Sunday, August 7, 2022

Argentina is caught in a maze of economic crises and political disputes

Cristina Fernandez de Kirchner with Alberto Fernandez during an event in December 2021.Marcos Brindiecki (Getty Images)

Peronists this Friday celebrated the 48th anniversary of the death of the movement’s founder, Juan Domingo Perón. And he did it separately. On the one hand, the president, Alberto Fernández, sat in front of union leaders and ministers at the headquarters of the General Confederation of Labor, CGT, in Buenos Aires, a 1940s building that is a synthesis of Peronism. On the other hand, Vice President Cristina Fernández de Kirchner, who organized her rally for this Saturday in the industrial suburbs of the Argentine capital, her electoral stronghold. The picture of the fracture, which is not new, is the political epilogue of a week in which Argentina’s economy went through peaks of unprecedented tension: the president denounced a “market coup” that decimated the peso’s value against the dollar in the market. The value of Argentina’s debt bonds on the informal and international markets further plummeted.

On Monday, the Central Bank ordered a ban on access to the dollar to pay for imports. It was a corset forced by the need for reserves to cover the rising price of gas and diesel purchases abroad. Argentina is going through a deadly combination of winter and post-pandemic reactivation and increased imported volumes due to international energy prices. The account has skyrocketed and the center does not have enough dollars to settle the account. “In June, 2,000 million dollars of energy was imported and in May 1,800,” says Argentine Central Bank director Agustin d’Atelis. “When the year started we had an estimate of $6,000 million in payments that matched the needs of the economy. But with prices skyrocketing, the product of the war in Ukraine, they were $6,000 million. Today we have $2,000 on energy. million more,” he explains.

The measures announced by the Central Bank on Monday are intended to extend the period for importers to reach the dollar at 125 pesos today from 90 to 180 days at the official price. “We told companies to watch out for that extra time,” says D’Atelis. The savings involved in delaying the delivery of dollars to importers would make it possible to pay energy bills and add reserves according to government calculations. This week alone, the issuing bank bought $1,530 million in the market, which it added to international reserves. “This allowed us to meet the objective of accumulating the reserves committed to the IMF at the end of June,” says D’Atelis, in the refinancing of the loan signed in January. The director of the central bank also said that the government complied with the target of reduction in fiscal deficit and agreed on monetary issue in the second quarter.

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The week, however, was getting dizzy. On Tuesday, Argentina’s Treasury had to refinance maturity in private hands for 258,000 million pesos (about $2,000 million at the official exchange rate), and rumors spread that no bank would be willing to renew its bonds. The objective was, in the end, achieved, but the government had to pay rates of 60% per annum, while 85% of the new loans were contracted by 2022 with much shorter maturities. “It was a very stressful day,” admitted the director of the Central Bank, which accused opposition economists of encouraging the specter of a default on loans in pesos. There was a race against the title in peso which insisted that renewal was needed”, said D’Atelis. It was in this context that President Alberto Fernández spoke of an attempted “market coup”.

It so happens that there is not much room for creativity in economic policy. Last January, Argentina pledged to the IMF to reduce its fiscal deficit, hoarding reserves and, above all, inflation until equilibrium is reached in 2024. Damien de Pace, economic advisor and director of Focus Markets, says the deal, which has given a confidence blow to Argentina’s economy, has been of little use. “It failed to address the uncertainty in the markets. Neither the agreement with the IMF this year nor with the private creditors in September 2020. Those are the same reasons you needed to defer payment,” he says.

The value of Argentine bonds is an example of this. “The 10-year bond has a yield of 48% [con respecto al 100% de su valor nominal] And the people of Ukraine, who are at war, have 37%. Argentina risks a country at war,” he says. “Argentina did not manage to support refinancing with a strong balance of its macroeconomic picture. It is like going to the bank and asking them to postpone your credit card payments and continue spending. The bank doesn’t trust you anymore. and the rate goes up”, argues de Pace.

Meanwhile, year-on-year inflation is already above 60%, with the forecast for December comfortably above 70%. For the director of the Central Bank, the war in Ukraine is behind this increase, above the 45% that technicians estimated in January. “There are two mechanisms of influence. One is due to the price of energy, because we are importers and this affects us in dollar accumulation. In the case of food, although we are exporters, there is a shift in prices from companies selling abroad. is”, says D’Atelis.

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Viewed this way, Argentina’s underlying problem is not much different from other countries, which today see an increase in their CPI measurement, albeit on a lesser scale. We then return to the acts to commemorate the death of Perón, evidence of the fractures that today divide Albertists by Alberto Fernández, and Kirchnerists by Christina Kirchner.

Since Argentina signed the deal with the IMF, Kirchner, his minister, and the party representing him, La Campora, have become antagonistic within the government. The fighting is becoming increasingly public and fierce. This week, one of La Campora’s leaders, Andrés Larroque, warned President Fernández that “the liberal phase is over.” Argentine politicians are already in an election key and there is growing operative clamor for Christina Kirchner to be the presidential candidate.

Cross-attacks at the top of power do little more than add noise to official efforts to put the economy in order. D’Atelis himself admits to the Central Bank’s board of directors that the traders with whom he speaks bring up internal conflicts in every conversation. “Crossings between space contexts themselves generate noise and part of the job is to communicate to key economic actors that they are rigid, typical of economic policy,” he says. For de Pace, fights only make things worse. “Alberto Fernandez Said You Can’t Live With Perpetual Fiscal Deficit; The Next Day, Opposition Within Ruling [el kirchnerismo] It was necessary to raise the minimum wage, which determines the value of all pension and social assistance schemes,” he complains.

Hopes of a truce between Fernandez and Kirchner are fading away. The president’s binomial is attacked in public acts whenever possible. It was the Speaker this Friday who told CGT Headquarters that “power does not come from seeing who has the pen”. [para firmar decretos oficiales], but to see who has the ability to explain”. Christina Kirchner’s reaction will come this Saturday.

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