08 | DIC | 2019
Macrisis: Kirchnerism is back after the new economic failure in Argentina
Argentina's President Mauricio Macri - Photo: Ueslei Marcelino/REUTERS

Macrisis: Kirchnerism is back after the new economic failure in Argentina

23/08/2019
18:01
Gabriel Moyssen
Mexico City
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In spite of his promises and personal success as a businessman, Argentinian President Mauricio Macri was incapable of overcoming the old problems of the Argentinian economy

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People are using a new word—Macrisis—from the upscale Recoleta neighborhood to the Villa 21-24 slum in Buenos Aires, and they held responsible Argentinian President Mauricio Macri for the economic failure in the country during the primary elections, which almost destroyed his expectations of remaining in office four more years.

On August 11, the conservative Macri and his running mate Miguel Ángel Pichetto of the Together for Change coalition were heavily defeated 47.7%-32.1% by Alberto Fernández and former president Cristina Fernández de Kirchner—this time as vice-presidential candidate—of Everyone’s Front in the Simultaneous and Mandatory Open Primaries (PASO), considered a test for general elections on October 27.
 

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In view of her overwhelming victory, politicians and markets are preparing for Fernández de Kirchner’s return to power; the question is whether the experienced Peronist leader is able to avoid a major crisis or the South American nation would plunge into a new collapse, similar to the one suffered in 2001.

In spite of his promises and personal success as a businessman, Macri was incapable of overcoming the old problems of the Argentinian economy, still dependent on the commodities cycle.
 

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After he took office on December 2015, accusing center-left Fernández de Kirchner of corruption and transforming Argentina in the new Venezuela,” at least two million people have fallen below the poverty line, jumping from 29% to 35% of the total population (more than 44 million).

Foreign debt has more than doubled and inflationthe third-highest in the world after Venezuela and Zimbabwe—hit over 54% over the last 12 months.

Short-term interest rates have shot up to 75% from 32%, while the central bank wasted more than USD $16 billion in unsuccessful attempts to keep the peso falling (the Argentinian currency ended last week more than 17.5% weaker than the dollar, rising to 55 versus the greenback).

Under these deteriorating conditions, even financial circles in New York and London are surprised by the overreaction of the market following electoral results.

Last week, savers in Argentina pulled more than USD $700 million from their dollar-denominated accounts, a figure equivalent to 2.3% of total dollar deposits in the financial system.

Macri’s response so far has been VAT elimination on some basic food products, including bread, sugar, and milk until the end of 2019. Hernán Lacunza, who was acting as economy minister for the province of Buenos Aires, replaced Nicolás Dujovne as finance minister over the weekend.

Dujovne, a neoliberal economist and former TV host obsessed with reduction of the primary fiscal deficit, was the architect of a USD $57 billion loanthe largest International Monetary Fund bailout in history—which marked last year the return to the “structural adjustment” era of IMF’s supervision of the country.

The main goal of the “assistance package” was to restore investor confidence through tighter fiscal and monetary policy. However, the recessive trend and the severe impact of drought in the agricultural output slowed the economy.
 

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The phantom of debt default

Also last week, Fitch Ratings and S&P Global downgraded Argentina’s debt further, raising fears over a sovereign debt default. The cost of insuring Argentinian debt via a five-year Credit Default Swap (CDS) rocketed 319 basis points. A CDS is a financial deal that the seller of the CDS will compensate the buyer in the event of a debt moratorium.

With all eyes on the risk of default, repeating the story of 2001 and 2014, Alberto Fernández told La Nación, member of the Grupo de Diarios América along with EL UNIVERSAL and other regional newspapers that the IMF bailout needs to be reviewed because Argentina is not meeting the targets it agreed upon.

He stressed that it is impossibleto repay the IMF on time and that the only solution is to reschedule payments.

A former Cabinet chief (2003-2008), Fernández stated in separate interviews that Buenos Aires already finds itself in default conditions, as signaled by bond prices. He called Macri to behave “as a president and not as a candidate,” renegotiating the “harmfulterms of the IMF credit line.

Fernández warned that there is a risk of higher inflation, and said that as a leader he would put heavy emphasis on boosting exports in order to earn dollars that can pay down debt, adding that the country needs to maintain social calm.

According to the Movement of Excluded Workers and the Catholic church, the only reason Argentina has not descended into the turmoil and supermarket lootings that symbolized the crisis 20 years ago is due to the social aid plans put into place by the government.

Argentina recovered during the governments of Néstor Kirchner (2003-2007) and his wife Cristina (2007-2015). The former president, who died in 2010, set the stage for a decline of 71% in poverty and an 81% decline in extreme poverty, while GDP per person grew by 42%, almost three times the rate of Mexico.

Economic development lost steam in the last few years of Fernández de Kirchner’s presidency. Distanced from the unconditional alliance with the United States and promoting with Brazil and Venezuela the regional blocs Mercosur and Unasur, Argentina found growing hostility from the Obama administration.

A questionable and political 2012 ruling by a U.S. federal took the majority of Argentina’s creditors hostage for force payment to a group of “vulture funds” that refused to join the debt agreement of the early 2000s. Washington also blocked loans from the Inter-American Development Bank and other lenders.

Long associated with the military dictatorships and the cruel “dirty war” launched against the opposition and leftist guerrilla from the 1970-1980s, nevertheless, Macri’s economic disaster and his incapacity to build a viable conservative coalition laid the ground for the triumph of Kirchnerism.

Preparing for the primary elections, Fernández de Kirchner won the crucial support of former ally and Cabinet chief Sergio Massa, a Renewal Front moderate candidate who came in third with 21% of the vote in the 2015 presidential elections and has secured his position as speaker of the next lower chamber of Congress.

Regarding foreign affairs, as in the field of economic growth, Peronist leaders would face difficult times once in power.

Alarmed by the possible return of the progressivepink tide in Latin America, the far-right government of Jair Bolsonaro in Brazil threatened its third-largest trading partner with radical measures if Macri is defeated again in October.

The influential Brazilian Economy minister Paulo Guedes declared that his country “cannot hang up on the crisis in Argentina. Of course, Mercosur is a vehicle for Brazil’s integration into international trade. But what if Kirchner wants to come and close their economy? If Cristina takes office and closes the economy, we leave Mercosur.”

For his part, Bolsonaro has said that a victory of the Everyone’s Front could unleash a wave of Argentinian migration to Brazil.

Editing by Sofía Danis
More by Gabriel Moyssen

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