September 17, 2014
Kicillof: our success is not down to ‘tailwind’
Economy Minister Axel Kicillof was given the last word at the Council of the Americas yesterday and used it to argue against “tailwind” theories of Argentine success, which he attributed to a unique model of re-industrialization during a commodity boom and drastic debt reduction.
The minister had been originally assigned a 12.30-12.45pm time slot, perhaps honouring the Andy Warhol dictum “Everyone will be famous for 15 minutes,” but he turned his quarter-hour into almost 70 minutes.
Anybody talking about a “tailwind” since 2003 should remember the 2008 global crisis and its consequences leading to uncertainty worldwide, Kicillof began. Debt-stricken Europe had been the worst-hit by that crisis with a “social catastrophe” resembling 2001 Argentina of 20-plus percent unemployment in several countries which will not be going away for many years. But now there were fears of this crisis reaching emerging markets because of second thoughts about all the programmes for quantitative easing, tapering and absorbing toxic assets (which have trebled the money supply in the United States) , thus ending international liquidity and prompting a “flight to quality.” And it is precisely those emerging economies which have kept the world going since 2008 with 76 percent of the world’s growth in the last decade, as against 45 percent in the 1990s.
Commodity prices (including soy) were down, Brazil was stagnant and even China is slowing down, thus leading to 2014 growth forecasts being pegged back worldwide —with the US almost halved from 2.8 to 1.7 percent.
Meanwhile the 10 percent growth in 2010-11 world trade (after the -13 percent crash of 2009) has fallen to an average two percent since then. Against such declines in demand, no exchange rate adjustment was any use, argued Kicillof — especially if some of the most stagnant economies like Brazil and Europe have long been among Argentina’s most important trade partners.
The minister then sought to refute the commodity boom “tailwind” theory by displaying a graph showing Argentina to have the third least favourable terms of trade in the region but the highest growth. Kicillof attributed this success to a reindustrialization model which has in no way been antagonistic to explosive agricultural growth — per capita industrial growth has averaged 4.9 percent in the last decade. Other commodity success stories have suffered the “Dutch disease” of currency appreciation preventing their industries from being competitive either at home or abroad — currency appreciation also made them vulnerable to speculation. But Argentina’s insistence on more formal jobs with good wages have created a virtuous circle of growth and aggregate demand — the complete opposite of the de-industrialization inflicted by the 1976-83 military dictatorship.
After complaining about prophets of doom and gloom trying to impose self-fulfilling prophesies, Kicillof then launched into his last two topics — energy and debt.
He defended a fuel import bill which could reach US$8 billion this year, he said — it was easy to achieve energy self-sufficiency in a collapsed economy like 2001 (there were double the energy needs now) and perhaps logical enough that it should be lost in such a successful year as 2011. Kicillof deplored the record of the private sector in exhausting the Loma de La Lata oilfields over the past half-century with minimal investment and hailed YPF’s current stewardship with the bright prospects for Vaca Muerta shale. Finally, he ridiculed the calls for Argentina to have world prices for its energy market if the sector is ever to take off, saying that no oil-producing country did this — local prices should reflect local costs. The current subsidies and fuel import bill should be seen as a bridge until Vaca Muerta came on tap.
Pointing to 77 percent growth in the last decade and 39 percent less debt, Kicillof insisted that less debt was the path to more growth — re-entering world debt markets was no solution, with a proven past record of leading to painful austerity. He hailed the success of the 2005 and 2010 bond swaps whose drastic 70 percent bond swaps had been accepted by 93 percent of creditors, also underlining that much of the debt which still remained was owed in pesos to the state itself.
Kicillof was not the only minister to address the Council of the Americas yesterday. In a Power Point presentation lasting 25 minutes, Industry Minister Débora Giorgi downplayed widespread talk of a crisis in the manufacturing sector.
“This decline drives us back to the levels of 2010-2011, not a crisis,” Giorgi concluded.
Nor was Argentina alone in the world — slowdowns in Brazil and Chile had caused industrial activity there to fall by 3.4 and 1.2 percent respectively this year.
Giorgi gave her pedestrian talk a rousing finish by blasting the “vulture funds,” accusing them of hovering overhead opportunistically as they sought to drive the country back to 2001 but forecast that they would fail because this is a “land of condors.”