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April 23, 2017
Friday, December 30, 2016

Are two heads better than one?

Outgoing Finance Minister Alfonso Prat-Gay was a complete failure according to virtually every economic indicator and therefore that should be end of story when seeking the reasons for his departure — and yet the dismal economic year ending tomorrow has almost nothing to do with his exit. The timing of the move in the midst of the festive season was more of a surprise than the dismissal itself — when Foreign Minister Susana Malcorra was making her unsuccessful bid to be the next United Nations secretary-general, Prat-Gay was frequently tipped as her successor (including by himself) as an elegant solution and in late July President Mauricio Macri publicly chided him for “having too much ego for his own good” (no doubt the tip of the iceberg for the number of times the same message was given in private). And yet the implications of his ouster go way beyond weeding out a lack of team spirit, as explained by Cabinet Chief Marcos Peña.

Nominally Prat-Gay will be replaced by Nicolás Dujovne and Luis Caputo as Treasury and Finance Ministers respectively (curious duplicating financial portfolios when there is no economy ministry) and nor will these be mere figureheads but in real terms the main driving-force of policy will not be any of the many ministers overpopulating the economic team but Peña’s two deputy Cabinet chiefs Mario Quintana and Gustavo Lopetegui — with the objective to produce a fiscal plan to cut sharply the deficit which the gradualist Prat-Gay neither could nor perhaps even wished to control. It might seem unusual to implement serious austerity measures in an electoral year but the Macri administration seems convinced that these levels of deficit are not only unsustainable but a decisive obstacle to the overseas investment sought with the expensive end to default. And should a tighter ship fail to reach port, the government could always revert to the more conventional electioneering of expansive public spending — the experience of Carlos Menem (introducing convertibility just six months before highly successful midterms in 1991) shows that half a year is sufficient time to change an election. In this sense 2017 might very well be similar to 2016 in terms of economic policy — starting with all kinds of “confidence shocks” only to fade into gradualism. But meanwhile the shock therapy to come should not be underestimated. Thus linking Dujovne to the International Monetary Fund is not merely opposition malice — the economist himself has repeatedly said that IMF loans would carry lower interest than post-Trump financial markets.

So will Macri’s electoral priorities or fiscal sustainability ultimately prevail? A question Prat-Gay never really bothered to tackle but which will now generate constant tension.

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