionally dubious clauses with items like fines payable without court appeal surviving). But in any case both these bills and the amendments are pretty irrelevant because the government has long been doing what it likes anyway — in many ways the legislation is running behind faits accomplis as usual.

But at the same time this state tutelage has been more apparent than real until now. In its zeal to be the people’s champion against corporate greed, the government has eliminated all other consumer protection. Whether he realized it or not, the former Domestic Trade Secretary Guillermo Moreno’s willingness to take on the big economic players effectively narrowed the field to them, thus concentrating the market further (there were far more deals than his bluster might suggest).

And why this erratic behaviour? Some will suggest that things are sliding out of control or that Kicillof does not know what he is doing but there are two likelier explanations of these inconsistencies. One is that Kicillof spends half his time listening to CFK and the other half latching onto any other ideas out there which might take his fancy. And the other is that he spends all his time heeding CFK and that all the inconsistencies come from there as economics is totally subordinated to politics (read opinion polls).

It must also be admitted that Kicillof has more wriggle room for inconsistencies than most ministers around the world. His colleagues have to operate within such constraints as a serious budget, inflation-targetting, monetary policy and financial regulation. None of that applies here — our Prometheus is unbound. And the result of such anarchy is that not even recession is working against inflation and nor is anti-cyclical spending against recession, as both did to take Argentina out of the 2008-9 global crisis into the 2010-11 mini-boom.

At the end of last week the World Trade Organization (WTO) ruling that Argentina’s import curbs were incompatible with its norms created quite a stir but this column would like to draw more attention to the July trade figures. These were all down — exports, imports, volume, everything — except the surplus (with imports falling almost twice as steeply as exports) and yet this was hailed in some quarters because nothing obsesses the “productive model with social inclusion” more than extra dollars.

Short shrift given to default today but the issue will doubtless drag on into future columns. Whatever its ravages here, the world does not seem to notice and nor do stock markets either at home or abroad — there have been new MerVal records this week while the Standard & Poor’s 500 Index broke the 2,000-point mark on Tuesday.

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