Photo via Prensa Republicana

This year, Argentina’s economy is not unfolding in the way the government would have liked it to.

Although members of the Macri administration got to pat themselves on the back with the Indec’s report that the poverty rate in the country dropped by 4.6 percent between the end of 2016 and 2017, little to no news about indicators from 2018 in the economic landscape have been positive.

And those that were, were macroeconomic – such as GDP growth, a reduction in the fiscal deficit – meaning they have a rather small (if any) immediate impact in the daily life of the larger part of the population whose main concern lies within making ends meet. In contrast, those that do fit this category continue to pile up.

The high inflation rate that has burdened the population in the first quarter of the year – 6.7 percent – already represents almost half of what the government predicted inflation would be by the end of 2018 (a percentage that was increased from 10 to 15 percent). Moreover, these rates have been largely caused by the reduction of subsidies in public transport and utility bills that have been rolled out by the government. And yes, there are more to come.

Their impact seemed to reach a breaking point in the past few days, both for the public opinion – according to the news cycle – and a sector within the Cambiemos coalition itself. The opposition – or at least most of it – has been against reducing subsidies since day one, and former President Cristina Fernández de Kirchner even announced her intention to introduce a bill that would have the government roll prices back to December 2017 values, so we won’t really take them into account here.

Coverage of the public discontent has grown exponentially on the news, kicked off by yet another high inflation rate for March and followed by a long line of public statements made as a result of this recent discouraging stat. But it reached a boiling point with an announcement from National Deputy and Cambiemos co-founder Elisa “Lilita” Carrió and key ally of President Macri, who said yesterday she would introduce a formal request to have Cabinet Chief Marcos Peña present a report regarding the implementation of the increases in utility bills and public transport rates, suggesting an internal rift.

Carrió. Photo via Gira Buenos Aires
Carrió. Photo via Gira Buenos Aires

 

How did Cambiemos suddenly get here?

Same as every week, Clarín published on Sunday its so-called “Optimism Index,” a survey conducted for them by consultancy firm Management & Fit. The index indicated that the population’s expectations regarding the current and future economic situation have gone down, pushed by a sluggish economy. However, it also clarified that the number of people who believe the situation will improve in the future is still larger than those who think the present one is positive.

In an interview with Radio Mitre, Management & Fit head Mariel Fornoni illustrated the concept behind these numbers: “The government is losing [the people’s] trust in the message that things were bad but were going to be much better. I believe the main challenge, in terms of public opinion, is renewing those expectations. Have the people feel the austerity measures that are being implemented are necessary, but because it will get better in the future.

“If you look at the numbers, you see the perception is not much worse than in other moments of the administration. The main difference lies on the fact that, when the government took office, the difference between the analysis of the current situation and the expectations for the future was of 12 percent. Now it’s five percent,” she added.

Fornoni went on to say the polls conducted by the firm during the past months show that “since late last year, concerns about the economy hold the first place” in Argentines’ rankings. “Especially inflation and unemployment,” she explained.

In line with the popular discontent, the main representatives of the two smaller members of the Cambiemos Coalition, the Unión Civica Radical (UCR) and the Coalición Civica (CC), criticized the actions taken by the Casa Rosada, overwhelmingly dominated by the PRO.

The first one to do so was the head of the Radicales, Mendoza Governor Alfredo Cornejo. Speaking at an event at the Rotary Club, he mentioned Energy Minister Juan José Aranguren – responsible for implementing utilities increases – and said he “made the government screw up in several occasions.”

 

True, he could have made reference to Aranguren’s statement from late March, when the minister said in an interview he still had his own money overseas because he didn’t trust the country’s economy enough to bring it back. But considering that, according to La Nación, a group of Radicales intends to present the government with a plan to restructure the utilities increases plan, it did not seem to be the only reason for his discontent with the minister.

According to this same article, the Radicales also argue that “30 percent of the increases implemented are aimed at putting an end to lawsuits presented by energy companies due to the artificially low rates that were being charged during the Kirchner administration, and not only take the price to market value and put an end to subsidies.”

This theory, plus a report from the same publication saying that most middle-class and lower middle-class families who don’t have access to the so-called “social tariff” (substantial discounts only reserved to the most vulnerable sectors of society), have to use 20 percent of their income just to pay for utilities, likely led Carrió to take action and ask for a report.

Namely, Carrió wants to know if the “regulating entities are controlling, and how, that energy companies properly implement these increases.” Among other things, she also wants to know what percentage of the national budget is currently being used for energy subsidies.

The near future does not look auspicious for the government either. April’s inflation rate is likely to be as high as the ones from the previous months, caused by the increases in gas bills, public transport and fuel. However, Cambiemos officials still hope that these will be the last substantial increases in several months, and trust this will drive inflation down.

Nonetheless, if this does not happen, Central Bank Governor Federico Sturzenegger has indicated that interest rates will be going back up in order to meet the 15 percent target set for this year. “Our scenario is an annual inflation rate of 15 percent. If that scenario isn’t met we have to what we have to do, which in this case is to increase the interest rate,” said Sturzenegger at a press conference yesterday.

Central Bank President (second from right) at yesterday's press conference. (Télam / José Fernández)
Central Bank President (second from right) at yesterday’s press conference. (Télam / José Fernández)

 

The Central Bank last cut benchmark interest rates in January of this year, leaving them at 27.25 percent after two cuts in quick succession. The adjustments were on the cards since the government adjusted its inflation targets for the coming years in late December 2018.

By the same token, the Central Bank authorities expressed enthusiasm that the projected price increases that are yet to kick in for 2018 are comparatively lower than in 2017 and 2016.

The following months will tell if the government is able to meet their – adjusted – predictions.