Will wages or policy go south?

Although in general an uneventful week so typical of a summer holiday month, 2012 might well end up being defined by which of the two developments portrayed in the photo sets the tone for the rest of the year — President Cristina Fernández de Kirchner’s incomes policy definitions on Wednesday or Prince William’s arrival on the disputed Malvinas islands the following day.

What lies behind the Malvinas brinkmanship which is giving Meryl Streep so much free publicity? The Foreign Ministry here offered one answer: “Governments should avoid the temptation to indulge in rhetoric which transforms patriotism into chauvinism with the objective of distracting public attention from economic austerity policies” — its use of the plural is a refreshing (if perhaps unintended) honesty implying that both sides might be seeking a distraction from economic constraints (although David Cameron’s coalition also needs to cloak its extreme confusion over Europe between Tory Eurosceptics and pro-European Liberal Democrats).

Strangely enough, London for once seems the more anxious of the two to play up this issue. The CFK administration is making a studied effort to leave the sabre-rattling to Britain (which accuses Argentina of seeking to blockade the islands economically by severing the mainland links via Chile’s LAN airline, leading to reports that there will be a Saint Helena airport for the 2015 bicentenary of Napoleon’s arrival there, but this interruption has yet to happen). Both the dispatch of the ultra-modern destroyer HMS Dauntless and the Duke of Cambridge’s arrival for six weeks of search-and-rescue helicopter training are unfortunately timed and attempts to present both as routine are unconvincing (even if the turbulent South Atlantic is surely one of the finest training-grounds in the world for search-and rescue operations) and come accompanied by contingency plans for boosting the British military presence on the islands.

But should we see this escalation as driven by the 30th anniversary of the 1982 South Atlantic war bringing sovereignty claims and national pride to the fore or are we really talking about oil nationalism (especially with the sister ships of HMS Dauntless appearing in the Persian Gulf)?

Yet the government would be foolish to look to South Atlantic offshore oil to resolve its fuel shortages (last year’s energy import bill reached nine billion dollars) with the mainland options available — for example, the almost billion barrels of shale oil in Vaca Muerta, Neuquén, announced by YPF only three months ago (not the first announcement of that kind). Whether in the South Atlantic or the Middle East, “fracking” stands to turn current global energy equations on their heads — thus the United States is rapidly moving from near exhaustion to becoming the world’s third oil producer — even if here it might give rise to environmental protests similar to those which have just stymied the Famatima gold mine from those who disbelieve the claims that the “fracking” threat to the water table has now been resolved by modern technology.

Opinion polls show that 74 percent consider the Malvinas issue important — important enough to redirect the Thursday march of the Mothers of Plaza de Mayo, for example, among sundry protests. The flurry of stories around this issue include yesterday’s submarine reports, the declassification of the post-defeat Rattenbach Report by the wartime junta (long no secret) and the opinions of General Mike Jackson that the islands would be harder both to take and retake than in 1982.

AND ON THE HOME FRONT. As for CFK’s incomes policy definitions, their clarity was somewhat akin to the visibility that same evening during that torrential downpour. CFK offered free collective wage bargaining with no guideline other than respect for company profitability and productivity but at the same time placed the whole process under a monitoring committee. But if this committee is to base its recommendations on the official data of INDEC statistics bureau, it would urge single-digit percentages for wage increases — indeed given that the average wage increase of 29 percent last year more than trebled official single-digit inflation, workers would be lucky not to be asked to hand money back.

Needless to say, organized labour does not see it that way — an unspoken government ceiling of 18-20 percent was countered by pay demands ranging from 24 to 32 percent (teachers), often not beyond mid-year. On Friday CGT Secretary-General Hugo Moyano revived last year’s demands, even if softened by a concern for presidential health — a higher income tax floor, the payment of alleged arrears to union-run health care schemes, removal of the floor to qualify for family benefits and company profit-sharing. Moyano is due to meet with Buenos Aires Governor Daniel Scioli (now returned from France), thus bringing together the two main heavyweight alternatives to CFK within ruling circles.

His son, teamster leader Pablo Moyano, was far more forceful, mounting strike action on behalf of laid-off Chubut postal workers — is this the shape of things to come this year or is the Moyano bluff being called? The CGT and the Pablo Micheli branch of the CTA (the other main umbrella union grouping) are talking about joint protest action next month although CGT ranks are not entirely seamless — many of Moyano’s colleagues do not see CGT demands as necessarily incompatible with continued alliance with the government.

Not even 1989-99 neo-conservative Peronist president Carlos Menem dared to take on the trade unions but CFK feels she has the omnipotence to confront business as well — taunting Moyano for milking state freight subsidies to the tune of five billion pesos to make his teamsters the highest-paid workers in the land were accompanied by jabs at the millionaire salaries of many businessmen (also to be the new committee’s brief?). CFK’s recent confrontation with YPF for “overpricing” (leading to nationalization rumours) took on a new twist at the end of the week when oil majors became the latest targets for the “fine-tuning” of subsidies, being stripped of some two billion pesos worth of tax breaks.

Incomes policy was not the only Wednesday announcement — indeed far more attention was paid to the 17.6 percent increase of the pension floor to 1,687 pesos as from next month (this floor thus remains well ahead of inflation — other pensions are another story). CFK also gleefully announced that last month’s tax haul was 29.6 percent up from the previous January (is inflation really that bad?) to 52.8 billion pesos, which projects annually to nearly 150 billion dollars or over a third of the economy. Somehow we are supposed to be delighted that the state is making this big a hole in our pockets but at least we should feel relieved that it has the wherewithal to fund Latin America’s most generous pension system (into which over 40 percent of beneficiaries do not pay).

The underlying message of CFK’s incomes policy of making wages “competitive with social inclusion” is that she will do anything to avoid devaluation, to which nobody should look for answers — exactly the same logic as Domestic Trade Secretary Guillermo Moreno’s newly intensified controls against an import upsurge which is directly the result of a skewed exchange rate.

Moreno’s latest brainwave is a “single electronic channel” for import clearances which came into effect at the start of this month on Wednesday with catastrophic results which might well have been intentional — apparently last year’s non-automatic import licences are not considered a sufficient bottleneck. Last year the trade surplus still fell 11 percent as against 2010 despite all of Moreno’s guerrilla warfare even if some experts say that it would have probably fallen 30 percent without it — the full force of Moreno’s mischief failed to prevent trade from reaching record levels last year, amid continuing economic boom. In the face of capital flight an 11 percent erosion of the trade surplus is not considered good enough by a government which needs those dollars to pay off debt.

Still early days for the new system — it remains to be seen how effective it will be in hampering imports and how Argentina’s neighbours will react. As things now stand, the “single electronic channel” is the worst of both worlds because insofar as it really is single, it is an overcentralized bottleneck but in reality this “single” channel is disputed between the AFIP tax bureau and Moreno himself, thus multiplying red tape. A “fast track” has been promised for capital goods and fuel imports — we must see how that works. As for neighbours, their reactions so far are cautious — Brazil (no saint itself when it comes to protectionism) still enjoys a massive trade surplus with Argentina (even if Brazil last month suffered a trade gap for the first time in years) while Uruguay depends too much on Punta del Este tourism at this time of the year.

Protectionism has yet to derail the boom (there were over 100,000 new car licences last month) yet the auto industry is a prime example of an activity heavily dependent on imported parts (those assembly plants in Tierra del Fuego etc. even more so). The cult of import substitution might thus defeat its own purpose in protecting jobs (a core aim of Kirchner economic strategy). Protected manufacturers all too often prefer to pad their profit margins rather than payrolls at the expense of local consumer restricted to costlier and often substandard local wares — the option of importing to keep prices and inflation down is also lost.

POLYTRICKS ETC. Not much party politics with most politicians on the beach — Vice-President Amado Boudou kept a third CFK term in the air while Radical Oscar Aguad and Socialist Hermes Binner had contrasting views on whether there should be a single opposition front against that possibility in a typical display of opposition disunity.

The International Monetary Fund, which has given Argentina six more months to come clean on its figures, is now increasingly beginning to question high growth rates as well as low inflation data (which have long robbed index-linked bonds) — passing off nominal as real growth by understating inflation might account for as much as a third of last year’s nine percent growth rate.

Monsoon rains (killing two in Córdoba) may help out the soy harvest although probably too late for maize. But basically it was a holiday week (with Mar del Plata alone boasting over a million tourists last month).