Forget about the electoral campaign, if only for a minute.
Argentina’s economy is on the verge. On Wednesday, as if
it were playing economic TEG, Bloomberg published a
score card of emerging economies that, from red to green,
ordered emerging markets according to their vulnerability in the
event of another Turkey-triggered panic attack. Among 20 economies, Argentina ranked the most fragile. Coincidence or not, over the subsequent 48 hours the
peso was under pressure again, hitting a fiveweek low and sending shivers down the spines
of the government’s campaign managers, whose main (and only?) source of good news is the
foreign exchange stability the administration
has attained over the next two months.
The country is voting in two weeks and exchange rate instability is the last thing President Mauricio Macri needs in his bid for reelection. Is his aspiration, at this point, part of
the economic problem itself? Except for a handful of exceptions, most polls show on average
that his main contender, former Cabinet Chief
and Frente por Todos candidate Alberto Fernández, will win the August 11 presidential primary. An average of all studies circulating in the corridors of power show him
3.7 percentage points ahead (40.6 percent for Fernández versus
Macri’s 36.9 percent). However, if this result were confirmed, it
would be good news for the president’s hopes of coming back in
October – or more accurately, in an eventual second round in
November. A wider margin, one placing Fernández close to the
45-percent magic number needed for a first-round victory, would
be bad news for the government and its supporters in the financial markets.
This uncertainty is only a scale model of what the medium-term
future has in store for Argentina, come what may in the presidential vote. Whoever wins, Macri or Fernández will face a sombre
economic picture when either of them begins a new term on
December 10. The Bloomberg report detailed the country’s standing vis-à-vis the current account balance (minus two percent of
GDP), maturity of short-term external debt (40.5 percent of GDP),
foreign reserves coverage to pay that debt (85.9
percent), government effectiveness as measured by the World Bank (0.16 in a range that goes
from very bad at minus 2.5 to very good at positive 2.5), and inflation deviation from its annual target (plus 35.8 percent in the first quarter
In this context, the mere fact that the country
is holding a general election campaign in fairly
civilised terms speaks well of Argentina’s democracy. Last year, Treasury Ministry Nicolás
Dujovne said, with an unexpected show of honesty, that no government had ever materialised
a fiscal adjustment as sharp as Macri’s without
being kicked out of office. Moreover, the country is now on its second year of recession and
– according to a projection published this week by the firm Ecolatina – Macri will complete his term in December having accumulated, in four years, inflation of 250 percent, utility rates increases of 550 percent, a price of the peso against the US dollar
that is up 400 percent and real wages that are down 14.3 percent.
And still, with all that, Macri will be the first non-Peronist to
complete an elected term in Argentina since 1928.
From a historic point of view, Argentina’s present political life
is plagued with such historical anomalies. But it will need more
– and better ones – in the immediate future. For example, the terms
of exchange between the two rivalling factions in the presidential
race will have to improve if the country is to tackle the economic
difficulties it will be facing in the next term in office. Argentina’s
stubbornly high credit risk rating (around 800 basis points, which
is three times the region’s average) is directly associated with
doubts over Argentina’s ability to repay its foreign debt of US$17
billion due in 2020, US$20 billion in 2021, US$40 billion in 2022
and US$35 billion in 2023, when the next presidential term ends.
It is by now a fact that this will require a continuation of the relationship with the International Monetary Fund (IMF) via an
Extended Fund Facility (EFF), which would be difficult to achieve and sustain without some basic political consensus at home.
This tough reality is the one that inspired such odd pre-electoral political moves, such as Cristina Fernández de Kirchner’s
decision to step down from the presidential candidacy and President Macri’s move to appoint the all-terrain Peronist Miguel
Ángel Pichetto as his running-mate. Those decisions were lucid,
but their political effects still need to materialise beyond shortterm electoral gain.
Whoever wins, Alberto Fernández and Pichetto will be tasked
with establishing cross-party bridges as soon as they take office.
And they’d better not burn those bridges before they even get a
chance to build them – it’s always easy to get carried away during