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Fernández wants to be Kirchner, but might need to be Duhalde

Salaries are already low, and pressure piles up for a new unpopular devaluation

By | [email protected] | November 6, 2020 10:42am

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Although his phone number is still the same of his days as an ally of former president Eduardo Duhalde, Alberto Fernández believes his destiny is to re-enact Néstor Kirchner’s presidency. Ten months since inauguration, he cannot hide the nostalgia of being part of that first Kirchnerite government in 2003-2007, all years of economic recovery.

This was evident in his tears during the presentation of “Néstor, the man who changed everything”, a book launched for the tenth anniversary of Kirchner’s death, which took place last Tuesday. But Fernández’s belief in re-enacting 2003 is even more evident in how he struggles to understand the kind of leadership that this historical moment requires, with more problems ahead of him than when he took office as Kirchner’s cabinet chief.

From optimism to weakness

The run against the peso is not only exposing the fragility of the Central Bank, but also the differences within the ruling coalition, as well as the weakness of the government before its rivals in society at large and the business sector in particular.

The financial crisis got worse when the government was feeling its most optimistic after its debt restructuring agreement. Only a month after 99 percent of bonds were accepted into Argentina’s debt restructuring proposal, its value has plunged back into near-default levels, the gap between the multiple values of the peso keeps widening and robbing the Central Bank of its reserves has become the national sport.

Importers overbill to get hold of as many cheap US dollars as possible. Businessmen who believed in Macri’s model try to cancel the USD-denominated debt their adventurously raised at a subsidized rate. Even the government’s business allies, who say they are investing, are actually only claiming they need foreign machinery that’s worth half what they say, in order to get twice the dollars they cost.

On the exporting side of things, things are similar. “With this gap between the official and the black-market exchange rate, no grain producer will be looking to sell, even if the government cuts taxes on exports,” the opposition argues, while the government waits for soybean crushers to chip in with some help.

While economically everyone is trying to run from the peso, politically things look even more worrying, due to the lack of virtuous ways out of the crisis currently being considered by the President. Economic reforms seem only aimed at enduring a little longer, and the possibility of name changes in the cabinet would not solve the underlying issues either.

If voters of the ruling coalition are growing increasingly uncertain about a crisis that seems unstoppable, its detractors see the government as completely lost. More controls on foreign currency exchange, making multiple exchange rates official, accepting a strong devaluation and even moving into an orthodox austerity program backed by the IMF are all part of the broad and contradictory menu that economists are debating as responses to the crisis, while they make bets and defend the sectors they are closer to. The average Argentine, meanwhile, sees its personal economy become more precarious with each passing day and its purchasing power continuously decline.

Low salaries, but big dollar gap

With the devaluations the country has seen since 2018, Argentina is now among the countries with the lowest minimum wage in the region, according to data from the Eco Go consultancy agency. At USD 219 per month, the country’s minimum wage is now below Chile’s USD 416, Ecuadro’s USD 400, Uruguay’s USD 383, Paraguay’s USD 313, Bolivia’s USD 307, Peru’s USD 260, and Colombia’s USD228. Only Mexico and Brasil (and obviously Venezuela) are lower.

All this is measured at the country’s official exchange rate, but the growing gap between that and the black and grey-market rates is adding pressure for further devaluation, which would deteriorate incomes even further. Even businessmen close to Alberto Fernández are comparing the current situation to that of 2001-2002, when Argentina got out of the crisis with a brutal depreciation of the peso, from 1 to 1 to 4 to 1. “Alberto wants to be (Néstor) Kirchner, but he might need to be (Eduardo) Duhalde”, they say.

For whatever reason, be it the adversity of the pandemic, the inheritance of Macri, the role of Cristina Kirchner, the blows delivered by the market or the underestimation of problems, the President is being simultaneously criticized from camps that look irreconcilable. Sworn enemies like his Vice President and Clarín’s CEO Héctor Magnetto expected different things from Fernández and now look at him as if he’s condemned to be a mere transitional president, with very little on his horizon before an end whose shape is yet to be determined.

For some, things will end like in Venezuela, not so much due to its propensity to nationalize things, or for the loss of republican institutions, as Argentina’s right-wing fears, but due to what happened in the Caribbean country since the gap between its multiple exchange rates started to broaden. Venezuela’s macroeconomic figures started to deteriorate in 2007, and endured years of broadening exchange rate gaps until inflation exploded in 2015. They counted on PDVSA’s petrodollars to try to keep the gap in check, while Argenina depends on those of big cereal exporters.

If the scenario envisioned by the market catastrophists finally takes place with a new large devaluation, then Peronism will have to re-validate its historic credentials as the political force capable of reconciling sectors at conflict and make Argentina’s more business-friendly trade unions accept a new loss of purchasing power.

Names from the past

Although Fernández dreams of calling the (possibly retired) former economic minister Roberto Lavagna into his team, a name that is coming back to the fore is that of his predecessor, Jorge Remes Lenicov, Eduardo Duhalde’s first economy minister after taking over in January 2002. Remes gave an interesting interview to Mariano Otalora, in which he recounted his four-month stint at the helm, in which he accepted a 300 percent devaluation and put to bed the collapsing 1 peso-1 dollar convertibility in just 45 days.

Remes recounts how his team, made of Jorge Todesca, Oscar Lamberto, Mario Blejer, Aldo Pignanelli, Lisandro Barry and Jorge Sarghini, had no internal divisions and had been studying an economic alternative since 1999, when Duhalde lost the presidential elections to Fernando De la Rúa by campaigning against the 1-1 currency parity. “We were part of a political group that had been working for three years, we took risks and no one speculated about the personal consequences for us. When we left, we had a lot of critics, but as time passed people understood and accepted what we did. First, political leaders understood that we had to make some tough decisions but that there was no way to avoid them. And in the last 10 years, we are even popular with the common man. People stop me in the street, say hello and ask me when I’ll be back.” A few months after Remes Lenicov’s exit, Argentina’s was growing –albeit with very low salaries– and nearly USD 20 billion that had flown out of the system were invested back into the real economy.

Remes Lenicov –who retired young and now teaches and speaks in conferences–  is ambivalent towards the role of politicians: although he is critical of them, he sees them as the only possible conduit to solve a structural crisis. The minster that pesified Argentina’s economy (and its debts and dollar deposits) says that “political leaders lack economic analysis” and that they only “react when the cracks come”, when “they are on the edge of the abyss”. “It is a mixture of arrogance and ignorance. Priority number one is winning, and the rest comes later. And the campaign promises create an idea of economics among the population that borders the miraculous.” Remes had to play the part of the martyr in Duhalde’s economy, and has stopped commenting on current affairs since he argues he is not studying an economic alternative, as he was at that moment. “The only thing I can say is that if we managed to do what we did, it was thanks to the political agreement between (Peronist leader) Duhalde and (Radical leader) Alfonsín. From there, we added farmers, industrialists and unions. Today we are also in a complex situation and, with no political agreement that includes social and economic sectors, the solution will be traumatic,” he says. His last words focus on how power has to be handled: “if you are the government, you need to govern, especially at a critical juncture. The Economy Ministry needs to concentrate power and not divide it in parts, it has to work side by side with the Central Bank and stop fooling around with divisions.” It is advice that Fernández could listen to if he doesn’t want to repeat the worst parts of history.

(Spanish version originally published in El Canciller)