Last week wasn’t easy for President-on-her-way-out Cristina Fernández de Kirchner. On the political front, she treated us with deafening silence following her candidate’s poor performances in the general election. But on the economic front, her government was not so quiet.
Remember how Argentina’s reserves, or how much foreign currency the Central Bank holds, has been creeping lower despite foreign currency controls? Last week the Central Bank (BCRA) and National Insurance Regulator jumped back in to keep the country from running out of money for just a little while longer.
First, the BCRA raised interest rates by 3 percent, the highest in 18 months, to try to make holding pesos more attractive. Shockingly, not many people rushed to buy peso notes. The government sold AR$11.3 billion, 5 percent less than the previous week, despite the higher rate.
Next, the Insurance Regulator passed a new law forbidding insurance companies from holding dollar assets in excess of their dollar contracts. English translation: Insurance companies whose clients are in Argentina and thus likely have peso-denominated policies cannot hold dollars even though the peso is likely to depreciate before these policies are paid. Not good news for the peso policy holder.
Importers received informal calls from their banks informing them that the automatically approved amount they are permitted to pay providers was cut in half, from US$150,000 to US$75,000. While that might seem like a reasonable number, please be advised that you can’t buy very many car parts, air conditioner blades or other industrial input with US$75,000. This adds to the US$9.5 billion (that’s right, billion) that the Central Bank is already in debt to importers. Commerce Ministry Sub-Secretary Paula Español reportedly told importers to:
“take it up with the next government — we’re on our way out”
Airlines received similar happy news via informal third-party channels that their permitted dollar purchases were cut in half, effective immediately. This cuts their access to dollars down to about one third of what it was at the end of July and forced airlines to restrict purchases of tickets in advance of 60 or 90 days. La Nación confirmed that American Airlines ended promotional fares in Argentina and will no longer sell tickets more than 90 days in advance. LAN also cut promotional fares on international flights.
These measures do more harm than good. Officially or nominally, Argentina’s reserves stand at US$27 billion, the lowest they’ve been since 2006. The actual usable number is estimated to be around the US$6.7 billion mark. By the end of the year, that number will be even lower at around US$3.5 billion.
This election season has been rife with accusations that any opposition to Kirchner’s brand of Peronism secretly wants to return to the neoliberalism of the accursed ’90s that left Argentina broken and her people poor. What people seem to be forgetting is that the crisis of 2001 didn’t appear out of thin air. And pointing the finger at “neoliberalism” and “markets” (which it appears many see as synonymous with “vultures” for some odd reason) neglects one big glaring economic error — and his name isn’t Menem. It’s pretending for a very long time that AR$1 equalled US$1. Pretending AR$10 equals US$1 is along the same lines of unsustainable and dangerous.
Argentina’s painful situation that laid the groundwork for Kirchner’s rise to power rose out of a situation wherein the government propagated an economic lie. And then they ran out of money. Running out of money doesn’t care if you’re a socialist or neoliberal.
Cristina Fernández de Kirchner claims to have put in place policies that have raised people out of poverty and improved living standards of previously marginalized populations. For the sake of argument, let’s agree she has. If there’s no money to pay for them, these policies are a ticking time bomb in the pockets the country’s most vulnerable citizens, who depend on ANSES, the universal child allowance, precios cuidados price controls on basic goods, utility subsidies, etc. to survive every day.
Kirchnerism has not left an economic “model” to continue — it has left a laundry list of expensive programs. The list above contains some that indeed improve the situation of the nation’s poor. Others, such as Futbol Para Todos, which broadcasts soccer matches alongside government propaganda for free, are a laughable waste of public funds and should insult anyone with a brain. Add to the list the undesirable consequences of high inflation, currency controls, no imports, fewer jobs in the private sector, electricity outages, etc. and the idea of calling Kirchnerism a model to continue deteriorates further.
The few days leading up to November 22nd’s runoff will be politically noisy, but also economically interesting. The upcoming debate on November 15th between Kirchner’s candidate Daniel Scioli and opposition candidate Mauricio Macri should force both men to directly address their plans for Argentina’s economy. In the background, the government will attempt to keep the problems at bay until they leave in December — and possibly grab what they can on their way out the door.
Members of the opposition PRO party have initiated criminal charges against Central Bank President Alejandro Vanoli for fraud in the administration of public funds. The BCRA has sold futures contracts worth US$15 billion dollars at the official rate of 10 ARS/USD that come due in December, all to large companies well-connected to the outgoing government. If the official rate is adjusted to a more realistic 15 ARS/USD before these contracts come due, the new government will have to pay a considerably higher amount. I’d draw parallels with the so-called “vulture” funds right about now.
The most disappointing element of the political debate is that when faced with information similar to that contained in this article, supporters of Cristina Fernández de Kirchner defend in one of three ways:
- Macri is “market friendly” and will take us “back to the 90s” and crash the country
- Macri is corrupt and steals too
- Macri will erode the social gains (marriage equality, etc) that developed under this government
Note the absence of economic reasoning defending Kirchnerism as a whole as a sustainable model.