BLEAK
FUTURE FOR ARGENTINA ?
Executive Summary:
- Marci’s artificial crisis in the making
- Why promote a huge depreciation of the
currency with no clear external crisis on the horizon?
- Objective: To weakening the working classes bargaining power
- ARGENTINE'S political immaturity – always
blaming the previous governments for negative trends
- What’s
in store? Autocracy & Corporatocracy?
- Marci’s strategy for re-election campaign in
2019
- Marci’s reorientation of the economy towards primary-goods
production and strengthening the role of finance, has been the strategy of
ARGENTINE’S elites since the last military dictatorship
- Resurrection of the monsters of the past?
- The baby equation
The election of businessman MAURICIO MACRI to the presidency in ARGENTINA signals a rightward turn in the country and,
perhaps, in SOUTH AMERICA more generally. MACRI, founder of the far right-wing party
Compromiso para el cambio (Commitment to Change) party, defeated BUENOS AIRES province
governor DANIEL SCIOLI (the Peronist party candidate) in November’s runoff
election, by less than 3% of the
vote.
MACRI
is the wealthy scion of an ITALIAN immigrant family that made its money on the
basis of government contracts!!
He went on to work for the family
business and later, defying his father’s wishes, became president of the
popular professional soccer club BOCA JUNIORS. In 2003, he won election as
mayor of the capital city of BUENOS AIRES — the springboard for his eventual
election to the presidency.
This is a momentous change in ARGENTINA’S
history, since it is the first time that a right-wing party has won the
presidency by electoral means. In the past, conservatives had only gained power
through military coups or by disguising neoliberal policies under more
progressive electoral promises and the mantle of a left-of-center party—as in CARLOS
MENEM’S Peronist government in the 1990s.
WHAT’S
IN STORE? AUTOCRACY & CORPORATOCRACY ?
MACRI’S economic team includes
among its most prominent members ALFONSO PRAT-GAY, an ex-president of the
country’s Central Bank who also worked for JPMorgan Chase. FEDERICO
STURZENEGGER, secretary of economic policy in the Economics Ministry under
infamous finance minister DOMINGO CAVALLO—author of the main economic policies
of the 1990s— has been appointed the New Central Bank president.
In other words, the economic team
clearly signals a return to the market-friendly policies of the 1990s. This is
also true on the foreign policy front, were MACRI has already announced that he
intends to use the so-called “democratic clause” of the COMMON MARKET OF THE
SOUTH (MERCOSUR), the regional trade agreement, to exclude VENEZUELA for
alleged violations of democratic norms. (MACRI has backed off that plan since
the victory of the right-wing coalition in Venezuela’s recent parliamentary
elections.) He has also signaled a closer alignment with the UNITED STATES.
The economic program of the new
administration is quite clear, even though MACRI tried to hide his economic
advisors before the election, to reduce the impact of their unpopular views at
the polls. They will unify the foreign exchange market, in which there is
currently a large gap between the official and black-market exchange rates.
This implies a “maxi-devaluation” of the peso, from around nine to about 15
pesos to the dollar (assuming that the current black market level is their
desired nominal exchange rate). The effects of a depreciation of this magnitude
will be massive.
In contrast to previous
devaluations—most recently in 2002, after more than ten years of a fixed
one-to-one peso-to-dollar exchange rate under CAVALLO’S so-called
“Convertibility Plan”—this one is not caused by an external crisis.
While it is true that ARGENTINA’S current
account balance is negative, and that its reserves are relatively low, there is
no significant danger that ARGENTINA will default on its external debt now.
ARTIFICIAL
CRISIS - STORM CLOUDS LOOMING OVER ARGENTINA
The current account deficit is
not big, by historical standards or in comparison to other countries in the
region, and international reserves can cover the country’s immediate
obligations. Besides, under current conditions, with low international interest
rates, it would be relatively easy to attract capital flows with higher
interest rates, and borrow in international markets. (That would certainly be
easier if ARGENTINA could finalize an agreement with the so-called “vulture
funds,” the holdout bondholders that did not agree to the rescheduling of debt
after the last default.)
And, if anything, MACRI’S(unnecessary) promise to give in to all the vulture funds
demands and rapprochement with
the UNITED STATES and International Monetary Fund (IMF) would resolve any
short-run problems in financing the current account deficit.
WHY
PROMOTE A HUGE DEPRECIATION OF THE CURRENCY WITH NO CLEAR EXTERNAL CRISIS ON
THE HORIZON?
The
question, then, is why the MACRI government would promote a huge depreciation
of the currency with no clear external crisis on the horizon. The notion that
the depreciation would solve the current account deficits is fraught with
problems. Not only is the
external situation not dire—so depreciation would be a “solution” to a
non-existent problem—but there is also no evidence that exports will
boom after a depreciation. Exports respond more to the growth of the global
economy than to a change in relative prices. So for example, CHINA will not
demand significantly more soybeans from ARGENTINA, as a result of lower prices,
if the CHINESE economy is not growing faster.
Actually,
the only significant way in which the depreciation will reduce the external
problems of ARGENTINA is by causing a recession.
Depreciations tend to reduce real wages, since the increase in the price of
imported goods leads to inflation, which is not fully recovered by workers. As
a result, consumption declines, with a negative impact on economic growth. MACRI
and his economic team have been very explicit about the need for a huge
devaluation and the closing of the gap between the official and the
black-market (or “blue,” as it is known in ARGENTINA) exchange rate. This has
already triggered an inflationary surge, as noted by various international
renowned economists.
OBJECTIVE: TO WEAKENING THE WORKING CLASSES BARGAINING POWER?
The reason for the devaluation is
precisely to cause inflation and a recession, both of which would weaken
working-class bargaining power and, as a result, lead to lower real wages. And
that is the ultimate goal of the new MACRI administration. He has explicitly
said so, in one of the videos that his campaign tried to suppress.
The
video shows him suggesting that the way out of the problems of the 1990s—when
devaluation was not an option due to the Convertibility Plan—was to reduce real
wages to increase external competitiveness. The maxi-devaluation of the peso
will most likely be accompanied by a “fiscal adjustment plan” or, simply put,
austerity. This would push the economy further into recession, reducing the
bargaining power of workers even more.
ARGENTINE'S POLITICAL IMMATURITY – ALWAYS BLAMING THE PREVIOUS GOVERNMENT
 |
Argentina's "Tango Politics"
one step forward two steps
back |
Some skeptics suggest that MACRI
cannot pursue the classic IMF economic package of devaluation and fiscal
adjustment, since that would bring about both inflation and recession, a
politically explosive combination. However,
the administration will deflect political problems caused by the economic
crisis that these policies will trigger by suggesting that both inflation and
the recession are the results of the negative legacy of twelve years of
“populism” under the previous two administrations.
In fact, MACRI is already doing
this, with intensive media support (especially the Clarin Group), suggesting that the inflation
since the announcement of the depreciation is just a correction to its true
level. One can easily see how higher unemployment would be justified in the
same fashion, as an adjustment to the true and sustainable level.
Background Information:
MEDIA
INFLUENCE IN ARGENTINAS POLITICAL LANDSCAPE
MACRI
GOVERNMENT WILL CAUSE A CRISIS THAT DOES NOT EXIST RIGHT NOW
In
other words, the MACRI government will cause a crisis that does not exist right
now—though the economic situation may be difficult and growth in the last three
years has not been not high—but blame the effects of its neoliberal policies on
the previous government.
Background Information: ARGENTINE'S MANCHESTER LIBERALISM
MACRI’S
STRATEGY FOR RE-ELECTION CAMPAIGN IN 2019
The idea would most likely be to
weather a political storm over the next couple of years and then—after
resolving the issues with the vulture funds and normalizing relations with
IMF—start borrowing abroad again. That would help promote growth again in time
for a re-election campaign in 2019.
THE BABY EQUATION
And if all that does not work, in
all likelihood ARGENTINA’S first lady of LEBANESE descent will become pregnant,
just in time for the re-election in order to distract, with the help of the
dominant MEDIA CONGLOMERATE “CLARIN GROUP”,
from the real problems the country
faces.
Growth
would be also facilitated by the fact that the economy would be coming out of a
crisis, with real wages considerably lower, and the working class
well-disciplined.
MARCI’S
REORIENTATION OF THE ECONOMY TOWARDS PRIMARY-GOODS PRODUCTION AND STRENGTHENING
THE ROLE OF FINANCE, HAS BEEN THE STRATEGY OF ARGENTINE’S ELITES SINCE THE LAST
MILITARY DICTATORSHIP
Also, MACRI will reduce or
eliminate export taxes on grain and soybeans (known as retenciones, or
“retentions”), strengthening the position of the ruling elites.
The reorientation
of the economy toward primary-goods (agricultural and mineral) production,
along with a larger role for finance, has been the strategy of the ARGENTINE
elites since the last military dictatorship.
That is why there is such
continuity between the economic plans of JOSÉ MARTÍNEZ DE HOZ under the
military dictatorship of the late 1970s and the early 1980s, DOMINGO CAVALLO under
MENEM in the 1990s, and (one should expect) ADOLFO PRAT-GAY under MACRI in the
coming years.
The initial recession and cuts in
retenciones would significantly reduce government revenue and most likely lead
to larger fiscal deficits. Hence, austerity will actually worsen the fiscal
balance, contrary to what the MACRI and his advisors suggest. The key is to remember that austerity
policies are not designed to reduce fiscal deficits, even if that is offered up
as a rationalization; they are a political instrument for disciplining labor.
RESURRECTION
OF THE MONSTERS OF THE PAST?
In fact, the coming larger fiscal
deficits will most likely be used to try to cut social welfare expenditures,
which increased significantly during the administration of the outgoing
president CRISTINA FERNÁNDEZ and her predecessor (and husband) NÉSTOR KIRCHNER.
It would not be surprising if MACRI tries to privatize social security once
again, something that MENEM accomplished in the 1990s, and which had to be
reversed in the 2000s as a result of the private system’s complete failure to
provide a decent retirement for seniors.
But if the MACRI administration
is a throwback to the neoliberal era of MENEM, it is important to remember that
the current historical context is very different. Back in the 1990s, the fall
of the BERLIN Wall and the collapse of the SOVIET UNION gave the neoliberal
policies of the infamous WASHINGTON CONSENSUS a status of unquestionable truth.
Supposedly, ideology had vanished and history had come to an end. No
alternative was politically possible. Since then, the 2008 global Great
Recession has shown the world the perils of unfettered capitalism, and even if
the “KEYNESIAN MOMENT” was brief and austerity policies have reasserted
themselves, at least it is widely understood that the “free market” is no
solution for the problems of development in a globalized economy.
ARGENTINE SOCIETY
IS MORE ORGANIZED AND BETTER PREPARED TO FACE THE ONSLAUGHT OF NEOLIBERAL
POLICIES THIS TIME AROUND.
The socioeconomic situation in ARGENTINA is also very different. Back then, the
economy was coming out of two bouts of hyperinflation, a whole decade of very
low growth with very high unemployment levels and very low real wages, two
decades of social conflict with a considerably weakening of the trade unions,
several military coups, and an unresolved human-rights crisis from the last
dictatorship.
Now, the economy has grown at a
healthy pace over the last decade, though with slower growth over the last
three years. Unemployment remains at relatively low levels, and though
inflation is relatively high, real wages have still grown significantly over
the decade, with a considerable reduction of inequality.
Further, not has only the
reorganization of the economy strengthened the working class, but civil society
has managed to bring violators of human rights to justice, and finally come to
terms with the nefarious legacy of the dictatorship, something unique in the
region. The new government does not control congress, and the election was
close, signaling a divided country. In short, society is more organized and
better prepared to face the onslaught of neoliberal policies this time around.
Article adapted by Geopolitical
Analysis and Monitoring from the original article written by MATÍAS VERNENGO,
who is a professor of economics at Bucknell University, USA and economic consultant for
the UNITED NATIONS UNDP and ILO via Dollars & Sense
